What is best practice in purchasing?
Establishing a good, effective purchasing strategy is not hard in theory. It’s about eliminating all unnecessary deviations and negotiating the best possible agreements. But in reality, getting the entire business on board is considerably harder.
A lot of company executives have a tendency only to look at the purchase price when determining whether or not a deal is good. Unfortunately, this is very limiting as regards the cost-cutting potential within the company. The purchase price is only the tip of the iceberg. Other equally important factors are quality, delivery guarantees, ordering procedures and logistics at the supplier company.
Few companies consider the bigger picture when it comes to purchasing. Looking at every stage of the purchasing process can save a lot of money and many man-hours. In most cases the price is far from the main cost driver in a purchase. Sales Manager Millum SweedenMichael Willner
Supplier management
You must take control of your suppliers and all your purchases and agreements with them. If you don’t regularly follow up with your suppliers, you risk not getting the very best out of your agreements.
Full competition
Put everything out to competition – from both traditional and non-traditional suppliers.
Preparation
Put together fact-based analyses (spend and full product cost) to ensure full insight and bargaining advantage.
Consolidate consumption
Reduce the number of suppliers to secure volume discounts.
Know your suppliers
Exploit changes in the supplier market, capacity and their direct cost structure.
A lot of companies make purchases and accept everything based on the supplier’s terms and conditions. If you want to get the best possible deals and make the most of your existing agreements, you need to follow your suppliers up regularly. Less is more – don’t have more suppliers than you have time to monitor.
Needs analysis
The first step is to find out what the actual needs are in your business. Implementing complex systems is not necessary, but do spend some time identifying key people for purchasing in your business and focus on the most important needs.
Standardise your needs
Implement best-practice needs identification and procedures to find out who can buy what, where, when and how.
Optimal specification
Optimise the product specification to minimise the total life cycle cost.
Few businesses have proper control over their own purchases. Often, a lot of different people can place orders, and there’s very little follow-up to check whether purchases are being made under agreements. The rule of thumb is that the more people who order, the higher the risk of deviation from contracts. Having fewer, dedicated buyers, you ensure you get the best price and the best terms for each purchase.
Process landscape
Take a look at how you work and what processes you carry out. Is there scope to improve them? If you want to keep track of cost savings, you must also carry out measurements before and after implementation.
Reduce purchases outside of agreements
Make sure that agreements and procedures are adhered to. Make it difficult to buy anything outside of a purchase agreement.
Measure savings
Implement measurement and reporting systems to ensure that cost savings genuinely translate to improved finances.
Manage terms of payment
Optimise terms of payment and application of discounts where available.
The only thing that works is to have complete control over purchases. With good rules and procedures, you can make sure that purchases are made under agreement. To be able to show solid results, you have to carry out measurements both before and after.
