Re-organisation can mean savings!

Last week saw me presenting a situation report to one of our Clients who spend around £30,000 a year on their office supplies. Over a 12 month period they had received and processed over 250 invoices from four different suppliers. To ensure a degree of control every order placed had to have its own purchase order. Many of the orders were relatively small, perhaps only a box of pencils!

Our Client’s team had ticked all the obvious boxes; they had negotiated no delivery charges and no minimum order size. The rate they were paying was also very competitive. The staff would check the prices of each supplier to make sure they were buying at the best rates available to them. On the face of there was little that the process could be improved upon.

However, what concerned me was the number of invoices; The Chartered Institute of Purchasing and Supply1 have cited on their website that the average cost to process an order from placing the order to paying the invoice is around £50. Whilst this figure is not cast in stone it’s a good benchmark when you consider the time spent selecting a product, writing an order, checking the invoice, entering it onto the system and then paying the supplier. In this case it may be costing our Client around £12,500 per year to process all these small orders!

There were two ideas that I thought might help my client:
• Firstly rationalise their buying, in that only order stationary, once a week or once a month. This does mean setting up and managing stocks of a stationary store, but the time spent once a week and placing an order would mean potential only 52 orders per supplier. Even placing four orders a week could potentially save £2,100

• It was also suggested that they may like to look at consolidating their invoicing. Instead of getting an invoice it may be that the suppliers may request better terms than the 30days they are on, but if they process 4 invoices a month or 48 invoices annually they could potentially save £10,100.

Organisational changes such as this are often intangible and difficult to spot, but in reality the £10,100 they could save a year is staff time that could be deployed to areas that are more important to the business!

1http://www.cips.org/professionalresources/faqs/details.aspx?id=73