| 8. How can a business
quantify the true cost of its buying and selling systems? |
| Of course, each business is unique and some
things are more easily measured than most. There are many
dimensions to the equation but some general indicators
are given below. |
| Identify the value, cost
and volumes of your transactions. Some costs may not be
obvious until you really try to analyse your processes. |
| The most important factor you should normally add is
some form of priority/weighting to ensure repeat business
transactions with the same customers or suppliers are
given a higher value than new ones, since obtaining a
new customer is normally much more costly to the organisation
than repeated business. |
 |
| Any cost/value analysis needs to
be performed at the entire business level. |
| Large businesses are broken down into divisions, departments,
and workgroups. Therefore some costs and/or value may
not be visible if analysis is being performed at a lower
level. An alternative could be to view each department
as a ‘sub-business’ that buys and sells to
other departments (using agreed ‘currency’
to measure value), although this would only be sensible
for very large businesses. |
 |
It may be difficult to
estimate cost per transaction trends in the
medium/long term other than for large external measures
such as inflation, exchange rates, etc.
|
| Human resources at both
management and operator level are probably
the largest component of cost for most businesses,
but the hardest to ‘pin down’ at a transaction
level, unless employees are totally dedicated to
a particular business process, and/or keep accurate
time sheets on partner activity. |
| |
|
| One method of improving
understanding is to hold ‘workshops’ or surveys
with employees, suppliers and customers to understand
aspects of a process that are costing the most time or
causing the most issues. |
| The objective is to quantify and evaluate the transaction
trends – e.g. is an increase in Buy Side (i.e. orders
from suppliers) volumes with a corresponding decrease
in order value a desirable trend long term? |
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