Soft costs are the costs associated with a process or procedure that are not apparent when looking at just the price of an item. (This overlaps with, but is not the same as the Magic of Cost Accounting.)
We tend to understand this much easier at home than at work for some reason. They say charity begins at home; apparently purchasing knowledge does too!
How can vendor consolidation of relatively cheap items add up to 15,000 a year? Read on...
If you need to purchase several different types of household items on a Saturday afternoon, you'd probably prefer to visit only one store rather than three. Luckily for you, grocery stores now have department store items like appliances and lawn chairs while department stores have aisles of food. You know intuitively that if you had to visit three stores instead of one to get the same items (even if the price tags were identical among all the stores), it would cost you more in time and also gas money and other wear and tear on your car.
It's no different at work. We often think that people make the same salary no matter whether they place orders from three vendors or one. That's true. However, at work, time is definitely money. The faster an employee can perform one task or set of tasks, the more time he or she has to accomplish additional tasks.
Sticking with our example of three items coming from one vendor instead of three separate vendors, imagine the soft cost difference when all these steps are taken into account:
- Researching pricing/item information
- Creating paperwork/actually placing order by phone, fax, or Internet
- Receiving - physical work/paperwork
- Distribution internally
- Invoicing & Payment
Based on industry studies, these soft costs can add up to a whopping additional $ 100 per order! Imagine that when the items themselves may cost only a fraction of that.
Space here doesn't permit a flashy example with all the math worked out, but this web page from an Office Products company will show easily and quickly how you can either save or waste $15,000 per year.
Vendor consolidation makes good sense.
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