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.

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

Toilet Paper Test. With results

toilet paper

Albert Einstein once said: “if you cannot explain it simply, you don’t understand it well enough”. And I so much believe it! Life is simple, procurement is simple – unless people ruin it by bringing in all that unnecessary complexity… I will keep this post short and simple too for few reasons:

  1. It is simple.
  2. I did not like the results of my experiment (yup, it is always easier to write about “revelations”, “scandals”, “NEWS!!!” – especially in a bad context. And this time it is not the case. Well, not entirely.).

I have to admit I have a professional disease. I like to know, how efficiently organizations are managing their spend. Especially public ones. And it is definitely not something they are willing to share openly with anyone that opens reception door. However, there are signs to look out for, which give insights very quickly and easy. I call it toilet paper test.

So here it goes: every time I go to any public toilet (GP, airport, schools), I check few things: paper dispensers and the paper itself (or, of course, different technologies – air blades). It is very easy to distinguish between cheap simple paper and a very expensive, printed fancy paper. That simple thing can show you, whether or not a school or GP are potentially overspending up to 30% for this category. And, if they are not working on cost reductions (or over-specification elimination) in this category – what makes you think they work better in other areas?

A week ago (OK, a month ago) I was reading a description of difference between good and bad scientist. And one of the points was saying, that good scientists are ready to accept any results of their experiments: despite the anticipations they had. So here it goes…

I have checked ten schools and three GPs. I have the names written down – should anyone would be after details. I was expecting to see that expensive paper everywhere (or at least in most places). And my assumptions were wrong. The results showed, that only two organizations had very expensive backsides. Eight organizations were using “average” products and three of the list were using “lowest specifications” paper. I (we) should be happy! Yay.

However, then I remembered another exercise that I did about uniforms The Emperor’s new clothes. Or what does it take to become efficient in procurement. Does it mean, that when it comes to their own money, people (organizations) are managing it quite properly, but when it becomes an opportunity to make decisions about “someone else’s” money,  all the logic goes away? Once again – universities and experience can give you tools and knowledge. But none of them can give you the right attitude (and the importance of it is shortly covered here: Dark Matter in Procurement?)

Toilet Paper Test. With results