Why contract stationers are not as competitive as using J6 Next Generation e-procurement technology

Wednesday, 29 September 2010 00:00

Why you pay 20% more than you need to your contract stationery supplier

It’s all about price

The huge number of commodity items makes stationery, printer consumables and office supplies an obvious target for aggressive negotiation by buyers. After all, suppliers can add little value in terms of service, apart from delivering product on time and dealing with the odd quality problem. Many companies turn to contract stationery suppliers because they believe that a well negotiated contract will remove the need to shop around with different suppliers for every order. In summary: less hassle, save money.

Fundamentally it’s all about price, so to win a new account, suppliers often need to bid below cost on “a standard set of products”, which the buyer believes will makes up most of the expenditure.

Why should you care?

Well, quite simply, having won an unprofitable contract, the supplier then needs to “manage” the contract creatively to achieve some level of profitability and there are several ways to do this:

Substitute products from the original tender with lower quality and/or higher margin versions
Aggressively promote non-standard, higher margin products
Use staff inducements and incentives to encourage the purchase of non-standard products
Produce poor reporting which does not highlight the degree of variation from the tender

Because it is practically impossible to track what is happening, the result is that over time, a customer will end up paying more than they should. The contract will have been “managed into profitability”.

Well isn’t that reasonable? Everyone needs to make a profit.

It depends on the degree of substitution to “non-standard products” and the price premium that is charged on these items. A typical contract can be made up of 20%-30% “core/contract products” and 70-80% “non-standard products” and many buyers are not aware of the premium that they pay on “non-standard products”. Ultimately it means that the buyer is not fully in control of the contract, because of the activities listed above, the organisation will almost always buy more non-standard items than they expected when they signed the contract.

How can the buyer stay in control?

The nature of office supplies/stationery and computer consumables means that it is practically impossible for buyers to prevent some or all of the above tactics:

There are often thousands of different products involved
Order quantities and values are often low, but order frequency is high
Most orders are placed “just in time”, so product substitutions are more likely to be accepted
Multiple staff are often involved in ordering and each can have their own way of doing things

How can you test the value of your contract stationery supplier?

Ask for an open book policy which shows the margins they make on all products
Ask for detailed reports showing the level of core/contract /non-standard product purchases
Ask for details of product substitutions including reasons why standard items were not supplied

However, even if you are armed with this information, it is still very difficult to manage a single supplier because there is no genuine competition on every order placed.

The latest technology solves these problems

Fortunately, technology can lend a hand. Just as price comparison sites have revolutionised the way in which many of us buy air travel, insurance, utilities and electronics products online, Mintprice.com is a unique office supplies website which also breaks new ground. Using patented price comparison technology, Mintprice.com is Next Generation e-procurement technology which gives price transparency across 20,000 stationery and office supplies products and works out the best price for each order you place. It works as follows:

Mintprice.com is an ecommerce-enabled Next Generation e-procurement website with over 20,000 stationery and office supplies products
Multiple approved suppliers are linked to the site and upload their price files for all products
The buyer inputs an order into Mintprice.com containing as many items as they wish
Mintprice.com will immediately check all the prices with several suppliers and show the supplier with the best price for all items on the order
The lowest cost supplier is selected by the buyer and the order is then placed immediately through Mintprice.com to the successful supplier.
The selected supplier immediately receives the order and delivers directly to the buyer
Average savings are not less than 15% and up to 70%

Mintprice.com provides the following advantages over a single supplier contract relationship

The buyer is in control of the contract, not the supplier.
No single supplier wins the tender and then has an opportunity to “manage” the contract without further competition from other suppliers.
An unlimited number of suppliers can be linked to the system.
Several suppliers compete live and online for every order placed (no matter how large or small) - in effect this creates an “instant tender”.
Mintprice.com compares prices on "baskets of products", not just single items, so buyers do not need to shop around for the cheapest basket price. Mintprice.com will always tell them the cheapest price for their basket and show which supplier to buy from.
Pricing becomes transparent across the whole catalogue of products
Suppliers will not run loss-leader pricing strategies, because they need to make a reasonable profit on every order that they win – this removes any motivation to try and influence the buyer to choose alternative higher margin products.
Mintprice.com will save money off even the most aggressively negotiated contracts because several suppliers are competing "live" for every order and must maintain competitive prices across the catalogue at all times or risk losing business.
The price results for each order can be presented by price and geographical proximity of supplier to enable buyers to comply with any environmental targets.
Procurement managers achieve compliance across the organisation with everyone using the same system.
Powerful real time online reporting enables procurement managers to monitor buying behaviour and make necessary changes to policy.
Procurement managers can monitor supplier performance and add/remove suppliers at any time.
Users will find Mintprice.com easy to use – searching for products and placing orders is a rapid process which saves significant time when compared to other supplier systems.
Mintprice.com is rapidly deployable, even in a large organisation, delivering rapid cost and time savings

Other information

Mintprice.com has been developed by and is fully owned by Newcastle-based Bestpricepurchase Ltd, sister company to J6 Limited.
The concept is proven with hundreds of active customers, and over 150 new customers joining every month.
A patent has been granted for this concept in the USA and a patent application is pending in Europe.