Procurement Cost Control Method: Four Quadrant Classification

It is a basic premise to reduce procurement cost by dividing the purchased products into different types and adopting different purchasing strategies accordingly.

The four quadrant classification method is based on the importance of purchasing materials to enterprises and the factors affecting procurement costs. The procurement materials can be divided into four categories. As shown in Figure 2, the vertical axis indicates the importance of purchasing materials to the production of enterprises, and the horizontal axis indicates the degree of influence of purchasing materials on procurement cost, thus obtaining a matrix composed of four regions, corresponding to different purchasing materials and corresponding purchasing methods.

1, class I materials: tender procurement.

Such materials are of great importance to the production of enterprises and have great influence on purchasing costs. Enterprises should strive for a balance between price and non price factors, so as to avoid waste of resources caused by asymmetric information pactions.

Through bidding and purchasing, enterprises can generate healthy competition among different suppliers, thus improving the deficiencies in procurement business and allowing enterprises to have greater independent choice.

Purchasing in accordance with the principle of highest cost performance and best service ensures the high quality of production and greatly reduces procurement costs.

2, category II supplies: Strategic inventory.

The general cost of such materials procurement is not high, and the quantity of procurement is relatively small, but it is a supplementary material that will directly affect the production of enterprises.

When purchasing such materials, enterprises should consider whether they can ensure the smooth operation of their production and business activities and the quality of the final products in time.

The purchase of such materials is based on adequate inventory and the price is only a reference condition.

It is determined by inventory control.

Frequency and quantity can reduce unnecessary waste, and also ensure enterprise production.

Smooth progress.

Category 3 and III:

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The price is the most important consideration for the purchase of such materials.

Its influence on purchasing cost is much greater than that of production and operation.

Reverse auction refers to an enterprise announces its highest expected price on the network, then the supplier carries out bidding according to its own conditions.

The price quoted by the supplier must be lower than the highest price of the enterprise or the lowest price that the supplier can give at present. Finally, the enterprise will choose and evaluate the supplier of the bid again.

4, category IV materials: designated procurement.

Such materials are generally sporadic materials such as office supplies, which do not have any impact on the production, operation and procurement costs of enterprises.

But often the procurement and management of such sporadic materials cost a lot of manpower and material resources in the purchasing department, so the cost of management is increased.

Therefore, the procurement department will be authorized to purchase tasks in various needs departments, the use of fixed-point procurement method to meet the different needs of various departments.

Finally, the settlement and payment of purchase funds can only be done after a specified period.

In the actual procurement business, its process involves many aspects, it is very complicated, and the difficulties encountered are various. Enterprises should flexibly implement and carry out procurement cost control strategies according to their own abilities and actual conditions.