THE ONE RULE YOU SHOULD FOLLOW AT ALL TIMES.
If you’re a purchasing agent, there is one rule you should follow at all times. It’s not an app. It’s not a software program. It’s not sexy or cool. But it will get you results. It will make sure that you’re focused on the most important things and not sidetracked or bogged down by all the minutia.
What we see every day are purchasing agents who are being asked to manage more and more expenses for the businesses they work in. Their time is being stretched so thin but they’re being asked to cut expenses or reduce the cost of goods sold by greater numbers than ever before. Some companies have systems or processes to help with the workload. Others have teams of people who are responsible for different aspects. But all of these scenarios would be served by this one principle.
THE PARETO PRINCIPLE: THE 80/20 RULE.
The Pareto Principle states that in any system 80% of your results will come from 20% of your inputs. What this means to a purchasing agent is that 80% of the money you’re spending will be in 20% of the items/services you’re buying. By focusing your attention, effort, and energy on the vital few that make up the majority of your expenses you’ll be able to effectively manage your spend in a fraction of the time.
We’ve seen bids where a company's total spend is $100,000 and they’re asking for a quote on 400 items, many of which they’ve only ever ordered once or twice. This quite frankly is a fool's errand. Most of those one-off purchases will never be purchased again. Reviewing that cost will likely have no impact on next year’s budget. A wise purchasing agent will trim down that list of 400 items to the top 20% that make up 80% of the spend, then negotiate hard on those items. If they can cut another 2% off the top 20% it will have a greater impact than getting many of the one-off items for FREE!
A real-life example of this would be a company that spent $20,000 in a year, asking for a price quote on paper clips. A pack of 1000 jumbo paper clips goes for about $4. And how many paper clips can they really use in a year? Even if they ordered a LOT of paper clips and ordered this 1000 pack every week they’d only spend $200 a year on paper clips. So let’s say they get them for free on this bid. They are still going to spend $19,800 this year. The Pareto Principal makes sure you don’t make this mistake. Price per piece matters yes…but there is more to it than that.
LEVEL YOUR BUSINESS UP BY GETTING A FREE NO OBLIGATION ANALYSIS.
If you would like a FREE ANALYSIS of your spend to show you the top 20% of your items that make up 80% of your spend please click HERE and fill out the request form to get one emailed directly to you.
