Who can resist searching for a great deal? When it comes to purchasing for myself and my family, I know I can’t.
But buying for myself is not the same as buying for my company. An hour or two hunting around for a bargain, for my own personal consumption, is on my time and at my own opportunity cost.
The opposite is true in business – price shopping is on the company’s time and at the company’s opportunity cost. Most organizations already have some level of contracted pricing for the common goods and services they buy every day. So is price shopping really the best way for employees to spend their time?
Nope. And here’s why.
Every purchase made by a corporate buyer comes with real costs over and above the price of the actual item they’re buying. Primarily, the salaries and benefits associated with the time people spend to:
- Shop around,
- place an order,
- validate receipt of the order,
- approve the invoice,
- set-up the vendor (if they are new), and
- pay the invoice.
An Aberdeen Group report on a/p management pegged the average cost to process an invoice as anywhere from $3.34 (the most efficient 20% of companies) to $16.67 (the least efficient 30%). These costs don’t account for time spent to shop around and, when they occur, deal with problems (which often happen when ‘vendor hopping’).
But higher transactional costs are only one reason not to bargain shop. The other is lost opportunity. Unless buying is the sole job of the person making the purchase, it’s likely he/she could be creating more value for your company by doing something else. This isn’t rocket science – it’s just common sense.
In today’s business environment no one has time to spare, and it’s going to stay that way. So the next time someone wants to save a couple of bucks by shopping around, think about what it’s really costing you for that bargain. And then make the common sense choice.
Author: Tom Rogers
Job Title: CEO
Organization: Vendor Centric
Tom is the founder and CEO of Vendor Centric, he has been a trusted advisor to nonprofit organizations for 30 years, with a focus on helping them align the right people, processes and systems to mitigate third-party risk and drive more value from third-party contracts and relationships.