Does your company have a purchase control strategy? If not, don’t worry. I am about to help you create one.
Let’s kickstart this topic by defining purchase control strategy.
Definition
Procurement experts Lyson and Farrington define a purchase control strategy as a plan of action every purchasing department (or any other department in a business) has to follow in order to achieve the business’ objectives. The strategy is aligned with corporate-level business strategies, future plans, and purchasing capabilities.
Naturally, the aim of the strategy is to enable your business to satisfy customer needs faster than your competitors. It also serves as a precursor or a guide that tells you where to buy, at what quantity and at what prices. It’s important that you also consider taking cost effective steps such as reducing paper use in your business.
Let’s delve deeper into the strategy…
Tweet this: Your purchase control strategy is incomplete without the following major KPIs
The Strategy
Drafting a quality strategy takes time. You may have to revisit your company’s objectives, previous reports, research, etc. You’ll then use all the aforementioned information to create a purchase control strategy.
This will help your business make cost effective purchasing decisions. For instance, you can introduce an annual purchasing strategy with the aim of saving 40% on recurring purchases or target the addition of 20 new staff members within a year! Achieving these things is easier when you have a strategy in place that all departments are expected to be on board with. This is as opposed to just going with the flow and seeing how things end up.
Your purchase control strategy is incomplete without the following major KPIs:
Purchase ROI
This is an important KPI in your strategy because it helps you and your lieutenants measure the return on investment on every purchase. You’ll be able to measure how much value these purchases added, and at what rate. You can do this on a quarterly basis.
When you realize that the purchase ROI keeps going down, you can effect the necessary changes. This may include switching suppliers, buying cheaper brands, and so forth. Once all this is done, you can then adjust your budget accordingly.
Total cost savings
You use this KPI to aggregate the amount of savings you intend to achieve every month. This amount is based on the previous purchases made. The previous year’s financial statements come in handy with this. Then, measure the purchasing demand of each department. How does it vary and by how much? Finally, decide on how your team will implement this KPI. For example, in a situation where they can’t find an alternate good or service, what steps should they take?
Quality
This KPI measures the quality of all purchased products or services. Every purchase made should maximize profit in one way or another. This cannot happen without accurately measuring the quality of purchases. You should measure quality by using defects per million opportunities (DPMO) metric. According to this metric, purchases that have high quality are those that have few defects per million units. Alternatively, businesses that still purchase few quantities can divide the total number of deliveries with the correct quantity received.
Delivery
Using this KPI will enable you to measure supplier performance. You’ll be able to know if your business receives orders on time and how many times per year. Furthermore, you’d also know how late deliveries impact customer service. This way you’ll have sufficient ammunition when you meet with your supplier to renew the supply contract. With this information, you can either tell the supplier to shape up or take a hike.
In order to do this right, make sure that in your strategy you include:
- Delivery promise date; and
- Delivery schedule dates.
Both these metrics will help you establish the time it takes to receive orders.
Purchasing cycle
In this KPI you will have a metric that measures the entire purchasing process. From requesting quotations, sending requisitions, approvals, deliveries and to payments. How long is this process?
What’s the average time it takes to send a requisition and approve it? Like James Taylor once said, “Time will take your money but money won’t buy time.” So, if it takes days for your team to get your approval then you have a good reason to worry. Remember, in order for your business to outdo competitors, your purchasing cycle needs to be shorter and quicker.
Here is how you can improve your purchasing cycle:
Save time & money today!
Since business cycles are becoming increasingly fast, consumers expect quicker deliveries and consumption. Any system that wastes time will eventually alienate consumers. Technology gives us hope because it offers a variety of software for each business cycle. For instance, marketing, finance, production, sales or purchasing each have a special software designed for their specific needs.
Procurementexpress.com can help you improve your purchasing cycle by leaps and bounds. This efficient software has helped many businesses manage billions of dollars while they continue to generate millions along the way. What’s more interesting about Procurementexpress.com is that you can now integrate it with accounting software such as Xero.
Plus, if your business incorporates a web-based purchase order software such as Procurementexpress.com into the strategy, visibility into your purchases increases! You will implement your strategy rest assured that you have a software that makes the strategy work for your business.
Why don’t you test drive Procurementexpress.com today? Get rid of the paper-trail hassle with inclusive online reporting that eliminates fraud.
Sign up for a free trial!
