The larger your business, the more leverage you have with suppliers. Instead of suppliers manipulating their pricing for maximum profits, you’re able to use your spend knowledge to leverage buyer power, bringing cost savings to your business, while still making it a valuable proposition for suppliers to favour working with you.
It all starts with categorisation.
Using categorisation of sales to leverage bulk price discounts
1) Item categorisation
It’s one thing to list an item but it’s quite the other to tag it to the right category. One way to categorise items being purchased is to use a hierarchy.
1. Chief category
Take for example replacement keyboards for computers. You could categorise that as office supplies. Using the hierarchy above though, that could be computing as the chief category, the main category, electronics, and the subcategory, replacement parts.
Costs could be cheaper by buying in from an electronics supplier offering bulk price discounts that aren’t on offer from a general supplier of office equipment.
The choice of categories gives your business more choice over suppliers rather than sticking to one general area. The reason being, suppliers in a specialised category will have a higher price per unit and therefore charge more for their expertise. It’s not to say you couldn’t get a better deal elsewhere on the same equipment.
Categorise what you buy so that you can accumulate the most units per supplier based on your category hierarchy to take advantage of bulk unit pricing.
2) Supplier categorisation
As the first step is about maximising the units you buy in at one single time to take advantage of bulk pricing, this part strengthens that to ensure that whatever you are buying, you’re only dealing with the minimum number of suppliers. That’s advantageous in itself, however what it’s also doing is putting buyer power in your favour because the more you order with one supplier, the better leverage you have to negotiate better pricing per unit.
3) Maximise category budgets
Whatever category’s your business spends on; you need to know them in order to maximise them. Ideally, what you want to do is lower the number of suppliers which reduces your administration costs, but more importantly it increases your spend per supplier. That again, puts buying power in your favour. The best scenario would be to find one supplier who can deal with your chief category, main category and sub-categories.
4) Leverage your buying power
The categorisation of items you buy will let you narrow your choice of suppliers but that’s useless if you don’t play it up. When you request a proposal for anything, stress that you’ve categorised expenditure and let suppliers know your overall budget at an organisational level and that you expect favourable pricing based on the volumes of transactions. This will also help you take out any supplier that isn’t large enough to cater to your needs.
5) Review and negotiate if you need to
When you categorise your expenditure and assign budgets to categories and then further add to that multiple sites, there’s often times extremely large volume. Sufficient enough to leverage discounts provided you work with a supplier who can meet your demands.
Some will be too small to manage your demand. Larger suppliers are often more expensive until bulk price discounts are applied because that’s the business contracts they are focused on attracting. When you match your contract requirements to the specialities of suppliers who target your type of business with volume discounts, there’s huge cost savings to be had.
The fastest way to access the savings is by categorising what you buy, lowering the number of suppliers you have and increasing your spend budget per supplier in order to make it attractive for suppliers to propose discount pricing.