Is the real cost of raising an order really £50 and what does this fee actually include?
The £50 figure is the one most often cited but this is very much an illustration – it could just as easily be £37.50 or £72. This is because the figure contains costs such as staff time which will change according to who is doing the task and across different organisations.
It will also depend on your processes for the authorisation of orders and invoices. These often involve several different people passing papers between one another and sometimes they are even involved twice in the process! This is why there is such an obvious case for examining just what is involved in raising an order and getting an invoice paid so that you can re-engineer the processes to take out unnecessary steps.
Other fixed costs include accommodation, heating, lighting, and so on. The important point to bear in mind is that every part of the process has to be costed. This could start from when the order is about to be placed to pay the supplier. A casual understanding about the cost of raising an order can actually be misleading, because it includes payment.
Purchasing cards, which are really payment cards, can cut invoice processing costs massively. This may seem a bit tiresome, but the costing process is really quite simple. Review the process, from your selected start to supplier payment, and add up the costs of staff time, telephone calls, faxes, stamps, and stationery and so on. It is a good idea to get the cost verified by your audit staff. That way you will have their support if the question is raised again.
If you want to empower end users with purchasing cards and perhaps e-commerce, you can start this process once a need is identified, as then you can also demonstrate the effort that goes into low-value orders. This might include the raising of requisitions, their authorisation, checking stock, looking through catalogues and telephoning suppliers. It may also include more costly activities such inviting quotes.
With this method, the £50 figure will only apply to low-value orders that require little procurement activity. For higher-value orders, which may include tendering or contract negotiation, the cost of raising an order may run into several hundred pounds. Different purchasing categories are likely to need different tasks, and all of these would have to be costed before you arrive at your average figure.
Source: The Chartered Institute of Purchasing & Supply.