Purchasing levers: how to optimize your costs?

What is purchasing leverage?

Purchasing leverage means a mechanism or action designed to boost a company's productivity and performance by optimizing its supply costs or purchasing conditions.

The aim of using purchasing levers is therefore to either buy better, buy less and/or buy cheaper .

There are different types of purchasing leverage, depending on the objective the company wishes to achieve. In any case, purchasing levers play a fundamental role in purchasing negotiation and management.

The 3 main purchasing levers

Here are 3 of the main purchasing levers a company can implement:

Negotiate volume discounts

Negotiating discounts on large-volume purchases is a lever often used by companies that buy products in large quantities. It involves obtain discounts on unit prices when purchasing in bulk.

The appeal of the operation lies in on the principle of economies of scale . In other words, when a company groups its purchases together, it can reduce its logistics and production management costs.

The effectiveness of this purchasing leverage depends on the company's ability to place large volume orders. This gives the company greater negotiating power, since suppliers will be more accommodating when dealing with large customers.

There are different types of volume discounts:

• Immediate discounts which consist in reducing the unit price as the order volume increases

• Retroactive discounts which apply retroactively to orders placed when the order level reaches a certain threshold over a pre-determined period.

• Pricing grids . Discount levels are set according to order volume thresholds.

However, there are limits to this lever. It only makes sense if the company really needs a large quantity of products. Otherwise, this strategy runs the risk of generating hidden costs in terms of excess inventory management, for example.

Strengthening strategic partnerships with suppliers

It is in a company's interest to maintain healthy, long-term relationships with suppliers . This involves balanced supply contracts that benefit both parties.

If your relationships with your suppliers are based on mutual trust, collaboration and the creation of shared values, this can provide you with valuable preferential benefits when making purchases.

This allows you to negotiate optimal purchasing conditions such as payment facilities.

It can also follow increased operational flexibility through adaptation of the production process to the buyer's needs.

Similarly, a strategic supplier is also more likely to secure supplies . It's a powerful performance driver for any company, because on-time delivery is a key criterion for customer satisfaction.

So, for example, if a supplier is faced with production problems and can't guarantee supply for all its customers. In this case, choices have to be made.

He would rather satisfy orders from his strategic partner of 6 years than the one-off buyer.

In this way, maintaining partnership relationships rather than just transactional ones helps to improve a company's productivity.

Reduce logistics costs

Transportation costs represents a significant proportion of a company's overall costs. Finding a way to reduce them can therefore offer a real opportunity for a company wishing to optimize its profitability.

Here are some ways to achieve this:

• Route optimization . Route planning reduces transport time, distance and fuel costs.

• Carrier competition to choose the one offering the best prices

• Consolidating shipments to reduce the number of trips and save fuel costs.

Likewise, optimized inventory management reduces logistics costs. The company can make substantial savings by avoiding excessive storage in its warehouses.

How to set up an effective purchasing strategy

Here are our tips for implementing an effective purchasing strategy in your company:

Analyze costs and identify optimization opportunities

To optimize purchasing strategies, you need to take stock of the existing situation .

So you need to analyze all your costs:

• Those related to the purchase itself

• Storage-related costs

• To supply

• Transportation

• Etc.

This preliminary analysis will enable you to identify areas for optimization .

Drawing up a structured negotiation plan

Once you've identified optimization opportunities, you can draw up your negotiation plan . This plan may have several components, depending on the purchasing category.

Here's how to do it:

• Analyze company needs and negotiation objectives . Every negotiation has one or more specific objectives. These are to be defined according to the optimization opportunities defined earlier.

  Are your objectives quantitative and financial? Or are they qualitative or logistical?

• Define the negotiation zone. You need to define your limits: when will you have to leave the negotiating table, and how far you can go in making concessions.

• Gather as much information as possible about the other party The company's strategy is based on a number of key factors, including costs, potential margins, market positioning, and so on.

• Setting goals and priorities In other words, the non-negotiable points and the points on which you can make concessions.

• Choose a negotiation method to suit your objectives.

Strengthening long-term relationships with suppliers

We can't stress this enough: maintaining lasting relationships with your suppliers is a real performance driver for any company.

This allows you to benefit from continuity of supply, innovation and competitiveness .

Here are our tips for getting there:

• Implement regular, transparent communication . The two parties must meet regularly, and share information with a view to maintaining a mutually beneficial collaboration.

  Each party must also be transparent about its expectations of the partnership relationship.

• Building mutual trust respecting the commitments of both parties. The purchaser must meet its payment deadlines. The other party undertakes to deliver its products on time.

• Negotiating long-term contracts by offering stability to both parties. The buyer could commit to a constant volume of orders. The supplier, on the other hand, commits to continuous innovation and maintaining a certain level of performance.

Purchasing optimization mistakes to avoid

To optimize your purchasing and thus your company's productivity and performance, you need to avoid making the following mistakes:

Underestimating hidden costs

Negotiating better purchasing conditions without an overview of costs is a fundamental mistake. .

Hidden costs can reduce your profits.

These may include :

• Logistics costs such as transport costs

• Packaging costs

• Costs of ownership (storage, upkeep, maintenance, use, etc.)

• Etc.

You must therefore take them into account when preparing your negotiations .

This will enable you to negotiate with full knowledge of the facts, and obtain truly favorable commercial terms.

Do not regularly evaluate supplier performance

Of course, there are many advantages to maintaining long-term business relationships with your suppliers.

However, you shouldn't rest on your laurels either. You need to continually assess your suppliers' performance and aim for continuous improvement.

Here are our tips for doing so:

• Conduct regular audits to identify areas for improvement

• Define key performance indicators (KPIs). Product/service quality, flexibility and responsiveness, costs, delivery reliability, after-sales service quality, etc. are all KPIs you can track to evaluate your suppliers.

• Set up a regular assessment system .

• Organize performance reviews These include meetings with suppliers to review the strengths and weaknesses of the partnership.

• Set up a reward and penalty system to maintain high standards.

Hero finance vos achats

Hero is a neobank that can help you pay for your purchases. The platform can immediate payment of your payment invoices with easy payment terms.

Hero lets you pay in 3 or 4 instalments (fractional payment) or after 60 or 90 days (deferred payment).

Such payment facilities are a real boon for small businesses, as they enable you to secure cash flow while preserving your commercial relationship with the supplier.

In a nutshell purchasing levers are techniques that companies can benefit from implementing to maximize their sales performance. Although there are many purchasing levers available, you need to remain attentive to your company's needs.

Leverage can also conceal costs, and have contradictory negative effects. Using Hero to finance your supplier purchases can also be an effective lever, thanks to the payment facilities offered.