Every business—whether it’s a small home business or one of the largest corporations—makes purchases. Types of purchases vary. They may be simple office supplies and janitorial supplies, or long lists of raw materials for manufacturing processes.
Every dollar spent in the purchasing process is a dollar invested in the company finances. A careless purchase for unnecessary product is money wasted, money gone, and money to the red side of your ledger. Any dollar saved through smart purchasing is a dollar in your bank. It goes directly to the bottom line of profit.
To be successful at purchasing, you must consider all costs of acquiring materials—no matter what they are. Does driving 20 miles out of your way make sense to save a dollar on one item? No. Does it make sense to buy in bulk? Maybe or maybe not!
Buying large, unnecessary quantities of an item usually lowers the per item price, but it doesn’t save money if your company needs a specific limited quantity of that item and the remaining quantities sit unused on a warehouse shelf. Money was uselessly spent in this case. It is wasted due to labor in material handling and in cluttering valuable storage space. Eventually the leftover items are outdated, scrapped, or sold at a loss. The purchaser (although looking good in the beginning for getting a “bargain”) has ultimately lost money for the company.
Another consideration that many purchasing agents seem to forget is the freight cost for acquiring an item. Unless it is a letter sent through the US mail, the farther an item ships the more it generally costs. Also, the heavier an item is, the more it costs to ship to you. Many purchasers are reluctant to spend a bit more on an item and save double the dollars on freight. Interesting!
