One of the most valuable tools for buyers is the availability of information about the amount of purchases. Organizations are rightfully concerned about the number of pieces of each item that are on order or that are on hand, but we are not talking about that. Our interest is in the amount spent over time. Knowing how much you spend with each supplier and how much you spend for each item are both important pieces of information that help the purchasing function do a better job.

Usage counts are available from the inventory control function of a business, but in most companies, information about how many dollars have been spent with each supplier is available from the accounts payable function. If not immediately available, it can be obtained quickly from the organization’s computer records. How much is spent annually for each item or each category of items may take a little more time to obtain.

Buyers should periodically obtain a report listing the amount spent with each supplier for the year. Ideally, the report should also give how much was spent for each item. When more than one supplier is involved the individual items should show the total amount spent with all suppliers for that item or category of items.

The dollars spent by item is the information required to direct efforts to those items and categories of items that affect cost the most. Item counts don’t do this because low piece prices may have a low total cost effect in spite of having a very high quantity usage.

If the report lists the items and the suppliers in descending order of dollar amounts it becomes easy to see that only a few of the items or suppliers at the top of the list account for the major portion of the expenditures. This is an example of the Pareto Principle and this is where the buyer should concentrate his or her efforts.

Make the suppliers aware that you know how much is being spent with them annually. The salesperson may not realize the amount or the potential if you are giving portions of the business to other suppliers. You should not tell them where the other business is being placed, but you should let them know the potential for more business.

Purchase volume data also helps track performance and compare changes in expenditures to changes in revenue.