Depending on the size, companies either have a purchasing department or designated employees who fulfill these tasks together with other responsibilities, as part of everyday operations that need to be streamlined. The purchasing department is considered as the backbone of any business and needs to operate smoothly at all times. A huge factor in streamlining your purchase department is knowing what strategies works best for your business and implement them.
But first you will need to know if and how your accounting system captures and reports costs accurately and that this includes purchasing in a way that enables you to measure and control them effectively. During my time in the hospitality industry I worked at a small boutique hotel and they had dumped all of its purchases into either direct or indirect costs. For a small hotel just starting out this was fine, however business soon started to pick up at a terrifying rate and they needed to expand as the demand during holiday season became bigger and as they grew, they found they needed to identify and measure each of the components of those costs so they could make better deals with their suppliers. A few months after initiating these measures they were able to see how they were wasting money in the past and what they have saved since. That also enabled them to employ someone just to do purchases.
A streamlined purchasing department has the following in place:
– They have a formal purchasing policy that defines desired quality standards, volumes, and price points. Think about the following factors as you define yours:
- Who has authority to submit purchase orders, if any are used?
- Who has the authority to approve purchases?
- What is your criteria when you select suppliers? – track record, previous experience, past performance, financial stability, etc.
- Do you have a standard number of quotes before selecting a supplier?
- Do you enter into formal supplier contract arrangements?
- Do you have a process for quality control?
- Do you regularly evaluate supplier performance?
- They have a designated person for purchases who places orders, ensures that purchasing policies are followed, who is responsible for vendor selection and management, inventory, quality control, and payment processing.
– They know what is going on with their inventory by streamlined tracking and avoiding waste. They use automated online ordering systems to monitor and manage their inventory and give them more visibility into their business.
– They use a purchase order system to keep track of orders. Once you’ve agreed on a price with a vendor, raising a purchase order will help you stay on top of your purchases when they are delivered and invoiced. Cross check items that arrive with your purchase order, and again when the invoice arrives. This is the time to spot check quality and quantity. Procurementexpress.com is a money- and time-saving solution to manage purchase orders and put you in control of company spend. Employees can load purchase orders and attach invoices from any device. Managers can approve, reject or comment on purchase orders and get an instant view of budgets, even when on the road and Finance departments get an accurate and paperless expense tracking system.
– They make repeat purchases from suppliers so they negotiate contracts for quantity discounts but still receive an invoice every month.
– They keep their eyes on the market because it is a no brainer that market prices never stay the same. When the market prices escalate they have to buy in smaller quantities but more regularly, not to get dragged down by too much inventory, and adjust the price accordingly for their customers. When the market price falls again they buy in larger quantities.
– They have supplier selection criteria ready when looking for new suppliers. Criteria might include previous experience and past performance with the product/service to be purchased, the supplier’s track record for business-performance improvement, requesting a formal quote, which includes providing the supplier with specifications and other requirements, thus testing him. Also visits to the supplier by management or a selection team.
– They always have enough resources. They are aware that if a company shows growth it is a sure sign that more employees would eventually be needed as purchasing processes will get too complex for current purchasing employees to handle.