Procure Properly
Since the advent of the Internet, the world of procurement has opened up significantly, says Blasgen. In addition to a wealth of new suppliers, many companies have more access to competitive pricing information and easier access to overseas suppliers. This allows companies to compare pricing and terms, allowing them to negotiate the best possible deals. Sometimes, comparison shopping can save a significant amount of money or garner more favorable credit terms.
However, there are some caveats here. Strauss warns that purchasing without a plan to properly manage inventory can ultimately cost more than trying to buy just to get discounts. First, it costs money to store excess materials in a warehouse; more space means more staff to traverse the space and more equipment required for higher staff levels. In addition, the longer the period of time is before they are used, the greater the likelihood is that they may become damaged or otherwise unusable, which creates waste. So, while it's important to shop for discounts, the true cost of the product-which includes its per-unit cost, as well as the cost of warehouse space for storing it, its shelf life, and the amount of time the capital will be tied up in the inventory before it can be sold and recouped-needs to be considered. Strauss says that the mentality has to be "How can I optimize my profitability?" instead of "How can I spend less money?" Be careful about automatically rewarding price-cutting behavior without understanding these other factors, he says.
Working with overseas suppliers and manufacturers can help companies enjoy savings, but can also present risks if not managed properly, says Kurt Cavano, CEO of TradeCard, a New York City-based supply chain technology solutions company. Websites like Alibaba.com offer up thousands of overseas companies providing a wide variety of goods and services. However, the irony, for most companies, is that longer overseas supply chains may allow the company access to cheaper goods, but it's often more costly and complicated to get them to where they need to be, he says.
Dealing with customs in various countries includes understanding trade agreements and tariffs, as well as adhering to strict import and export policies that vary from nation to nation. Payment for goods and transportation often isn't as straightforward as cutting a check. Instead, letters of credit from banks or some other financial service company, such as TradeCards, may be used. And one big question, says Cavano, is when the company "takes ownership" of the product. In some cases, that means that the company is responsible for the product once it gets on a boat. That leaves the responsibility of transporting the goods once they arrive at the destination port. In addition, it means that the company lacks hands-on control of the goods for the period of time they are on the boat and transported to a warehouse or other storage facility. Working with an agent or a technology service provider can help companies navigate these pitfalls.
