“I’m buying my widget from Supplier A because he’s cheaper than the preferred vendor that Purchasing told us we have to buy from.”
That’s what Dave in Maintenance said to me.
He figured that he could buy his £100 order for 10% less. You see, one of his friends works at this cheaper supplier, so he decides to get the item from there instead.
But then, a few things happened that Dave didn’t expect…
1. Delivery was late
30 minutes’ time chasing up.
2. Stores couldn’t receive the goods in the system
This cheaper supplier that Dave decided to order from doesn’t exist as a vendor record. Worse still, he’s just placed the order on the phone and there’s no PO.
Not only is this maverick spend, it also created another 30 minutes of admin work to go back and create the necessary paperwork.
3. A vendor record had to be created because they don’t exist in the system
Another 2 hours to process the paperwork and send it to a master data person for them to enter the vendor in the system.
4. There’s something wrong on the form
The supplier’s VAT number has a digit missing. Another 1 hour sorting this mess out with the vendor.
5. Vendor invoice is rejected because no PO number is referenced
Yet another hour in emails to-and-fro, submitting this invoice to Accounts Payable, explaining the problem and then getting them to match the original PO.
Let’s assume £25 per hour for the extra administrative work created through all of these issues
That’s a LOW estimate, by the way…
That’s £125 of hidden cost to manage Dave’s cheaper supplier
Multiply that by the hundreds or thousands of POs that your organisation issues each year on behalf of all the Daves in Maintenance out there who think they’re saving the company money.
The purchase price is just the tip of the iceberg.
Administrative waste is a REAL cost. Someone is being paid money to clean up all of this mess.
Was Dave’s choice really a cheaper vendor?