Too many transactions on your purchase ledger

One of the problems that a lot of people experience is that over time their supplier base gets very flabby. By flabby, what I mean is that you’ve got too many suppliers. Within that there are too many transactions, not just caused by the number of suppliers, but also caused by not managing those suppliers and telling them what your requirements are, which means that they are not invoicing you in an efficient manner.  This is procurement management and the aim is to get a control on your business costs because all of those trabnsactions and suppliers are costing you money every time that you post an invoice to your purchase ledger.

Every purchase invoice costs you maybe £30 or £40 to process from start to finish.  So that’s from raising the order the whole way through to payment and reconciling the bank. If you can take some cost out of that process, there’s a benefit to you.

It frees up resource within your finance team to do other work.

It’s pretty simple & here are some pointers for you:

1) Run a nominal report by supplier for the nominal codes that you are going to review.  Look down that and, with colleagues, seewhich of the suppliers can actually supply more products than they’re currently supplying, whether that’s geographical spread, or product spread or ….. 

2) Request information from each supplier about the products they supply you with and ask at the same time what else they could supply as part of your cost reduction & spend optimisation programme.  

3) Once you get the information back in from the suppliers about which products they’re supplying & could supply, go into the detail of it on a spreadsheet and mark which items could be provided by another existing supplier.

4) with that detail you have the tools to tender the business as part of your cost reduction efforts.

An aim of your procurement management programme could be to reduce the number of suppliers.  We had a case where a client with 25 sites had 19 suppliers for the same product range.  Madness.  Now, it was all done for the right reasons at the time as the sites were opening or acquired, but it was never centrally consolidated as part of a thought through procurement management programme.

In terms of spend optimisation and using cost reduction to drive down your business costs you should also be aiming for one invoice a month per supplier.  

1) A consolidated monthly invoice which has a 

2) schedule attached to it, showing the breakdown by nominal code for each of the sites which can be sent out to the sites

3) the sites then approve their spend before the management accounts are produced so that you’re covering all the bases.  

We’ve seen situations where clients have gone from over 100 transactions a month to 1.

You can do it too.   As part of your spend optimisation programme you’ll build stronger relationships with your suppliers so that your entire procurement management programme is integrated and drives down your business costs.

In terms of procurement management, understand your supplier systems and turn them to your advantage.  For example, get better credit terms.  If the single consolidated invoice is dated the last day of the month, which is typically what it is, and you get 60 day payment terms, you can get up to 90 day payment terms for the items delivered at the beginning of the month.

So lots of benefits and a process that we go through which you can implement either fully or in part.  

It’s part of our standard TPG Fair Market Value Savings Process. 

e: simonu@procurementgroup.co.uk

m: 07768 421901

The Procurement Group

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