5 Hidden Costs in Procurement
Purchasing & Procurement Center
Transforming CPOs & Their Teams to Strategic Units with Real-Life & Practical Procurement Trainings & Certifications!
This week, we’re exploring the often overlooked but impactful hidden costs in procurement that can silently drain your budget.
In this newsletter, we will take a look at 5 hidden costs in procurement you need to watch out for:?
1. Supplier Switching Costs
Every time you change suppliers, there are hidden costs that come with it—like retraining your team to work with the new supplier, updating systems, or even dealing with potential quality issues during the transition.?
Practical Tip: Before switching suppliers, calculate the total cost, including the time and resources needed to onboard the new supplier. Sometimes, sticking with your current supplier and negotiating better terms is the smarter financial move.
2. Poor Contract Management
Contracts are the essence of procurement, but they’re often neglected once signed.?
Poor contract management can lead to all sorts of hidden costs like unnoticed price hikes, missed discount opportunities, or even fines for not meeting certain conditions.?
Practical Tip: Use contract management software to set reminders for key dates like renewals, price adjustments, or audits. Regularly reviewing contracts ensures you’re getting what you paid for and not losing money on overlooked clauses.
3. Quality Issues and Rework
Sometimes the cheapest option ends up being the most expensive. If you’re constantly dealing with product defects or subpar materials, subsequently leading to you having to pay hidden costs.?
Practical Tip: Invest in supplier quality audits and sample testing before large orders. It’s better to catch problems early on than deal with costly fixes later.
4. Logistics and Freight Costs
Freight and logistics costs can add up fast, especially if you’re not paying attention to all the little extras like fuel surcharges, last-minute expedited shipping, or storage fees for delayed shipments.?
领英推荐
Hidden logistics costs can quickly eat into your budget and mess up your overall procurement strategy.
Practical Tip: Work closely with your logistics team or freight forwarder to get a clear picture of all potential costs. Consider using software that optimizes routes and schedules to minimize expenses.?
5. Compliance and Regulatory Fines
Ignoring compliance requirements or failing to keep up with regulatory changes can be a costly mistake.?
Fines and penalties can add up, not to mention the damage to your brand’s reputation. Whether it’s environmental regulations, safety standards, or import/export rules, staying compliant is non-negotiable.
Practical Tip: Invest in training for your team and set up regular audits to ensure all regulations are being met. It’s cheaper to stay on top of compliance than to pay for the consequences of non-compliance.
Become a Procurement Cost Management Expert!
It is essential to make sure your team is aware of these hidden costs and proactively managing them, so you’re not caught off guard.
Interested in training your procurement team to become an expert at cost management? Learn more about Purchasing & Procurement Center's intensive 2-day training on Cost and Price Analysis in Procurement!?
Follow Us
Don’t forget to also follow us on LinkedIn to stay connected, discuss challenges, share insights, and collaborate with our network of over 70,000+ procurement professionals.
For more details call us at +1-3112-300-8968 or email [email protected]?
Procurement Specialist at JVI Vibratory Equipment
1 个月Selecting a source for the wrong reason then having rework is definitely a major hidden cost. Choose wisely, don’t always decide based on lowest quotes.
Procurement expert and International trainer/consultant. Creator of the MEGA Strategic Procurement Model. Sharing my 30+ years of Procurement experiences, stories and knowledge. Procurement scholar and innovator.
1 个月I'd like to focus on point 4. Sometimes it's better to add a little extra cost that covers any "surprises". That cost would be far much smaller than the added up surprises, surcharges and fixing problems. Kind of a TCO or insurance.
Purchasing supervisor
1 个月Great advice
Leader In Supply Chain and Operations - Technology Companies | MBA - Leadership
1 个月Point #1 is even more critical if there is IT work required to support a transition to a new supplier - which can take quite a bit of time depending on the complexity of the required IT integrations. A supplier change should be supported by a clear ROI that includes applicable transition costs.
Supply Chain Management & Fraud Prevention Analyst
1 个月Spot on! I would add short staffing and support resources, as well. I have been part of various start up as well as on going projects in which the JD is a total recipe for failure because the structure of the JD is totally imbalanced such that efficiency becomes a mere pipe dream... Imagine putting these functions together for one individual, i.e.: -receive PRs, review and analise them; -RFQ, RFP or ITT all PRs according to proc guidelines; -consolidate and conduct the complete Technical & Cost analysis process; -issue PO or complex Contract; -follow up supplier delivery; -keep the Proc Tracker up to date; -receive product and make necessary admin entries (issue and manage existing stocks); -issue Reports and take part in various project meetings,... This is real and IT DOESN'T WORK! Unfortunately, when mud hits the fan, the individual is incompetent and must be sanctioned, fired or instigated to resign...! Lastly, it's very common to have such a scenario as depicted above, operating and fully dependent on the sporadic and uncertain availability of pool vehicles, since most or all would be directed to the actual project implementation...use a taxi when needed... NIGHTMARE!!!