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Total Cost-Based Purchasing™
Start Point Questions:
- How do you continuously reduce your cost of doing business?
- What methods can be utilized to ensure the best total cost based performance from your suppliers?
- How do you accurately measure the impact of the supplier's value-added services to bottom line profits?
Reducing the price of a product or service has been the focus of much attention. One of the reasons for this is the ease of which a quantitative comparison can be made. What is more difficult is the determination of the total cost of doing business with a supplier. In addition to reducing the price of the product/service, addressing the other factors that affect the total cost of doing business is critical. These other factors can often result in greater overall savings than those generated in product-price reduction. Without the understanding of these factors, decisions are made on data that is not reflective of the total scope (the impact on each functional area) within the business operation. As a result, the firm can quickly be put at a competitive disadvantage. The loss of efficiency, quality and innovation are only a few of the underlining areas that suffer as a byproduct of not basing decisions on total cost.
MDC's Total Cost-Based Purchasing program enables companies to improve the quality of their suppliers and supply chain management. It develops a more cost-effective and efficient supplier relationship. This process delivers the capability to effectively weigh purchasing decisions to the total cost of doing business. It has provided our clients with greater control over product costs and added-value savings. It also provides an ability to track and measure results from each functional area impacted by the supplier relationship. Utilizing this methodology enables companies to not only reduce the cost of product purchases but, also to reduce the other related costs that affect bottom-line profits.
- Determining the needs and values of each functional area impacted by the purchase decision
- Developing the assessment format for total cost based proposals
- Establishing the performance measures to accurately assess total cost factors
- Developing the supplier selection protocol to ensure the lowest total cost