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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
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.

  • Integrate purchasing companywide
  • Choose centralized / decentralized structure
  • Minimize purchasing's routine buying
  • Integrate procurement process
  • Develop knowledge specialists
  • Reap e-procurement benefits

Integrate purchasing 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 future.

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 and adjustment.
 

Minimize purchasing's 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 at once.

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 for approval.

 

How will Apparel Search Logistics Perform a Procurement Assessment for my Organization?

  1. Document my existing procurement processes
  2. Review existing procurement policies
  3. Establish industry specific benchmarks
  4. Establish Gap Analysis of Current State to Best Practices
  5. Determine Return on Investment (ROI) Procurement Opportunity
  6. Establish work plan to implement Best Practices
  7. Establish Critical Procurement Measurements
    • Purchasing operating expenses per transaction
    • Amount of off-contract spending
    • Percentage of purchases made electronically
    • Monetary value of excess stock
    • Requisition-to-receipt cycle time
    • Others Based on Opportunity

What can a Procurement Assessment from Apparel Search Logistics do for my Organization?

  • Reduce your organizations procurement costs
  • 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

Standardize Policies and Procedures based on Best Practices

If we can assist you in anyway, please do not hesitate to contact Apparel Search Logistics.

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