One of the biggest questions customers have is where did these numbers come from and what do they mean? There are four main sources for the information needed to document the value a supplier adds:

1. Supplier's Records – suppliers already know quite a bit about their customer, such as freight costs, price paid, quantities utilized, etc.

2. Industry Standards – research exists on a number of costs for various industries, such as the cost of oil, electricity, processing costs, raw materials, personnel, etc. These can often be utilized when specific data is not available.

3. Estimates – basically, an educated guess can be made based on knowledge of this customer, the industry and other customers. For example, the inventory possession cost may not be known for one customer, but an estimate can be made based on the possession costs of similar customers.

4. Customer Data – of course the best place to gather information is directly from the customer, but often that is not possible or easily attainable.

A person documenting the supplier's value could access the required information from any or all of these sources.

Reduced Downtime

1 downtime reduced
*1 hour of production saved (based on previous downtime situations)
* 0 units per hour is the production rate
$100 sales price for each unit being produced
$45 raw material cost for each additional unit produced

Reduced Inventory

1 Lot of inventory (all lines and quantities)
$10,000 total value of all inventory reduced
18% cost for carrying inventory

Reduced Freight

1.5 number of deliveries reduced per week on average (from 3)
* 52 weeks in a year
$75 average cost per delivery

Reduced Ordering, Invoicing, Receiving

$35 estimated cost for processing an order (before and after the change)
$25 estimated cost for processing an invoice (before and after the change)
$15 estimated cost for receiving (before and after the change)
3 average number of orders per week before vendor managed inventory
* 52 weeks per year
1.5 average number of orders per week after vendor managed inventory