Sterling Sample Assessment

INTRODUCTION
Description and Background
XYZ Bank currently with 10 branch locations and 24 departments at the main office.

Currently the purchasing function for supplies is generally consolidated at the Branch level for forms and general supplies as most orders are submitted to Printing/Purchasing on a manual basis (i.e., fax/phone). The balance of purchasing is fragmented by department as department managers order supplies as needed.

During the last couple of years, XYZ Bank made strides in simplifying the purchasing process for supplies. Forms are identified by number, the in house print shop was closed, and a manual catalog of available items is prepared for each branch. This report will address the future opportunities for further streamlining.

PURPOSE OF REPORT AND INTENDED AUDIENCE
The Vice-President of Internal Operations and the Purchasing Manager, as part of a process of simplification and expense control, requested this analysis. The purpose of this report is to inform the Bank’s management of initial opportunities for cost savings in implementing a supplies management program.

SOURCE OF INFORMATION
The main sources of information for this report include a walkthrough of the supply purchasing procedures, interviews with Printing/Purchasing, Accounts Payable Manager and the Vice-President of Internal Operations. In addition, we reviewed the Bank’s YTD expense accounts for June 1, 2004 — September 15, 2004 to determine which accounts contained supply expenses. Finally, transaction detail reports for the Bank’s supply expense and prepaid accounts were reviewed to determine major vendors. Approximately 10 vendors were selected for detail invoice review. Paid notices for these vendors were reviewed to identify supply items for price comparison.

LIMITATIONS OF THE ASSESSMENT
This assessment was limited to printed supplies and office supplies. The information reviewed on reports was limited to the period the Bank had been on the new operating software (i.e., June 2004). Information was not gathered at the branch level (no actual site visit) regarding the procurement process at this level. Lastly, an in depth analysis of all vendors was not performed (i.e., only 10 selected).

SCOPE OF THE ASSESSMENT
The topics of evaluation for the invoices reviewed were the items supplied by those vendors, purchasing process, invoice approval, sales tax, freight, and the time to pay the invoice. Other G/L accounts were reviewed to identify supply expenses included elsewhere.

COLLECTED DATA
Processes
The supply procurement process is largely manual

Orders from the branches are placed via phone or fax with Printing/Purchasing (Purchaser)
Purchaser separates the orders by vendor (i.e., Non-Inventory vs. Supply Room Stock)
Purchaser then pulls the supply room orders and places the office supply orders via phone/fax with various vendors
As Purchaser pulls the supply room orders he notes what items appear to be low and in need of re-ordering
Items are received at the Main Office
Branch orders are assembled by Purchaser and delivery to the branches by courier
Purchaser compares packing list to items delivered
A paper invoice is received by accounting, an expense distribution voucher is filled out. Large supply purchases are initially put into a prepaid account and distributed among all branches evenly
Accounting enters the invoice and then cuts a check
The approval process appears to be open, as no purchase orders are used to document the quoted price to the actual price charged.

The supply procurement process for other departments at the Main Office did not appear to always go through Printing/Purchasing, thus allowing for less consolidation of purchases.

The supply accounts reviewed consisted of a high number of small transactions. This account appeared to have approximately 1,800 items for the year and multiple vendors. When we include the Janitorial, Promotions, and Advertising accounts there will be even a greater number of individual transactions processed. Your accounting staff processes approximately 10 supply transactions a day. The Printing/Purchasing function takes approximately 20 hours per week; the associated accounting process, invoice distribution, account reconciliation, A/P approval, etc. is estimated to take 10 hours per week. This equates to 1,560 hours per year processing supply transactions. Projected savings in personnel time by automating with Sterling Inventory Managements program is approximately $29,640 per year. This represents estimated compensation and benefits.

Financial
Most vendors reviewed, billed for items as ordered. If 100,000 envelopes were ordered the Bank pays for all up front. In some cases, the vendor held the stock not used and notified the Purchaser when it was time to reorder. We did not observe any accounting for quantities used vs. ordered in our review. With multiple vendors, multiple items and locations it is difficult to manually manage your inventory, out of stock issues and obsolescence issues.

Average inventory on hand is normally 2 months of purchases. The Bank’s annual purchases will total approximately $400,000 this year. This will result in a one time capitol savings of $66,000 and an annual interest savings of $3,135 assuming prime of 4.75%. Reduced obsolescence and shrinkage by improved inventory management is projected to be 3% of your annual purchases resulting in a savings of $12,000 annually based on current purchase volumes.

Products
Invoices we reviewed yielded varied pricing for products. In some cases pricing was consistent with the market, other instances pricing appeared inflated.

With the manual purchasing practices and decentralized purchasing in the departments, you are not receiving consistent pricing and effective inventory management. Below are some items for comparison purposes. Note: The prices are not necessarily based on combined quantities (i.e., our review did not allow time to gather all usage information). Our final pricing may be lower when true usage is known.

Examples of Savings on Printed Products Reviewed:

Description	Current Price	Our Price	% Savings
Voucher	$45.63/m	$36.00/m	21.1%
#9 Envelope	$63.32/m	$49.95/m	21.1%
Coin Envelopes	$29.95/m	$25.46/m	15.0%
Teller Cash Form	$38.95/m	$33.11/m	15.0%
Thermal Rolls	$75.00/cs	$59.00/cs	21.3%
Letterhead	$119.96/m	$89.00/m	25.8%
L/H Envelopes	$43.86/m	$39.00/m	11.1%

Average % savings is about 19% on the above items. Using a conservative estimate of 15% across the board for printed items and annual purchases of $200,000 projected savings on printed products is $30,000.

Office supplies and toners are coming from multiple vendors thus not providing any consolidation of volume for purchasing efficiency. We gathered invoices from several vendors to compile a hot list for the Bank (i.e. to determine your high use items). Our office staff is analyzing this information and we will forward the results when received. Below are some items for comparison purposes.

Examples of Savings on Office Supplies Reviewed:

Description	Current Price	Our Price	% Savings
Correction Tape	$2.32	$1.89	18.5%
HP C6578DN	$34.97	$29.95	14.4%
Post It Notes	$6.24	$3.30	47.1%
VHS Tapes	$2.32	$1.99	14.2%

Average savings is about 23.5% on the above items. Office supplies are a commodity item and thus dealer margins tend to be smaller than printed items. We will use a purchasing contract for the Bank to purchase high use items competitively. Normal savings expected for office supplies is 5-10%. Using an estimate of 8% and annual purchases of $200,000 for office supplies, projected savings is $16,000. The hot list, use of generic brands, and review of ordering will provide increased savings.

Other Opportunities
Our review also indicated other savings opportunities available as we consolidate the procurement process. One such opportunity is statement processing. We will gather information from the Bank and take this to market to obtain the most competitive pricing.

CONCLUSION
Larger groups leverage their purchasing power by consolidating their remote locations and all departments. The savings % as a group grows is exponential. The key to a successful program is management of the processes, products, and services. Technology is a tool for managing these programs. Sterling Inventory Management’s Simplicity program provides this tool and Sterling Inventory Management provides the management.

Based on our review, projected savings are summarized as follows:

Annual

Processes Labor Savings	$29,640
Financial Savings	$15,135
Direct Product Savings	$46,000
Total Annual Savings	$90,775
One Time Savings	$66,000
Total First Year Savings	$156,775

XYZ Bank OPPORTUNITIES ASSESSMENT REPORT

INTRODUCTION Description and Background XYZ Bank currently with 10 branch locations and 24 departments at the main office.

SCOPE OF THE ASSESSMENT The topics of evaluation for the invoices reviewed were the items supplied by those vendors, purchasing process, invoice approval, sales tax, freight, and the time to pay the invoice. Other G/L accounts were reviewed to identify supply expenses included elsewhere.

COLLECTED DATA Processes The supply procurement process is largely manual

Orders from the branches are placed via phone or fax with Printing/Purchasing (Purchaser)

Purchaser separates the orders by vendor (i.e., Non-Inventory vs. Supply Room Stock)

Purchaser then pulls the supply room orders and places the office supply orders via phone/fax with various vendors

As Purchaser pulls the supply room orders he notes what items appear to be low and in need of re-ordering

Items are received at the Main Office

Branch orders are assembled by Purchaser and delivery to the branches by courier

Purchaser compares packing list to items delivered

A paper invoice is received by accounting, an expense distribution voucher is filled out. Large supply purchases are initially put into a prepaid account and distributed among all branches evenly

Accounting enters the invoice and then cuts a check

The approval process appears to be open, as no purchase orders are used to document the quoted price to the actual price charged.

The supply procurement process for other departments at the Main Office did not appear to always go through Printing/Purchasing, thus allowing for less consolidation of purchases.

Products Invoices we reviewed yielded varied pricing for products. In some cases pricing was consistent with the market, other instances pricing appeared inflated.

Examples of Savings on Printed Products Reviewed:

Description

Current Price

Our Price

% Savings

Voucher

$45.63/m

$36.00/m

21.1%

#9 Envelope

$63.32/m

$49.95/m

21.1%

Coin Envelopes

$29.95/m

$25.46/m

15.0%

Teller Cash Form

$38.95/m

$33.11/m

15.0%

Thermal Rolls

$75.00/cs

$59.00/cs

21.3%

Letterhead

$119.96/m

$89.00/m

25.8%

L/H Envelopes

$43.86/m

$39.00/m

11.1%

Average % savings is about 19% on the above items. Using a conservative estimate of 15% across the board for printed items and annual purchases of $200,000 projected savings on printed products is $30,000.

Examples of Savings on Office Supplies Reviewed:

Description

Current Price

Our Price

% Savings

Correction Tape

$2.32

$1.89

18.5%

HP C6578DN

$34.97

$29.95

14.4%

Post It Notes

$6.24

$3.30

47.1%

VHS Tapes

$2.32

$1.99

14.2%

Other Opportunities Our review also indicated other savings opportunities available as we consolidate the procurement process. One such opportunity is statement processing. We will gather information from the Bank and take this to market to obtain the most competitive pricing.

Based on our review, projected savings are summarized as follows:

Annual

Processes Labor Savings

$29,640

Financial Savings

$15,135

Direct Product Savings

$46,000

XYZ Bank
OPPORTUNITIES ASSESSMENT REPORT

INTRODUCTION
Description and Background
XYZ Bank currently with 10 branch locations and 24 departments at the main office.

SCOPE OF THE ASSESSMENT
The topics of evaluation for the invoices reviewed were the items supplied by those vendors, purchasing process, invoice approval, sales tax, freight, and the time to pay the invoice. Other G/L accounts were reviewed to identify supply expenses included elsewhere.

COLLECTED DATA
Processes
The supply procurement process is largely manual

Products
Invoices we reviewed yielded varied pricing for products. In some cases pricing was consistent with the market, other instances pricing appeared inflated.

Other Opportunities
Our review also indicated other savings opportunities available as we consolidate the procurement process. One such opportunity is statement processing. We will gather information from the Bank and take this to market to obtain the most competitive pricing.