Purchasing Group
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Procurement agreements
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Many business leaders have got a major concern on the table after the historically high price increase of building materials in recent months.
On June 1, there was another extraordinary price increase that was feared and heralded. It is dramatic and many fear of losses on their projects.
What can you as a general manager do to ensure continued profitable operations?
Now it becomes more important than ever to have as good procurement agreements in place as possible in order to be competitive.
If you are responsible for purchasing, a round of negotiations with your suppliers should definitely be high on your priority list now.
Do you know what prices and discounts you should be able to expect and are you confident that you are not overpaying?
Have you ever calculated how much you could save annually by getting the cost of goods down just 3 or 5 percent?
Test our savings calculator here and find out your potential
A general manager who collects prices himself will achieve discounts based on his own limited purchase volume.
On the other hand, if you leave procurement negotiations to a large and professional purchasing agent, you become part of a much larger purchasing volume when deals are negotiated and can obtain large customer discounts and other benefits that are difficult to achieve alone.
A purchasing manager who works on behalf of many firms also sits on up-to-date information on what are sensible rates, and will be a profitable sparring partner and adviser.
Even if you have secured good purchase prices, it is of course crucial that you review your retail prices and quality check that you have good enough earnings on what you deliver.
Hopefully you have taken into account the price increase in your offers so that you can invoice the price increase directly to the customer.
Prices are now at a historically high level, but it doesn't stop here. Already in August, manufacturers announce an additional price increase of 30 percent, Aslaug Koksvik, Industry Director of Virke Building Products Trade, tells VG.
It therefore becomes very important to keep in mind to take high for further price rise in all offers sent out.
Do you always have too much to do and struggle to get to the finish line with your work tasks?
A manager must always make priorities, then it is crucial to spend time on work tasks that bring the most value to the bottom line.
It is becoming more and more common to put away services that do not fall under the main activities of the company, examples of which are accounting services, invoice follow-up and marketing.
When one makes such an assessment of putting away services, one is in practice making a calculation of what we call opportunity cost which is the cost you are sitting with by not choosing the best option.
You may have concluded that if you were to do the accounting yourself you would spend far too much time learning this yourself and it would steal far too much of your energy and time so that it would go beyond what you were actually doing and making money from.
But have you made the same assessments in terms of purchasing services?
Your opportunity cost of spending a lot of time on contract negotiations and procurement agreements can be calculated like this:
Achieved savings minus wage cost (time spent) - loss of income (how much revenue you could have generated on equivalent time use) = your alternative cost.
Those customers who come to us have seen that this calculation gives them an opportunity cost that is in the minus.
Therefore, we have chosen to put this service away to us so that they themselves can stay focused on revenue.