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Ordering costs: definition & important points for buyers
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Ordering costs in a nutshell:
Ordering costs include all internal costs incurred in the execution of an order, from the determination of requirements to invoice verification. Knowing and optimizing order costs is essential for purchasing, as they have a significant influence on the overall process costs and the optimal order quantity.
Example: A medium-sized company calculates order costs of 75 euros per order process, which are made up of 30 minutes of working time for order processing (35 euros), IT system costs (15 euros), quality control (15 euros) and invoice processing (10 euros).
Contents
What are order costs?
Ordering costs are the expenses incurred as part of the procurement process for the creation and processing of orders. They include all internal and external costs incurred when ordering goods or services. These include personnel costs for order management, communication costs, costs for comparing offers and negotiating contracts as well as administrative costs.
Core elements of order costs
Importance of order costs in purchasing
Controlling purchase order costs is essential for companies to ensure efficiency and cost effectiveness in purchasing. High ordering costs can significantly increase overall expenditure and impair competitiveness. By optimizing ordering processes, using digital tools and bundling orders, ordering costs can be reduced and resources used more efficiently.
Ordering costs: from manual processes to e-procurement
Ordering costs play a decisive role in the efficiency of procurement processes. Traditionally, these costs were high because they were caused by manual work steps and time-consuming administrative activities. In view of increasing competitive dynamics and advancing digitalization, the need has arisen to optimize ordering processes and reduce costs. The transition from manual processes to modern e-procurement solutions enables considerable savings and increases the competitiveness of companies.
Old: Manual ordering process
Traditional approach: In traditional procurement, orders were usually processed manually. This included the creation of paper purchase orders, fax or telephone orders and face-to-face arrangements with suppliers. Employees spent a lot of time creating documents, manually entering data and checking order information. Communication often took place via multiple channels, which led to inefficiencies and increased potential for errors. The processes were also time-consuming and offered little transparency regarding the status of orders. The high administrative effort resulted in considerable ordering costs, which were incurred regardless of the order volume.
New: Digitalization through e-procurement
E-procurement: Modern procurement relies on electronic systems to automate and simplify ordering processes. E-procurement platforms enable the electronic creation, approval and transmission of orders directly to the supplier. Integration with ERP systems means that data is automatically transferred, reducing manual input and errors. Real-time tracking of orders increases transparency and enables better planning. Digitization not only saves time, but also significantly reduces ordering costs. In addition, standardized processes improve collaboration with suppliers and enable the use of analysis tools for continuous process improvement.
Practical example: Increasing efficiency in mechanical engineering
A German mechanical engineering company introduced an e-procurement system to modernize its ordering processes. Thanks to automation, the ordering costs per process were reduced from €75 to €25. Processing time fell by 60% and the error rate for orders was reduced by 85%. In addition, digital archiving enabled quick access to order documents and improved compliance. Overall, the implementation led to annual savings of over €500,000 and significantly increased the efficiency of the purchasing department.
Conclusion on ordering costs
Ordering costs are a key cost factor in the procurement process that can be optimized through targeted measures. The successful reduction of ordering costs is based on three pillars: the digitalization of processes, strategic order bundling and the use of modern analysis tools. Companies that actively manage their ordering costs and use new technologies such as AI and predictive analytics can not only achieve significant cost savings, but also strengthen their competitive position in the long term.
