ProPurchaser Best Practices

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Know What You Should be Paying

Land the Purchasing Job You Want

The competition for good jobs today is unprecedented.

Certainly not news. Most of us have had the frustrating experience of applying for a job we really want, only to find hundreds of others had the same idea. We were lucky to receive a response let alone an interview.

Well, there is news and it’s the good kind: a way forward, especially if the job you want involves negotiating with suppliers.

In the next few paragraphs, we describe an approach that should help you stand out in the crowd: a method of demonstrating you can ‘hit the ground running’; that you will deliver bottom-line savings, the day you start working. Sound too good to be true? Read on.

  • Step One: Research the finished products the company sells, and then take an educated guess at the key raw materials used to manufacture their products.
  • Step Two: Find examples where the costs of these raw materials have fallen.
  • Step Three: Demonstrate how these raw-material decreases can translate into cost savings opportunities for the components and products the company buys.
  • Step Four: Present your findings (and methodology) to the prospective employer.
Toaster

A Simple Example

Suppose you want a job with a company that makes toaster ovens, like the one shown here.

Step One: Key Raw Materials

Steel (housing and food rack), Aluminum (crumb tray), PVC plastic (knobs and feet), Copper (power cord). Note, not all components need be included.

Step Two: Materials Whose Prices Have Fallen

An quick internet search yields the following 2-year graphs*:

Land The Job You Want - Figure 1 Land The Job You Want - Figure 2
Land The Job You Want - Figure 3 Land The Job You Want - Figure 4

* These graphs are from a free trial membership at ProPurchaser.com.

In this case, three have fallen: Steel about 4.6%; Aluminum 17.6%; and Copper 20.2%. PVC is up about 12.9%.

Step Three: Identify Potential Cost Savings

Here is an important rule of thumb for purchased components — half of what you pay for is related to raw materials; the other half covers the supplier’s overheads and profits. Using this information, the math becomes simple: hold the profit and overheads constant, which means your prospective employer should be paying:

  • the housing and food rack suppliers about 2.3% less today than 2 years ago (half the 4.6% drop in steel);
  • the crumb tray supplier about 8.8% less than 2 years ago (half the 17.6% drop in aluminum);
  • the power cord supplier 8.1% less than 2 years ago (would be 10.1% if copper were the only raw material).

Step Four: Present Your Findings

Make sure to include something like the following in the cover letter with your resume:

“I took the liberty of doing some basic research on several raw materials used to make components for your toaster ovens, and discovered three possible opportunities for cost reduction. My analysis shows that, versus 2 years ago, you should be paying about:

  • 2.3% less for steel housings and food racks,
  • 8.8% less for aluminum crumb trays,
  • 8.1% less for copper power cords.

It goes without saying, I would be pleased to share details of my analysis, if there were interest on your part. I also realize that these savings may have already been identified.”

Even if your findings are all old news (which is unlikely), you will still make a good impression. Most employers will be impressed by this kind of initiative, and keen to engage the services of someone who clearly knows how to prepare for negotiations, and will start pulling their weight on day one.

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