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If this company takes the method of reducing the procurement cost of 50 yuan to 49 yuan, then a 2% purchase cost saving can also increase the profit margin by 10%. In this example, the 2% reduction in procurement costs and the 10% increase in sales on net profit before tax are reflected in the same effect. However, increasing sales requires 5 times more effort to reduce procurement costs, and the higher the proportion of procurement costs to the total sales, the more obvious the proportion of the two:
sales: ￥100
production cost: procurement ￥49/other ￥40
pre-tax profit: ￥11
How to calculate cost reduction
cost reduction includes analyzing current products, services, contracts, manufacturing procedures, etc. to decide whether there are any possible changes that can reduce costs. All payment portions that are reduced from the previous one can be considered as cost reduction.
There are several simple calculation methods:
1. The amount of unit price reduction = original unit price - new unit price
2. Cost reduction = (original unit price - new unit price) x Quantity of purchase at one time (or annual purchase volume)
3. The difference between cost reduction and expected target = Actual cost reduction amount (per unit or year) - Estimated cost reduction amount (per unit or year)
If a company purchases a certain model of screws this year is only 5.8 yuan per screw, and the total annual purchase volume is 10 million. However, the purchase price per thousand pieces of the previous year was 6.0 yuan, so we can get the company's savings of 0.2 yuan per thousand pieces of screws per thousand pieces, and the total cost reduction is 2,000 yuan per thousand pieces (0.2 yuan/10,000 X10,000 thousand pieces).
is relatively cost-reduced. Another concept that is more easily confused is cost avoidance. Sometimes, price increases are not something that the purchasing personnel can control. In order to avoid the company's impact on materials or suppliers' future price increases, procurement can take some measures, such as signing a price guarantee contract; reserve more inventory before price increases, etc.
As for whether this practice is included in the scope of cost reduction, each company's practices and opinions vary.
Method to reduce procurement costs
cost reduction can be implemented in many aspects. However, while reducing costs, it is necessary to understand that the main purpose of cost reduction is to find and reduce unnecessary cost parts, and to make the most effective allocation and utilization of costs without affecting product quality. Any decision that goes against this principle is worthy of careful consideration.
Centralized Purchasing is one of the most effective ways to reduce costs.
gathers the needs of each department, and the purchasing unit can use a larger purchase volume as a weight to get a better quantity discount price. After the specifications are standardized, the preferential prices of supplier standard products can be obtained, and the inventory volume can be relatively reduced. In this way, the expenditure on administrative expenses will also be reduced due to unified procurement operations, and the procurement department can have more time to spend resources on developing new suppliers.
However, centralized procurement may give people a sense of rigidity and inelasticity.
Therefore, another relatively compromise method is to integrate all procurement quantities by the unit with the most used quantity and be responsible for leading procurement bargaining.
In addition to having the same quantity advantages as centralized procurement, it can also promote close cooperation between the procurement department and the use department and fully grasp the needs of the use department. Other product committees composed of representatives of relevant departments; joint procurement; long-term contracts and total demand contracts required for the life cycle of procurement products, etc., can be used interactively.
Utilization value analysis is also one of the important methods to reduce costs.
simplifies product design and reduces production costs; use alternative materials and corresponding production procedures. In addition, the purpose of reducing costs can be achieved by adopting suppliers that provide better payment terms; purchasing secondary equipment; using different bargaining techniques; choosing a transportation company with price advantages or considering changing transportation methods. Of course, other influencing factors such as sufficient delivery time must be confirmed in advance and comprehensive decisions must be made.
job-oriented costing method is another way to control costs.
This has been popular in Xerox and HP in the United States for many years. Indirect costs can be configured correctly according to the time spent on a certain product, which is different from the traditional practice of sharing indirect costs evenly. It allows management to clearly understand the situation of indirect cost allocation and easily analyze whether the cost allocation is reasonable. However, excessive detailed analysis may also lead to bulls, and the more you want to fully control the situation, the less you can focus on it. Therefore, it is absolutely necessary to conduct some analysis appropriately to find out where the key costs lies.
In addition, high-risk procurement strategies can be used, such as commodity futures operations, and speculative procurement of materials that exceed current or future demands to strive for price advantages.
Basically, any means that can save costs should be the object worth considering in procurement, but it must be reasonable, and more legal, which is conducive to the partnership of suppliers. As for which method mentioned above should be used first and which method is better, purchasing personnel need to use their professional skills and work experience to make comprehensive judgments and flexibly use them.
How to make the correct inquiry
"Request for Quotation" is a necessary stage for purchasing personnel in their operating process.
After receiving a purchase requisition and understanding the current inventory status and procurement budget, the most direct reflection is to contact the supplier immediately. If this is a normal procurement, the form of demand belongs to standard parts, and there will be no problem for suppliers.
However, when developing new products, for those parts that do not belong to the standard products, you must pay special attention to whether there are sufficient information from suppliers to facilitate their quotation operations when inquiring. In order to avoid the future of the purchaser and suppliers' different words and differences in quality awareness, we must not be careless in preparing the information that should be provided during inquiry. Because complete and correct inquiry documents can help suppliers make correct and effective quotes in the shortest time.
A complete inquiry file should at least consider including the following major parts.
1. "Product Name" and "material number"
First of all, the "Product Name" and "material number" of the inquiry project are the most basic information that should be compared on the inquiry form. Suppliers must know how to call the quoted product, which is the so-called "product name" and the "material number" it represents. This is also a basis for quick investigation and search by both buyers and sellers when conducting subsequent follow-up tracking in the future. Because the material number has its own unique representation among each customer, special attention should be paid to its correctness in use. Some large companies often have material numbers as many as more than ten digits, including numbers and English letters. The difference in one digit in the material number may be the difference in version, and it may even become the material number of another product. The writing of product names should try to see the characteristics and types of products literally from their literal aspects.
2. "Quantity" of inquiry items
Usually suppliers need to know the buyer's demand when quoting, because the amount of purchase volume will affect the calculation of price.Quantity information is usually provided with "annual demand", "quarterly demand" and even "monthly demand"; "demand quantity of different levels", such as 500K, 1M, 3M, etc.; approximately "order quantity" for each order; or "total demand in the life cycle" of the product. In addition to letting suppliers understand the demand and the form of procurement, suppliers can also be asked to analyze whether their own production capacity can meet the buyer's needs.
When inquiring, buyers usually have a common problem, that is, they are afraid that the quantity of the quantity is too small and cannot get a good price, so they "inflate" the demand or purchase volume. At this time, although the procurement can obtain short-term benefits, even if the price of mass production is obtained, if the expected quantity of the quotation cannot be reached after the actual procurement, the supplier either raises the price or reduces the service to customers in other aspects, or stops supplying, and in the end it will be itself that will be more detrimental to the loss. Therefore, information on demand should be communicated with suppliers in a realistic manner, and procurement can also provide market forecasts to convince suppliers, so that the purpose of long-term cooperation and continuous supply can be achieved.
3. "Specification Book" for inquiry projects
Specification Book is a tool to describe the quality of the procurement product. It should include the most "newest version" of engineering drawings, test specifications, material specifications, samples, color plates, etc., which help suppliers quote all information. The engineering drawings must be the latest version. If the drawings can only be used for valuation, they should be noted at the inquiry. If it is an international procurement, if the original project drawings are in languages other than English, such as German, French, Japanese, etc., the translation name of the international common language should also be attached, and presented in bilingual form to facilitate communication. If the engineering drawings can be provided by electronic archives, the supplier must be asked about their acceptance. When providing them, please pay attention to the internationally common file formats such as DWG, IGES, DXF, PRO/E, etc. to facilitate the supplier to convert the drawings. However, while delivering files by email, it is best to also provide a clearly drawn engineering drawing to avoid possible data errors during file transmission.
4. "Quality" requirements for inquiry projects
There are many ways to express the quality specification requirements for inquiry projects, and it can usually be presented in the following ways. It is difficult for purchasing personnel to fully express the quality requirements for products or services by using one method alone. They should use several methods in combination according to the different characteristics of the product or services.
1. Brand
2. Or the same grade
3. Commercial standard
4. Materials and manufacturing method specifications
5. Performance or function specifications
6. Engineering drawings
7. Market level
8. Sample
10. Work instructions
5. The "quotation basis" requirements for inquiry items
"quotation basis" usually includes the "currency value" and "trade conditions" of the quotation. domestic trading is relatively simple, usually traded in RMB, and the terms of trade are calculated either at the "ex-factory price" or at the "to-factory price (whether the freight is included)". International trade is relatively complicated. In terms of quotation currency value, suppliers are mostly based on US dollars. As for whether they are priced based on the purchase of local currency, it depends on whether the exchange rate is stable or flexible.
The usual trade conditions for international trade include Ex-Work (factory delivery), FOB (on-ship delivery), FAS (ship side delivery) or CIF (delivery including transportation premium), etc. Under different conditions, the liability risks borne by both buyers and sellers are different. Under FOB conditions, the seller's responsibility is until the cargo is loaded on board. Therefore, the seller must bear the risk of loading the ship, but the buyer is responsible for shipping, maritime insurance and other expenses. Under the CIF conditions, the seller must not only bear the risk of loading the ship, but also bear the freight and insurance fees required for the cargo to be transported to the designated destination port.Therefore, under the transaction of the same goods, the quotation under the CIF condition will naturally be higher than the FOB condition, and the buyer must indicate it when inquiring.
6. Buyer's "Payment Conditions"
Regarding payment terms, although both buyers and sellers have their own company policies, the buyer hopes that the later the payment time, the better. On the contrary, the seller certainly believes that the earlier the better. The buyer is obliged to let the seller understand the standard payment conditions within its company (when purchasing molds, there are usually "stage payments" methods, such as 30% deposit, 30% first trial molds, and 40% acceptance). The seller can also make different requirements when quoting, and the final payment conditions must be determined by the buyer and seller after an agreement. When the situation is in the buyer's market, the supply exceeds demand in a competitive market, goods and/or services can be easily acquired, and the economic power of business tends to cause prices to be close to the estimated value of the purchase, and the buyer can usually require the seller to cooperate with better payment terms, such as "Accounting Method (O/A)", T/T 60 days or even 90 days. But in the seller's market, because demand exceeds supply, the situation is exactly the opposite. Sellers generally choose a shorter payment period to ask the buyer, such as choosing "Cash on Delivery (C.O.D.)" or "T/T in advance".
In addition, the payment terms still need to be clearly stated in the "payment start date" calculated. In international trade, domestic suppliers usually start from the shipment date (Shipping Date), invoice date (Invoice Date) or loading date (On Board Date). At this time, if the foreign buyer determines that the Arrival Date or even the Receiving Date is the starting date, there may be a month difference between the two buyers and sellers, and both buyers and sellers must be careful.
Specification Book is a tool that describes the quality of the product purchased. It should include the most "newest version" of engineering drawings, test specifications, material specifications, samples, color plates, etc. that help suppliers quote all information. The engineering drawings must be the latest version. If the drawings can only be used for valuation, they should be noted at the inquiry. If it is an international procurement, if the original project drawings are in languages other than English, such as German, French, Japanese, etc., the translation name of the international common language should also be attached, and presented in bilingual form to facilitate communication. If the engineering drawings can be provided by electronic archives, the supplier must be asked about their acceptance. When providing them, please pay attention to the internationally common file formats such as DWG, IGES, DXF, PRO/E, etc. to facilitate the supplier to convert the drawings. However, while delivering files by email, it is best to also provide a clearly drawn engineering drawing to avoid possible data errors during file transmission.
7. "Delivery" requirements for inquiry projects
Delivery requirements include the time the buyer needs to purchase the product, how much time the seller needs to prepare samples, the first batch of small production, and the time it takes to place an order to produce during normal time. Although the supplier can cooperate according to the buyer's requirements, the delivery time depends on the price of the purchased product. The buyer should make requirements according to actual needs, rather than blindly seeking "time supply (JIT ).
8. "Packaging" requirements for inquiry items
packaging method accounts for a large proportion when suppliers estimate prices. In addition to customer custom products with special shapes or large volumes, suppliers have standard cartons, cartons and pallets used for packaging. Packaging materials. If no special packaging requirements are proposed, the supplier will evaluate the price in its standard packaging method. Sometimes the standard packaging method will not be specified in detail on the quotation. If the purchase is not noticed at this time, the packaging requirements will be added in the future. Not only will the time be delayed, but it will also have an adverse impact on the price comparison operation. In addition, after understanding the buyer's packaging requirements, the supplier can also provide suggestions whether to consider using standard packaging, or use the method of compiling goods and cabinets to reduce shipment costs.
9. "Transportation location" and "delivery method"
The country, city, address, contact number and fax of the shipping location must be clearly informed to the supplier. The delivery methods for domestic purchase and sale are often mainly railways and highways, while the delivery location and delivery methods in international procurement determine the calculation of the price. If the seller is required to quote CIF, whether it is sea or air freight, the shipping fee and insurance premiums are of course borne by the seller. There will be different billing methods depending on the distance of the shipping. Unless the buyer specifies air freight, the supplier usually quotes based on sea freight, because sea freight is the most economical way of delivery.
10. "After-sales service" and "guarantee period" requirements for inquiry projects
When purchasing some machinery and equipment such as punching machines, plastic injection machines, testing instruments, semiconductor packaging equipment, etc., suppliers generally provide basic after-sales service and guarantee period. If there are special requirements at this time, such as requiring an extension of the guarantee period, or changing the content of after-sales service, etc., it involves the procurement "Total Cost of Ownership (TCO).
1. Supplier's "quotation expiration date"
In order to facilitate the time course of procurement and price comparison operations, the quotation expiration date should give the supplier some understanding. For more complex products, the supplier should be given enough time to estimate.
12. Signing document for the "Confidentiality Agreement"
In the inquiry for some new product development, due to the involvement of business secrets, in order to prevent competitors from knowing it, suppliers will further ask the supplier to sign a "Non Disclosure Agreement (NDA)" document, requiring suppliers not to disclose the name, procurement quantity forecast, technical requirements, specifications, drawings and other information of the new product plan to the outside world within a standardized period.
13. The names and contact numbers of "procurement personnel" and "technicians"
tells the supplier the names and contact numbers of "procurement personnel" and "technicians" that it is not to actively imply that the supplier has any hidden needs. At that time, if the procurement project is complex and technical, it is best to attach the name of the technician and the company's contact number for consultation to clarify the specification requirements. It is advisable to contact the phone number of the company. Try to avoid giving the purchasing staff or technicians home or private phone numbers to prevent suppliers from being allowed to receive each other privately and be suspected of being under the plum blossoms. However, due to the advancement of technology, the use of mobile phones and e-mails has become increasingly common. When it is difficult for purchasing personnel to avoid contacting suppliers alone, the moral integrity of procurement should be always self-vigilant.
negotiations should be centered on cost rather than price cost-based negotiations can produce a good agreement. Preparation before negotiation is the key to victory. Price negotiation is not only for reaching a cost consensus with the supplier, but also depends on whether both parties are satisfied with the profits. If you want to reach an agreement based on cost, you must do the following:
First, thoroughly understand the composition of supplier costs.
second, have sincerity and desire to share these costs.
3, understand industry standards.
fourth, establish target price.
Understand and explore key elements
To understand the cost composition of suppliers, cost classification and cost analysis should be done, which can help supply managers set fair prices. costs include direct costs, indirect costs, and overall administrative costs. Direct costs are divided into direct labor and direct material costs; indirect costs can be divided into daily engineering costs, daily materials costs, and daily production costs. Sometimes costs can be divided into fixed and variable costs.
Trust and loyalty are important
Full trust and cooperation are the second important factor in understanding supplier costs and prices. If this can be done, suppliers are often willing to present the relevant accounts to the purchaser, of course, this requires a confidentiality agreement in advance. Another benefit of mutual trust is that both parties have the possibility of discussing the cost reduction, which can be achieved through product or process transformation, which is also called value engineering.
Set a target price
Last important point is that the purchaser must understand the industry where the supplier is located and the cost information of related products and services, so that the other party's cost and possible prices can be estimated before negotiation. is also crucial to understand the degree of competition in the supplier industry. How many merchants can provide similar products? Is there only a very small number of suppliers of a product? This directly affects the supplier's profit margins.
Full preparation is the key to successful negotiations
All above elements can help supply managers establish a target price before negotiations. If the relationship between the two parties is open and honest, the target price will soon prompt the two parties to reach a win-win agreement, and the buyer can also estimate the expenses to be spent as soon as possible. It should be pointed out that the target price must be supported by data, and the supply manager must collect it during the negotiation preparation stage.
actual negotiation
The time and location must be determined in advance, the venue arrangement should not be full of hostility, remember that both sides should be the winners. The negotiation begins with setting guidelines, which helps establish the boundaries of negotiation. For example, "Before starting, I want to review the current situation and give an overview of our purpose" opening remarks will help both parties understand each other at the beginning. Once the above points are done, your negotiations are half successful. The level of understanding of cost elements and mining of information is crucial to the success of negotiations, and each step of the preparation process will give you a 10% chance of success.
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