Indirect low value spend categories: real life example with tips (office supplies)

Another subject, that I have recently dealt with, was office supplies. One of those categories, which is usually left unnoticed, when things go great; but the moment the tiniest thing changes or is missing (for instance, stapler. Can you imagine, how bad it is to come to an office supplies cupboard, and to find black (!!!) stapler instead of blue! Outrageous!!! I am joking, of course. Or am I?), all the hell brakes lose.

Imagine you have 20 locations across Europe. Do you think that makes you a very attractive customer for stationery supplier? Think more. Let’s say, overall annual spend is €200k (for all of those twenty or twenty-many locations). Do you think it makes it worth a while investing quite expensive purchasing manager’s time to negotiate tiniest price of tiniest item? Think even more. Did you think, that finding biggest spend item and negotiating only the price of that one item will bring your spend down while not investing too much time and resource into managing the category itself? Warmer, but not yet to the point. Think again.

Huge part of indirect, very small and scattered category TCO costs is administration costs. Every PO you raise (and that is also goods reeiving, invoice processing), without going into too many details, can cost your company anywhere from €150 to €250. If the order value is up to 250 Eur – your administration costs are 100% of the value of goods. How much did you say you negotiated off the price? Let’s say, you order stationery once a week. That is, let’s assume, deducting all holidays and human factors, 40 times a year. Say, with average costs of 200 Eur per PO, you will end up facing 8000 Eur of administrative costs per year. And that is – per each location! 160 000 Eur!!! If you still remember, the cost of goods being €200k.

To keep this all post Friday-short and considering the value of it to the company, here is the short list of things to keep in mind, dealing with stationery:

  • Consider alternative options at all: company stops buying stationery at all, sets “stationery supplement” and pays it out to staff for them to manage it according to their own judgement. This is also a very “green” and “lean” alternative. Many times people print even if they do not desperately need only because they can. People tend not to care much about the property that is “not theirs”. You can change it.
  • Item list. Not longer than 100 items. Or shorter, if possible.
  • Demand management – approved standardised items, budgets.
  • Cost optimization: inventory management; minimum order values.
  • Automation: web-shops, punch-out catalogues, invoice flips, direct invoice injection.

Not everything is as straightforward in procurement as you could think. Please, do drop me a line for more specific thoughts, benchmarking clues – will be more than happy to share my insights – with no charges involved.

Indirect low value spend categories: real life example with tips (office supplies)

Negotiations tip: what is the real bottom line value of a piece of equipment?

This comes from a very recent experience. We all do (fingers crossed) proper homework when buying an expensive piece of equipment. However, sometimes, since it usually is a very ad-hoc unit, finding reference points is difficult.

What I have learnt recently – the supplier himself can be a very good reference point. Very short and simple tip: while negotiating, discuss a “buy-back” price. Ask them: if the product is not successful in the market and we would need to sell the kit, would you be interested in buying it back? For how much? Their answer is your benchmark. Everything else – “expected monetary value” – is a profit that a business could have if they would use the piece of equipment and all other supply chain parts would work well (incoming goods, operations, sales).

Hope you can use this! This definitely goes on my future question list for Capex negotiations.

Negotiations tip: what is the real bottom line value of a piece of equipment?