To get a grip on purchasing, you can’t just cut the budget and call it even.
To truly make a difference, you have to change your strategy on spending, procedures and supplier management; and thereby turn the operations of your finance department into a noteworthy advantage for the company.
1. Make value your goal
If you place too much emphasis on getting the lowest price, you run the risk of your employees purchasing lower quality goods in the name of cutting costs.
This can cause frustration in other areas of the company like sales when they have to pitch poor quality products or customer service and then have to listen to customer complaints.
Modify your goals to aim for the best value rather than the lowest price. This way, your goals won’t undercut the goals of other departments.
2. Evaluate vendors
Vendors are an extension of your company. The quality of the vendors you choose to work with will affect your company’s success.
You need to develop an objective set of standards to hold your vendors against. If a vendor no longer deliver the best costs, product or customer service, they are no longer a benefit to your business.
Identifying the good and bad of your suppliers will enable you to let go of the bad and reward the good with your continued business.
3. Learn how to negotiate
Anyone in contact with vendors needs to understand the difference between a negotiation and haggling.
In a negotiation, there is respect for the other individual and the value of their resources. In haggling, you aren’t willing to pay what the other party’s goods are truly worth.
4. Get serious about purchase orders
Prices change, but there needs to be an understanding within your department and with suppliers that if you approve a purchase order, the final invoice should match.
Let employees and suppliers know any changes to an order will need approval as a new purchase or as a change order. This prevents vendors from taking advantage of your company resources for their mistakes or a surprise price increase at the time a shipment is received
5. Implement long-term agreements
Another way to combat unexpected charges is to negotiate long term contracts, or service level agreements, that freeze the price until the contract expires.
It can also spell out expectations for the product and lead times so that you understand exactly what your relationship with that vendor entails. If you encounter problems, it’s all in writing which means less time spent putting out fires.
6. Get a grip on purchasing data
If you track the costs and quantities of your orders over a period of time, you can start predicting your needs. You can also present this information to your vendors as a way to negotiate better deals. To get a grip on purchasing you have to get to grips with your data.
7. Spend time on hiring and training
Purchasing is not the same as shopping for groceries. The men and women responsible for purchasing need to understand your strategy and how their work affects the company’s bottom line.
You need to spend time training employees to focus on value, how to negotiate, to see quality vendors as an asset to the company and take responsibility for your purchasing procedure.
8. Hold your employees accountable
To ensure process is being followed, you have to keep employees accountable. Appoint managers to approve purchases and review incoming orders. Create checkpoints and separation in duties that will ensure each employee is held accountable for what they do.
If you put accountability into your operations, it enables you to better identify the source of an issue whether it is within your own department or caused by a vendor.
9. Adopt the right technology
For you and your employees, the only way you’re going to get a grip on your purchasing is to have access to the data and information that allows you to monitor costs and purchases, negotiate well, manage vendor relationships and ensure accountability within the department.
If you put your purchasing into the cloud and equip your employees with the right tools, you enable your department to be its best. Do this first and you’ll see how easy it is for the other steps to follow. Before you know it, you’ll have a top notch purchasing department making a noticeable difference in the success of the company.
(Hat tip Reyner Media for the photo)