Avoiding cost increases is one of the best things you can do for your bottom line.
Today’s post is by Dave Wenig, Senior Vice President of Sales and Services at SafeSourcing.
At SafeSourcing, we are all about savings. If you are a reader of this blog, you will know we talk about savings quite a bit. That is for good reason. Creating savings through online RFQs have a huge impact on profitability and the savings is often attained very quickly.
A close relative of savings that gets less attention is cost avoidance. Ultimately, both cost reduction (savings) and cost avoidance are valuable, but cost reduction gets more attention. That might not be fair these days with costs fluctuating rapidly and many commodities on the rise.
For example, I recently spoke with a customer who confessed that we were able to create value far beyond the savings we initially portrayed in our RFQ. This customer had the benefit of locking their pricing in because of the RFQ. In the terms and conditions for their RFQ event, we had included a one-year price lock term that each participating vendor had to agree to. In today’s market, the inclusion of that term has caused this customer to get millions more in value from the RFQ because of this cost avoidance.
At the end of the day, by the time their agreement is up for renewal next year, the cost avoidance value created by the price lock will have far exceeded the initial savings from traditional value derived in savings from the RFQ.
While I am not saying cost, avoidance is better than cost reductions, I am saying that there is a strategic way to make sure that you are able to get both, but it is difficult to do this without the use of tools like online RFQs that put the necessary pressure on vendors to compete and agree to more favorable terms.
Do not keep accepting cost increases and wishing you could create cost reductions. Contact SafeSourcing with your procurement needs and we can help.
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