An Early Example of How a CFO Can Reduce Costs by Creating Competitive Marketplaces

On my morning run, I came across this show from Planet Money (NPR) that had a fascinating example of the power of competition.

In 1879, the US treasury purchased all paper stock used for printing dollar bills from a single mill for $0.75/lb. The Treasury thought this was too high and asked for a reduction. The incumbent came down to $0.70, then $0.61 but the Treasury decided to go to market. The market spoke, and a new supplier was awarded the business at $0.389/lb. 136 years later, they still have the business.

One of the key things we do as procurement professionals is build competitive marketplaces that our stakeholders can lever to buy products and services. This is the case for commodity items such as paper stock (in the example above), but also for more complex and nuanced services. The amount of money you pay vary significantly based on whether you buy in the competitive marketplace that you have created, or just buy direct in the absence of any competition.

Levering strategic procurement to build these competitive marketplaces is a great opportunity for CFO’s to reduce SG&A and COGS costs without the need to impact the quality of products or services purchased.

The full podcast from NPR is here:

http://www.npr.org/sections/money/2013/09/25/226239237/episode-371-where-dollar-bills-come-from

 

 

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