Applying Strategic Purchasing Principles to Personal Buying

I can’t possibly be the only strategic sourcing professional who practices procurement process principles while at work but struggles to apply those same, familiar principles to my personal buying habits. I recently caved and signed up for Amazon Prime. I must admit, I have been using it much more than I should. It occurred to me that I never conducted a due diligence review of the Prime benefits to justify the annual cost for the popular Amazon service. In this blog, I will share with you my process and share some my conclusions.

I live in a major American metropolitan area, don’t have a car, and reside in a less than 800 square foot apartment with limited storage capacity. Before Prime, I had to make trips to the grocery store, Walgreens, and local specialty shops for all my households needs. My city truly has all four seasons with very cold winters and sweaty summers. Trekking heavy or bulky items home is not always convenient nor comfortable. Now that I have Prime, I have “free” two-day delivery at my fingertips. In order to measure the benefits and weigh the cost implications of Prime vs. Pre-Prime life, I need to establish a baseline. That is to say, I need to identify the item specifications and purchase frequency to get a true cost comparison. In this case, I am choosing to compare three sourcing options, rather than constructing a true historic unit cost baseline. I have selected three regularly purchased items below. As you can tell, I am not considering non-branded nor alternative items.  

• Personal Product: Dove Deodorant Minerals + Sage Scent 3 oz./85g; usage rate at one stick every 45 days or approximately 8 sticks per year
• Beverage: LaCroix Orange flavor box of 12 12 fl. oz. cans; usage rate at one box per 7 days or 52 boxes per year
• Household Product: Bounty Select-a-Size Giant Roll (1.5x regular roll); usage rate at one giant roll every 45 days or 12 regular rolls per year

Now that I have identified the product specifications and purchase frequency, I can collect pricing and consider additional factors. I have chosen to compare my three go-to vendors for household needs: Amazon, Walgreens, and Target. The table below details cost data collected as part of my market survey.

Pricing Raw Data
Product	Amazon	Walgreens	Target
Deodorant	$5.49 each	$5.29 each	$4.49 each
Beverage	$4.00 box of 12	$4.99 box of 12	$3.50 box of 8
Paper Towels	$12.99 for 6 ct Double Rolls	$14.99 for 8 ct Large Rolls	$14.99 for 12 ct Giant Rolls

The below table considers additional factors, not necessarily tied to the unit cost.

Additional Factors
Factors	Amazon	Walgreens	Target
Distance (round trip)	Not applicable	0.4 miles	2.0 mile
Shipping Cost	Prime: $99/year Pantry: $5/box Fresh: $14.99/month	Not applicable	Not applicable

The first step in my analysis is to convert market data into pricing at comparable units of measurement.

Unit Cost Comparison
Product	UOM	Amazon	Walgreens	Target
Deodorant	3 oz. Stick	$5.49	$5.29	$4.49
Beverage	Can	$0.33	$0.42	$0.44
Paper Towels	Regular Roll	$1.08	$1.50	$0.83

Now, I need to monetize my time to account for the travel distance. The average hourly wage in my geography is approximately $27/hour and the average walking rate is about 3.1 miles per hour. This comes out to a cost of $8.71 per mile.

The next step is to extend the unit cost by the annual volume to understand the annual cost impact.

Extended Annual Cost Comparison
Product	Volume	Amazon	Walgreens	Target	Best Price
Deodorant	8 Sticks	$43.92	$42.32	$35.92	$35.92
Beverage	624 Cans	$205.92	$262.08	$274.56	$205.92
Paper Towels	12 Reg. Rolls	$12.96	$18.00	$9.96	$9.96
Total Product Cost		$262.80	$322.40	$320.44	$251.80
Distance	12 trips	0	4.8 miles	24 miles	N/A
Distance Cost	Annual Cost	0	$41.81	$209.03	$41.81
Shipping Cost	Annual Prime Annual Fresh Annual Pantry	$99.00 $179.88 $60.00	N/A	N/A	$278.88
Total “Delivery” Cost		$338.88	$41.81	$209.03	$41.81
Total Cost		$601.68	$363.91	$529.47	$363.91

This exercise has shown that, like strategic sourcing for large corporations, personal strategic sourcing can be complex. I have not considered many decision factors in the analysis such as: delivery time, public transportation costs, weather conditions, condition of goods upon arrival, coupons, alternative/non-branded products, the decreasing per order cost of Prime membership as order frequency increases, ability to return products, availability of products, product storage life, and more. 

After conducting this experiment, I can draw several conclusions:

• Amazon Prime’s convenience can be outweighed by product/brand availability, the cost of memberships necessary to use Amazon services, and delivery time.
• Walgreens items come at a premium, but the proximity and brand selection make Walgreens an attractive option.
• Target may offer great prices, however, without a car I would have to allocate transportation time I could spend on more fulfilling or productive activities.

With this small subset of items, it is difficult to justify expanding my Prime membership to include Fresh service. A more thorough cost comparison of all recurring monthly expenses will be necessary to say for certain, but I don’t see that happening anytime soon. You should give it a try! Let me know how it goes. And, as always, for any non-personal strategic sourcing consultation please contact us a Source One Management Services.