TradeSync provides a variety of benefits, but what is the best way to understand the costs and the benefits of moving forward with the TradeSync solution?
Let’s look at the real cost savings and other benefits for a fictitious, but typical, electrical contractor called XYZ Electric. The office staff at XYZ checks each invoice for pricing errors and then types the invoice into their accounts payable system. To do this, the office staff gets paid $20/hour.
XYZ does $10 million of revenue each year and management estimates 50% of that revenue goes straight to materials procurement costs, so the company buys about $5 million of electrical products yearly. On average, XYZ’s vendor invoices have 10 line items each and the invoiced amount is approximately $500. This means the XYZ staff processes 10,000 invoices each year, composed of 100,000 line items.
Reconciliation & Integration
To check prices on a single line item the office staff needs to (1) identify the vendor and project code, (2) gather potentially relevant annual and job-specific contracts, (3) check the item against the contracts to see if the item is covered, (4) figure out which contract is appropriate to use, (5) calculate the contract price based – both net priced items and product group discounts, the later requires knowledge of product groups used by each vendor contract, and finally (6) compare the contract price against the invoice price. The office team thinks this process realistically takes 5-10 minutes per line item, but management thinks with a little skimping here or there the staff could average 2 minutes per line item, so we’ll go with that number.
Once the invoice is approved, the office staff sets to typing the invoices into the accounts payable system. This is pretty quick work as the staff members know the vendor codes and are quick with the numeric keypad, so XYZ estimates 1 minute per invoice entered.
Based on these numbers, XYZ finds that it takes 3,500 hours per year to process its vendor invoices, or about 1.75 full-time employees. As a sanity check, XYZ management and staff note that this back-of-the-envelope calculation generally fits with their real experience.
Invoice/Contract Reconciliation Costs
(# Invoices) x (Hours / Invoice) x ($ / Hour)
(10,000) x (0.35) x ($20)
= $70,000 per year
Invoice Data Entry Costs
(# Invoices) x (Hours / Invoice) x ($ / Hour)
(10,000) x (0.167) x ($20)
= $3,333 per year
TOTAL COST = Reconciliation Costs + Data Entry Costs = $73,333 per year
Or about $6,111 per month.
TradeSync automates these same tasks. It accomplishes them with perfect accuracy and easily handles peak work-load periods. XYZ switched over to TradeSync and eliminated all of these tasks for its office staff at a fee of just $500 per month.
Net Savings with TradeSync = Eliminated Costs – TradeSync expense
= $73,333 - $6,000
NET SAVINGS with TradeSync = $67,333 per year, ($5,611 per month)
Reporting
The business case for TradeSync includes more than the straight arithmetic of savings associated with reconciliation and integration, it also includes the substantial benefits from reports. With every invoice you process via TradeSync, you are building a detailed, line item level, purchasing history database. The information available to you from reports against this database can answers, never before available, to strategic questions that impact your business. With TradeSync you can answer, for example:
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What products do I purchased most often? What product categories?
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Which distributor did I do the most business with in total? By product category? By product?
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Which products and product categories are most opportune for greater savings?
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Which vendors are giving me the most contract savings according to my actual purchasing activities? Which are giving me the least?
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Which are giving me the best prices for the products I purchase the most?
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What are my committed costs that are not yet invoiced? By job code?
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What were my invoiced costs by job code?
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Which of my invoices still need to be approved? Which are closest to their trade discount due date? Which have the greatest potential discount savings if I pay them first?
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Are all of my orders and invoices priced correctly from my vendors?
Reports give you a better sense of how much you are spending, on what products, and with which distributors. They help you identify where greater savings can be had by changing your vendor selection, and focus your contract negotiations on products and vendors that can have the most impact on your bottom line.
Summary
The direct savings from TradeSync, for a $10 million contractor easily add up to well over $73,000 per year, or $6,100 per month. Plus, TradeSync customers have access to reports on line item data from actual purchasing history that can be used in ways never before possible when using paper invoices and manual processes. Comparing this direct savings and powerful new information to a cost of roughly $500 per month for a contractor of this size, it is easy to see how the business case for TradeSync pencils out.
Want to know how the business case for TradeSync works out for your company? Contact us for a free, detailed cost-benefit analysis. |
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