By Richard Wong
According to the BDC small medium sized businesses spend 45 to 65% of their revenue on purchasing materials and services. This large percentage of the total costs of a business means that small savings, even 1% can mean instant addition to the bottom line but in today's economy you can achieve even greater savings in the 10% to 20% range is possible.
Try some of the following to cut your spending:
1. Have your controller or hire a consultant do an expenses analysis
- Review all parts of the product or service cost, break them down individually into:
- Raw materials costs
- Taxes, brokerage, tariffs, duties
- Freight
- 3rd party warehousing/logistics handling costs
- Extra vendor charges
- Vendor payment terms
2. Review your purchasing process on how to evaluate the best choice
- What type of process is used for deciding to use one supplier over another?
- How many people need to be in the decision making process, the fewer the number of people, the less the overall internal cost?
- When deciding to purchase equipment is there a "Net Present Value" analysis of the different choices which examines the benefits over the asset's life?
- Have your staff included used equipment purchases as an alternative to purchasing new? Have they visited auctions?
3. Potentially sources from offshore countries
- Start looking to buying from other countries to compare suppliers. BDC studies show that only 42% of Canadian companies are saving money, but you could be one of them.
4. Review standardizing the number of parts in your product.
5. Reduce the number of suppliers & forge strategic partnerships with a few to get better pricing, terms, or delivery.
6. Think about using technology to help track your business
Written by Richard Wong, CMA rwong@firstchoicecapital.ca
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