The fundamental goal
of the purchasing function is to acquire goods and services for the company
of optimum quality, in the correct quantity, in a timely manner, and at
the lowest total cost. Because purchased goods and services take up such
a large amount of revenue--30 percent of revenue even for service companies
and as much as 70 percent for some manufacturers--an effective procurement
process directly benefits the profitability of the company.
In addition, the quality of supplies the purchasing function acquires affects
the quality of the company's product and, ultimately, customer satisfaction.
The ability of the purchasing function to maximize value while minimizing
costs has caused companies in recent years to give priority to developing
effective purchasing strategies.
Because of the increasing use of the Internet to send and receive purchasing
data, purchasing staff can devote less time to processing transactions.
This frees them to focus on more strategic work such as locating suppliers
and negotiating contracts.
Best practices in purchasing vary according to the type of item procured,
the monetary value of the item, and the item's strategic importance to the
company. Increasingly, companies are pushing the purchasing of non-strategic
items to end users and optimizing the expertise of the procurement function
for more critical items.
/ decentralized structure
into total company operations.
To gain the benefits of effective purchasing practices, leading companies
make sure the purchasing function aligns its strategy with the strategy
of the entire company. The purchasing department supports the company's
strategic plan, rather than inadvertently working against it, when purchasing
understands where the company is headed and its product strategy for the
Leading companies support this need by including the purchasing input into
meetings of top management and by requiring other departments to work closely
with purchasing. Specific approaches to better communication include implementing
cross-functional sourcing teams, making use of purchasing staff's skill
in nontraditional buying situations, and sharing order and inventory data
throughout the enterprise.
Choose a centralized/decentralized
purchasing structure based on overall company strategy.
A company's ideal position along a continuum from a decentralized purchasing
organization to a centralized one depends on its overall organization, its
products, and the degree of commonality among the items and services it
buys. A company whose business units all use the same types of parts, if
not interchangeable parts, gains most from centralizing its purchasing.
This centralized procurement function consolidates the purchasing of similar
items in all its business units and leverages that combined volume, producing
lower costs, improved quality, and better service.
On the other hand, a company whose business units each have unique requirements
for parts and materials benefits more from a purchasing structure that puts
buyers closer to end users.
Nonetheless, all companies benefit from a central purchasing administration--common
processes, procedures, forms, and systems. A company's optimum balance between
centralization and decentralization is dynamic, requiring continuing review
involvement in routine, nonstrategic spending.
Routine paperwork such as writing requisitions, generating purchase orders,
checking invoices, and requesting payments add little if any value and distract
the purchasing staff from more important, long-term duties, such as finding
new sources of materials and negotiating contracts. Smart companies assess
the economic value of each sourcing decision and purchasing function and
eliminate those that do not add value. They either automate the activity
with technology, transfer it onto the end user or stop doing it altogether.
Micromanaging the purchasing function--imposing low spending limits on buying
done by end users and restricting purchasing-card usage--merely creates
unnecessary work for the purchasing staff. By reducing non-value-added activities,
companies drive out costs and become more efficient. The purchasing department
becomes less tactical and more strategic.
Integrate the procurement process to eliminate waste and save time.
A fully integrated procurement process connects the functions of product
development, procurement, manufacturing, and accounting within the company
and also coordinates with suppliers and customers outside the company. The
resulting process looks less like a step-by-step chain, with a sequence
of activities, and more like a network or web, with many activities occurring
When order and inventory information is available to internal customers
and suppliers in real time over the Internet, so that each part of the web
is processing data simultaneously, the entire purchasing process speeds
up dramatically. Furthermore, people throughout the company make sounder
decisions because of the more accurate information available to them. When
the purchasing process is studied as a whole, companies find redundant activities
that can be eliminated.
Develop purchasing professionals
into knowledge specialists.
Automation has removed many time-consuming transactions from the purchasing
professional's workday, freeing up time for more strategic activities such
as working on product design, materials sourcing, and negotiations. In order
to do this, purchasers today need a wider set of skills, including interpersonal
and negotiating skills, customer focus, understanding of business conditions,
and analytical abilities. Today's purchasing professional can see the big
picture--the strategy of the company and its position within its industry.
Smart companies train purchasers to focus on more than costs, broadening
their view to include risk management, customer satisfaction, market forces,
and properties of materials.
Reap the benefits of e-procurement.
E-procurement--using software and the Internet to automate processing of
transactions between buyer and seller and to share information within and
outside the company--transforms the procurement process. E-procurement renders
data in the supply network transparent to customers and suppliers. This
transparency promotes a more integrated supplier system, a shorter order
cycle time, and more accurate inventory.
To achieve these benefits, effective companies weed out process inefficiencies
before instituting e-procurement. They also clean up their databases to
avoid automating inaccurate and duplicate records. The purchasing function
devises business rules that establish the flow of orders and payments to
allow transactions to travel through the system without oversight by purchasing
staff. A correctly formulated set of rules allows end users to buy items
from their desktop computers that contribute to the company's operations
and profitability and prevents other purchases.
In practice, each end user is given a profile stating the applicable spending
limit and the types of supplies authorized (such as office supplies or travel).
Online catalogs limit selections to those of preferred suppliers and negotiated
prices. Orders conforming to this procedure go directly to the supplier
without further authorization. An order that falls outside the original
rules is an exception that is automatically routed to an appropriate supervisor
Apparel Search Logistics
Perform a Procurement Assessment for my Organization?
Document my existing
Establish Gap Analysis
of Current State to Best Practices
on Investment (ROI) Procurement Opportunity
Establish work plan
to implement Best Practices
expenses per transaction
Amount of off-contract
purchases made electronically
of excess stock
What can a Procurement Assessment from
Apparel Search Logistics do for my Organization?
Reduce your organizations
Create a framework
to measure procurement quality, service and costs
Institute a change
management plan to insure continuous improvement
Ensure that organization
is receiving maximum value from marketplaces
Improve cycle times
and service levels
Reduce levels of
rework and errors
and Procedures based on Best Practices.
If we can
assist you in anyway, please do not hesitate to
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