Forums  

Go Back   Forums > ISM Discussion Area > General Supply Management Discussions

Reply
 
Thread Tools Display Modes
  #1  
Old 05-03-2012, 06:55 PM
SGaddis
Guest
 
Posts: n/a
Default Calulating the Cost of a new vendor.

Good afternoon,

I am trying to find the standard method to calculate the cost of new vendors. Is there an industry standard or Best practice? Is there a standard number people assume or is there a formula that I can utilize?

Currently I have, the time keying the information for each step of the process. I then multiplied that by the average labor rate from the DOL. It seems extremely low. It doesn't account for time lost while waiting for the new vendor setup, because I wasn't sure how to quantify that as a cost. Also intangibles you get from a vendor that has treated you well over the years. I want to be able to answer to the CFO regarding the costs of a new vendor versus using and old one for a little more.

Thank you for any help,

Sean
Reply With Quote
  #2  
Old 05-04-2012, 02:33 AM
parsons8
Guest
 
Posts: n/a
Smile Costs Associated with New Vendor

Hi Sean! I can appreciate the amount of time you have already spent researching a formula, so that you have tangible $$ amount to share with your CFO. Throughout the years, I have spent many nights at the office researching various topics.

While, I do not know of a specific formula to determine the cost of changing suppliers, I can share with you that there are many other considerations which should be evaluated (some of which are specific to the commodity or indirect services provided by the supplier).

The only information provided for this scenario: Your company has a long-time supplier whose price structure is higher than a new supplier that your company (or CFO?) would like to engage.

Therefore, my recommendation would be to determine the "risks" involved in changing suppliers for the specific commodity/service. Sometimes, the risks associated with change are not worth the cost savings.

I hope this is of some assistance to you, and I wish you success in presenting your business case to the CFO.
Reply With Quote
  #3  
Old 05-07-2012, 12:58 PM
SGaddis
Guest
 
Posts: n/a
Default

Thank you for your insight. I am glad to use any help I can get.

I apprecaite it.

Sean
Reply With Quote
  #4  
Old 09-06-2012, 03:35 PM
anand13sam
Guest
 
Posts: n/a
Smile

Hi sean,

You need to have very good reasons to change exiting supplier/vendor. May be you are aware that the competition is not with the companies but one who has the best supply chain. The
classic old metrics are Cost,quality and Delivery. Now the new metrics are Speed,Response and Flexibility. And these factors do cost more. but new metrics take you to a new and High level performance.

In my view maintaining a good exiting supplier is extremely important unless you have valid reasons

Regards
anand
Reply With Quote
  #5  
Old 12-11-2012, 08:13 PM
tom.johnson@mysticlake.com
Guest
 
Posts: n/a
Default

Some years ago I asked this question and was told that changing suppliers shouldn't be considered unless the direct cost savings were between 2-3 percent.

I have a related issue involving a supplier offering a "one time payment for conversion" incentive as a part of the bid response. I'm having trouble working this into the analysis and am having ethical concerns.
Reply With Quote
  #6  
Old 12-18-2012, 06:06 PM
martindj
Guest
 
Posts: n/a
Default

What specifically does a "one time payment for conversion" incentive mean or involve?
Reply With Quote
  #7  
Old 01-02-2013, 05:10 AM
gokulbhushan
Guest
 
Posts: n/a
Default

Hello Sean,
You can consider the following factor's in association with your New Vendor Induction
1)Vendor Research- Financial rating (ex. D& B rating), Market performance.
2)Vendor training - to accustom them to the ERP's, e-Tools, processes etc
3)If your using subscriptions to any ERP's based on usage, you may want to consider the cost of new subscriptions as week
4)If your replacing a critical supplier- Consider the risk factor associated if the vendor cant cope up and result in any losses.

Mandate an agreement to counter above costs if the new supplier is unable to meet the requirement as your Old supplier does.

Also apart from cost factors, its crucial to consider non-cost factor for you to support your business case to the senior management like
1) Long term advantages you foresee
2) Disadvantages continuing with the same supplier.
3) Moving from single supplier to multi-supplier structure to avoid monopoly
4) Bring in competition for better pricing
5) A similarity in your supplier's and you companies future goals so that tying up with the new supplier can prove advantageous to your company.. etc..

Hope this helps !!
Cheers,
Gokul
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


All times are GMT. The time now is 01:47 PM.


Powered by vBulletin® Version 3.7.3
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.