Save Like a Pro, 10 Ways to Buy like a Big Corporation

The title of Purchasing Manager implies that I can always unlock the best deals, but I didn’t always know how to save like a pro. Not knowing a career in purchasing was an option, I had no clue the effort that goes into sourcing materials/services and the important role corporate buyers hold.

I quickly learned that every large corporation has a decently sized Purchasing/Procurement team, and some of these companies even have Purchasing Executives in their C-Suite. These organizations invest in these teams so they can continuously bring savings to their bottom line and assure they are getting the best possible agreements.

Let’s take a page out of their book and utilize the tactics big corporations use to optimize their savings and apply them to your purchases.

1. Small Consistent Savings Add Up

In my line of work, I negotiate over pennies. Literal pennies. These pennies build up over millions of units making the savings quite substantial. I’m not saying that you should negotiate over said pennies, but if you can save $5 on four different expenses a month, and consistently save that amount for a full year, that adds up to $240 a year!

The little bits of savings end up building to a much larger sum over the course of a year. If there are opportunities to save one or two dollars take it! Keep taking the savings repeatedly, and at the end of the year you could end up with hundreds in your pocket.

Not so hard to save like a pro is it? Lets move on to number 2…

2. Look at Big Purchases in Terms of ROI (Return on Investment)

ROI is typically a term used when describing profits received on investments, but this also applies to savings on investments. When a corporation invests in equipment at a supplier closer to their factory, this may not drive an increase in sales, but it will save money on transportation. We can take a look below at how a company might look at this savings project in terms of ROI:

• Investment in Equipment at a New Supplier: $100,000
• Savings per Year on Transportation: $75,000
• Breakeven ROI in Years: 1.3 Years

Most corporations that I have experience with within the consumer goods industry want this breakeven point to be 2 years or less, but this may differ for different industries.

You can use this approach with any large purchase you make. Let’s look at an example of how a pro would save on a purchase of a new kayak.

We can look at the ROI of a kayak by looking at what we would have spent instead of having a day on the water. For this example, let’s assume that every other time we use the kayak, we would have gotten drinks with friends in town. We’ll take the savings from not getting drinks to see if that can help us justify purchasing the kayak:

Looking at the numbers we are right at the two-year mark. This would give us the justification to take $400 and go purchase that new kayak.

Using this methodology can help justify just about any purchase while continuously keeping costs low.

3. Everything is Negotiable

One of the most important lessons in this article is that everything is negotiable. Yup, you heard that right, everything from your new car to your groceries’ doesn’t have a set price. The party that wants the service/good or money the most, is the one that caves in and pays what the others offering.

Typically speaking, the higher the cost of the good/service you are set to purchase, the most negotiating power you will have. For example, when purchasing a car, there will be plenty of room to negotiate, as the amount of effort for the dealer to sell a single car is likely to outweigh the need for you to purchase that vehicle right here and right now. The negotiation power shifts towards the buyer in this situation.

The same can apply to lower-cost goods when they’re not necessities (food, utilities, etc.) or there is a surplus of sellers in the area.

You can save like a pro when you can identify opportunities in your own life where the negotiation power shifts towards you, the buyer. To easily spot some of these opportunities, look for some of these points:

• One Time Purchases – These are items that you only need to buy once and aren’t consistently reoccurring. Think furniture or appliances.
• Purchases Over $1,000 – The higher the cost, the more margin the seller is baking into the price. Depending on the situation, sellers may be willing to sacrifice some of their profits rather than not making a sale at all.
• Uncrowded Stores – If you look around the shop you’re in and there isn’t a soul in sight, there is a good chance the owner needs you a lot more than you need them. This can set a good foundation to strike a bargain.
• Commoditized Items – On your last beach vacation think of how many stores are selling the same gifts. When many vendors are selling the same or similar items, this shifts the power to the buyers leaving room to negotiate.

4. When You Negotiate, Do Your Homework Ahead of Time

Once you spot a purchase where you have more negotiation leverage, it is important to do your homework ahead of time. Most of the work involved in any negotiation is done before the negotiation even happens.

Buyers use Negotiation Maps before every large negotiation they walk into. This enables them to be prepared for any topic that may arise and to place pressure on certain aspects of the negotiation where the other party is likely to give in.

5. Avoid Increasing Spend With Increasing Income

The way any business grows is that they invest a portion of their profits back into the business. This allows the corporations to expand in manufacturing or distribution and reach a wider customer base.

Use the same way of thinking when spending your own hard-earned money. Don’t go and buy something that will be another drain on your monthly budget. Alternatively, use the extra funds you receive from a promotion or raise and purchase appreciating or income-generating assets.

Use these assets how a business would, and increase your Net Worth or Income. Over time this effect will start to snowball, and you will have another substantial source of income or assets that grow at a far greater rate than you can save.

6. Get “Approval” from your Budget before you make a purchase

In the last 3-4 months of the year, a typical corporation will create a budget for the following year for what they plan to both sell and purchase. This allows them to create financial forecasts to display to investors during shareholder or quarterly meetings.

On occasion, large unforeseen expenses or projects that aren’t included in the budget come up. There is then an approval process that this expense goes through before it is implemented. In these cases, the financial wizards employed by the company must find funds from other portions of the business to pay for this expense. If the expense isn’t a necessity, many times the company rejects it altogether and leaves it to the following year.

Use the same tactic when large expenses come up in your personal finances. Have your budget be the “gatekeeper” to large expenses. See if you can make room for the new expense in your existing budget. If your budget doesn’t allow it, don’t go through with the purchase. To save like a pro, shop around to see if you can get a better price or avoid the expense altogether.

7. Identify Future Cost Savings Opportunities

As Professional Buyers, we develop projects that save the company money. These projects range everywhere from switching to a lower-cost supplier (think switching your cable provider from Comcast to Verizon), buying a cheaper material, to reducing the amount of labor that is needed to manufacturer a product.

All Purchasing Managers have a “sourcing pipeline” that maps out projects for the next few years. It can be difficult to tackle all the projects at once, and there may be barriers or investments that prevent us from implementing these projects sooner. Thus, the pipeline is created to consistently lower costs for the business as projects can be implemented.

Take this approach and save like a pro. Find what savings you can apply now, and what you may be capable of in the future. Map the projects out on a spreadsheet or notebook and create a pipeline of your own. Some common household savings projects might include:

• Switching from heating oil to natural gas
• Saving on fuel by switching to an electric car
• Investing in/leasing solar panels

This allows you to get in the mindset of continuously reducing costs. If anything, the mindset this creates can be more powerful than the savings projects themselves.

8. Maximize Your MOQ (Minimum Order Quantity)

MOQ is a popular term used in the supply chain world. This is the minimum amount of goods a company will receive with each order. Like buying in bulk, pricing moves down with the higher amount of goods a company purchases at once.

It is a Purchasing Manager’s job to optimize MOQ to receive the best possible price; however, there are constraints involved. Keep in mind that if the MOQ is too high, there will be excess materials and the company will likely have to dispose of what it cannot use.

This is important when it comes to maximizing your own MOQ. Before your next trip to Costco, take note of what hasn’t moved in your pantry for the past few months. These are often items where your MOQ is too high, and in turn, instead of saving money, you’re wasting it on products you don’t need.

Try not to purchase more than 3 months’ worth of pantry items at one time. If you purchase more than this, you may not be saving money, but instead are buying goods you’ll never end up using. Instead of buying the “mega” size, put those excess funds in a brokerage account to save like a pro.

9. Find Preferred Vendors for High Spend Items

Businesses use partnerships to maximize their competitive advantage. If you want to buy like a pro, you’ll have to use your own network to do the same.

What does this mean for you? Put yourself in the shoes of a pro buyer and look at what you spend the most on an annual basis. Prioritize finding vendors you can trust, that will provide competitive costing and high-quality service/products for your top 10 items.

For example, if it turns out you are consistently updating your house and dedicating a large sum of money towards renovations, find a good contractor and stick with him. The contractor will likely give you a discount and prioritize your projects over others if they know it’s a constant source of income.

The same rule applies to heating oil as well. Find a cost-competitive & reliable company that you give consistent business. If you keep switching vendors to try to save a few pennies, you may find yourself out in the cold without any vendors to choose from.

10. Quality Matters

The saying “You get what you pay for” plays a larger role in corporate purchasing decisions than you may think. If a product offering by a supplier doesn’t hit the quality standards that are defined by the buyer, the supplier isn’t even considered. Quality is almost always verified by a technical team (engineers or scientists).

Low-quality items tend to break, or don’t last the test of time. If an important component breaks or fails in a customer’s hands, it could be crippling for a corporate brand.

Since quality is a must-have for corporations, it should be for you too. It’s better to pay a reasonable amount for a high-quality product than to buy a cheap low-quality item. Avoid low-cost alternatives in electronics and home supply items. You will likely end up paying more for these items down the road when it comes to maintenance or replacement costs.

Now you have the same tools in your arsenal as the world’s most prominent corporations. The next time you go to make a big purchase, glance at this list to see if you might be missing something. Feel free to add additional tips on how you save like a pro in the comments or look at some of our other money-saving articles.