PROMOTE
YOUR PROFESSION WITH
THE PURCHASING MULTIPLIER!
One of the most effective tools used in selling the need for a centralized purchasing program is that of the "Purchasing Multiplier".
Many of us know that with our own "family" finances we are often unable to greatly enhance our economic well-being in terms of adding to our income. Most of us rely on annual salary increases, overtime, promotions, or a second job to do this. However, aside from this there is relatively little we can do to better our economic conditions income-wise. We have found that instead of generating additional income each month, we can instead better ourselves by reducing our cash outflows for expenses. Grocery coupons, discount stores, and reduced waste all allow more money in our own pockets.
This exact same concept led post-war corporate executives to realize that a penny SAVED, truly was equal to a penny EARNED. Many managers found that even though in poor economic times, when they were not able to increase sales, their position at the bottom line could still look favorable by reducing expenses. But to what degree did they need to reduce them to do so? Enter the concept of the Purchasing Multiplier. Let's see how it works...
Determine your Cooperatives current percentage of profit by dividing it's annual revenue into it's annual margins or profit in dollars. This data can be easily obtained from any annual report. For example: Assume last year's profit for Cooperative XYZ is five million dollars ($5,000,000) and last year's income is fifty million dollars ($50,000,000). So... 5,000,000 / (divided by) 50,000,000 equals .10. This figure times 100 gives you last year's percentage of profit... in this case 10%. So... continuing with this example... in order to make one dollar ($1) of profit each year, the Cooperative must generate $10 of revenue each year: ($10 in revenue x 10 percent profit = One actual dollar ($1) of profit).
FACT: One dollar saved through effective purchasing is equal to one free and clear dollar of true profit.
Next step... get your accounting department to help determine the approximate cost of goods and services your Cooperative purchases each year. [assume it to be five million dollars ($5,000,000) for this example].
Now if, at a minimum, a centralized competitive purchasing program could reduce this cost by only one percent (1%) thereby saving fifty thousand dollars ($50,000) annually, then this savings is equal to Purchasing alone generating revenues for the Cooperative in the amount of five-hundred thousand dollars ($500,000) annually ($50,000 x $10 = $500,000). Thus purchasing, by cutting costs only 1% through smart buying, has generated the equivalent of half a million dollars of revenue for the Cooperative!!!
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