This Key performance Indicator establishes the value of penalty that has been incurred by purchasing parts on a V.O.R basis.
In the example below, the Actual Buying Price represents the total price that you have paid for the parts that you have purchased.
The Optimum Terms Cost is the figure that you would have paid for these parts if you had ordered them all on a stock order basis.
The difference between these two values represents the additional money that you have paid to obtain these parts on the V.O.R ordering system.
The value of this penalty is dependent upon your Parts Sales, V.O.R % and of course the frequency of your parts deliveries.
Example:
A) Actual Buying Price = R532,423 B) Optimum Terms Cost = R520,069 C) V.O.R Penalty = R12,354 (A - B)
Discussion:
Measuring the value of the V.O.R Penalty can be misleading when comparing your information with other businesses so to level out the playing field in this area refer to the V.O.R. Penalty %.