Who works in medium and large companies has already had contact with the purchasing sector. This is an important department that handles the acquisition of products and services for the company. It is the department to whom the remaining sectors appeal when they need to acquire something to help with their chores or for purchases that are connected with the productive process of the company.
But, people still look at buyer professionals in a somewhat incorrect way. Their reputation is almost always seen as “those who negotiate and obtain lower prices with suppliers” and as a support department. This occurs mostly because of the poor clarification of the importance of that area.
Below we listed some tips on how to have a more strategic purchasing center, aiming for the improvement of the business performance of the company as a whole.
Purchasing department tasks
As other professionals, the buyer has their own tasks to fulfill daily and clear purpose within the company: cost reduction and the guarantee of acquiring the best product or service. Some of their tasks are:
Contact with suppliers
The first task of the buyer is to select and properly manage suppliers. Once the sector has the knowledge of what is necessary to acquire for the company, both of equipment’s and services, it is time to start realizing a quotation.
The purchasing department should always have a good supplier database and always takes in to consideration price, delivery time, reliability, material quality and labor and legal matters before finalizing the purchase. In small businesses, the owner or manager may try to handle that part directly, on the other hand, when the company is bigger, it is better to have a dedicated and specialized team.
Purchase performance evaluation of the company
When we talk about “purchase performance”, we are referring to how much each acquisition influences the company as a whole:
Does it better the end product?
Does it boost client satisfaction?
Does it interfere with the return of the investment?
Thinking strategically is essential to answer those and other related questions. For example, if a lot of complaints were reported in relation to a final product or the function of determine equipment’s, it is time for the purchasing department to review its supplier database.
The evaluation and revaluation should be a constant, aiming for the best function of any sector and that is no different with the purchasing department. A good manager should follow the feedback of their service and understand what can be improved, even if apparently there is nothing wrong.
Production of internal quotes
One of the main functions of the purchasing department is to produce and evaluate internal requests. When an order is made, it might be that cost estimative has been provided before and this may or may not be approved by the buyers. A various number of factors must be analyzed, such as the immediate need of purchase, how much that acquisition will way on the business of the company, the available budget and the priority of the remaining requests.
The buyer may counter propose the request, estimating terms, offering an alternative product, finding a better supplier or just by establishing a cost roof for a new proposal. Of all sectors, this one is the most qualified to manage those estimates.
Definition of purchasing KPI´s
KPI is an English abbreviation for Key Performance Indicator. Very used among the corporative sphere, it refers to indicators that help measure the performance of the company.
Each sector in the company has its own KPI´s because they measure progress in different ways. In the purchasing sector, those indicators may include:
- quantity of attended requests per month;
- number of reposed purchases;
- client satisfaction indicator (remaining sectors), between others.
Having well defined KPI´s is important for the entire sector. Without them, or the progress isn’t measured or non-relevant data is evaluated. And the indicators established by the buyer are important for the whole company, since they connect directly to the production cost.
Strategic value of the purchasing sector
As mentioned before, the performance of the buyers is already devalued in relation to its relevance to the company. Meanwhile, in the last years, with the expansion of broadening of the technology and the means of communication, it is possible to evaluate more suppliers and observe the purchases that the company makes during time.
The buyers are now increasingly more valuable with those tools, presenting more qualities and competences. Confirm some of the strategic qualities of the purchasing sector:
Long term planning
Besides all of operational practice, the buyers work to plan the company’s costs. It is with that planning that is possible to make bigger investment without impacting negatively accounting or the pay roll.
The purchasing sector also evaluates its own actions over time, measuring its consequences and creating projections. A change in suppliers, for example, demands a greater care before signing the supplying contract and test period.
During that time, the quality of the final product and the actuation of the supplying companies will be revaluated and compared. If the established KPI´s indicate progress, the action was successful, but, if not, it is time revaluate and devise a new plan.
Increasing the revenue of the company should be the goal for any sector in the company. But, some have more weight in that task. As the market is increasingly more competitive, the profit margins tend to be reduced, which leaves the investment at the top of the spending list.
Let’s say a factory sells their product for R$ 100 with a material cost of R$ 50, production cost of R$ 30 and a net profit of R$ 20. If the purchasing department reduces the cost of material acquisition in 10%, the net profit will increase in R$ 5 (25%). Consequently, if the production reduces its cost in 10% the net profit will increase in R$ 3 (15%). It might seem little at first sight, but when more than a 1000 units are sold, these values become relevant to the profit of the company.
Negotiation from all sides
One of the principal competences of a buyer is negotiation. The professional needs to dominate the language understand the finance and know how to convince the supplier to offer a better proposal. The same is valid for their internal clients! The new practices, including a good negotiation, have a direct impact in the profitability of the company.
Have you already put in practice any of these tips at your company? Leave a comment on how your experience was. Share this article in the social media and with other buyers and managers!