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Managing Material and Labor Costs

(January 2007) posted on Wed Jan 03, 2007

Conjuring up a fiscal plan of attack for 2007.

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By Marty McGhie

Once you analyze your purchasing trends, begin establishing minimum and maximum quantities to keep on hand. Based on those numbers, you can then determine the order points (or triggers) and order quantities to promote the most efficient use of inventory space and avoid costly overnight deliveries of out-of-stock inventory. Analyze your inventory turnover on a regular basis to determine whether or not you have excess inventory in some areas. Without question, this is a tricky part of the business, but you can save a significant amount of money if you dedicate the proper time and effort to effective systems.

Supplier relationships also play an important part in managing your direct materials. Don’t assume that the price you are currently paying is the best price you can get from your suppliers. If you’re purchasing significant quantities of materials from a supplier, you may have more leverage than you believe. Talk to that company about its pricing and find out what "column" of their pricing structure you are currently buying in. One strategy is to suggest that your company is a growing one and that you’d like to establish a long-term relationship with them-but you would need to negotiate a better buying level in order to do so.

The graphics-supply business for materials is a very competitive industry. Shop various sources to see what pricing is available on the primary products you use. Just be aware that the lowest price isn’t always your best buy. Availability, shipping costs, lead times, etc., are all issues you need to have nailed down by the time you select a supplier.

You can also develop partnerships with your vendors. For instance, my company has successfully set up purchasing structures with some of its suppliers in which they stock certain inventory items that we use most often at a convenient facility earmarked just for us-a type of consignment relationship. Because we purchase enough quantities, they are happy to do it; they know we will eventually be buying it from them, and we know the material will be available when we need it. It’s a win-win situation.