July 2008

Reducing Office Supplies Expenses: Negotiating From a Position of Strength

Despite the seemingly simplistic nature of many of the products upon which your business relies for its day-to-day operations, the office supplies industry is far more complex than it appears to be. It is not uncommon for an organization to purchase thousands of different products over the course of a year. Such purchasing requirements can present a considerable spend management challenge. A competitive, established vendor maximizes their value to your organization by providing prompt attention and service, efficient supply management including just-in-time supply delivery, discounts for volume and access to a full range of diverse catalogue items that are available both on-line and through a catalog.

Organizations can choose to utilize a third-party expense reduction specialist to manage these expenses, or they can manage them internally. For those choosing to manage office supply spend internally, the following is a list of tactics to take into consideration when negotiating vendor contracts:

• Avoid the mistake of focusing only upon the top 100 or so items in your inventory; overlooking the rest may mean failing to properly evaluate up to 70% of the organization’s total annual spend.
• Take a close look at non-branded alternative products; it is possible in many cases to spend half as much for equivalent performance.
• Request confirmation directly from the paper mills to verify price increases, and take advantage of any drop in prices to reduce your pricing.
• Remanufactured toner cartridges are available from a number of major vendors and are a safe viable alternative to new at often half the cost.
• Lock in negotiated pricing for the entire term of the agreement.
• Make sure when you are comparing products that the unit of measures are the same. With thousands of separate items being purchased each year it becomes difficult to compare apples to apples.
• Utilizing an online ordering system provided by the vendor will offer an advantage in managing extensive inventory needs.
• Implementing specific product blocking reduces expenses by preventing inappropriate purchase decisions.
• Request clarification of all contract terminology that may not be absolutely clear. For example, when interpreting the term 10% markup, it is important to determine if that term means “cost of the product plus 10%” or “cost of the product and all overhead plus 10%” or some other formula.
• Verify on a monthly basis that the vendor’s product codes have not changed; product code changes present an opportunity for price changes.
• Be careful when accepting incentive checks. You will be paying more for the items you purchase which may off-set your incentive and it will be difficult to change vendors often requiring payback on a portion of the incentive.
• Try to avoid being locked into an exclusive vendor relationship. You should always have the ability to switch vendors without incurring any financial penalty.

Additional Resources

• The Credit Crisis Is Going to Get Worse, BadCyclopedia
• Targeted Back-Office Cuts Can Soften the Blow of an Impending Recession, The Hackett Group