TCO – Applying A Lesson Learned from Amazon Prime
Amazon Prime has changed the way we buy with free two-day shipping on many purchases.
The popularity of this changed the barrier to entry in this market. Walmart dropped their membership program aimed at competing with Amazon Prime in less than a year. Even though they dropped the program they do offer free shipping on many items.
Amazon analyzed buying habits and determined that the number one reason that shopping carts were abandoned before committing to buy was the shipping cost.
By offering fast free shipping on many items for Prime members Amazon changed the TCO for consumers.
Instead of an option, this is now an expectation. They continue to add benefits for members that is strengthening their competitive advantage.
The lesson that I believe applies to TCO is never accept the status quo.
There are many places to lower cost and increase efficiency in the purchasing cycle. You many not hit a grand slam like Amazon but if you can identify enough smaller gains they will add up.
Here are some ideas to consider that cover a wide range of spend categories:
- Identify suppliers willing to lower delivery costs or provide rebates in exchange for greater volume.
- Seek suppliers who have a broader range of products and geographic coverage. This should lead to cost and efficiency gains through shipment aggregation or changes in delivery frequency.
- Examine existing rebate and discount programs and work to set up similar arrangements in other spend categories.
- Review pricing for consistency on a local, regional and national level. It is not uncommon for the same supplier to charge different prices depending on the market served. This is an excellent opportunity to lower TCO.
- Review existing contracts and renegotiate ones with overly complex rebate/discount calculations since they often lead to billing errors.
- Set up automatic tracking and reminders so purchase thresholds that provide rebates are not missed.
- Work with receiving to identify innovative suppliers. They know who runs a tight ship.
- Strategize with stakeholders to modify specifications.
- Switch from premium to standard items or services for noncritical purchases.
All this digging may help you uncover a way to dramatically increase your competitive position.
Even if you don’t, you will certainly find ways to lower costs and increase efficiency that can be applied to multiple spend categories.
Action Step: Every organization can get better. Finding and creating success is often a matter of taking the first step. If you are uncertain where to start, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want. If you would like to explore this topic in greater detail, please contact me.
If you want to explore a purchasing or procurement topic in greater detail, I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that my recommendations will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
Organizations of all sizes are reducing costs and increasing efficiency, without changing the way they conduct business. If you would like to know how, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life