Effective purchasing.[check] This checklist is designed to assist those responsible for purchasing to adopt a more effective strategy. It is not intended that this checklist should itemise Verb 1. itemise - place on a list of items; "itemize one's tax deductions" itemize number, list - enumerate; "We must number the names of the great mathematicians" 2. the steps in the administration of a purchase order process; rather it is aimed at presenting a proactive approach to purchasing. Whilst directed at those involved in centralised Adj. 1. centralised - drawn toward a center or brought under the control of a central authority; "centralized control of emergency relief efforts"; "centralized government" centralized purchasing, the principles apply equally to decentralised Adj. 1. decentralised - withdrawn from a center or place of concentration; especially having power or function dispersed from a central to local authorities; "a decentralized school administration" decentralized buying. Definition Most textbooks advocate that purchasing is about buying the right goods, at the right time, at the right price, in the right quantity and of the right quality. Whilst this is indeed a fundamental requirement, effective purchasing has to deliver more than this. Adopting an effective purchasing strategy will turn a reactive reactive /re·ac·tive/ (re-ak´tiv) characterized by reaction; readily responsive to a stimulus. re·ac·tive adj. 1. Tending to be responsive or to react to a stimulus. 2. buyer into a proactive buyer, one that adds value to the process. Advantages of effective purchasing It: * is proactive and adds value for your organisation * improves communication with suppliers * provides better understanding of the marketplace. Disadvantages of effective purchasing There are no real disadvantages to effective purchasing, but it must be remembered that time must be invested in: gathering and sorting internal data evaluating suppliers. Action checklist--Your organisation 1. Understand your own organisation Take time to learn about how your own organisation functions and what is important to each department in terms of the supply of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. . What are the most crucial aspects for each line manager in terms of quality, price and delivery? Which items do they purchase most often and what are they used for? How does each department determine its re-order levels? Gather as much data as you can to provide a sound basis for formulating your strategy. It will also serve to demonstrate professionalism to your internal customers and increase their sense of involvement in the process. 2. Compile To translate a program written in a high-level programming language into machine language. See compiler. a purchase history Use purchase orders and requisitions to compile a history of purchases. Gather data on product types, order quantities, lead times, pricing, order frequency, etc. Use this data to produce a pattern of purchasing for key items. 3. Use the purchase history to become a proactive buyer Negotiate better deals with suppliers by giving them an indication of the volumes they can expect over the year. Anticipate re-order dates and do the groundwork in advance. Reduce delivery charges by ordering like products at the same time. Arrange for suppliers to stock frequently used items free of charge, thus reducing your storage requirements, controlling lead times and giving the benefit of bulk purchasing Bulk Purchasing is when products are bought in large quantities. This often results in a lower price per item, or Unit price. Wholesale is selling or related to selling goods in large quantities for resale to the consumer. . Monitor price fluctuations for seasonal trends. Action checklist--Your suppliers 1. Evaluate potential suppliers Check: * turnover and profitability * how long they have been trading * who their major customers are (if they are reliant on one major customer what will happen to the business if they lose that account?) * what percentage of their turnover your business will generate * whether they have any third party certification, such as ISO (1) See ISO speed. (2) (International Organization for Standardization, Geneva, Switzerland, www.iso.ch) An organization that sets international standards, founded in 1946. The U.S. member body is ANSI. 9000 * their quality control policy * their procedure for handling customer complaints * their invoicing in·voice n. 1. A detailed list of goods shipped or services rendered, with an account of all costs; an itemized bill. 2. The goods or services itemized in an invoice. tr.v. and administrative procedures * their level of insurance cover. 2. Visit potential suppliers Find out who would be dealing with your order and how it would be processed. Ask to meet the people with whom you will have day-to-day contact. Are you made to feel welcome? 3. Assess supplier competence Take up references. Try to talk to buyers in organisations which are similar to your own with similar accounts. 4. Audit your major suppliers Perform regular audits on your suppliers to assess their continued level of performance. Do they still meet the criteria you established when placing the first order? What improvements have you noticed in the service since then? 5. Maintain good communication You expect your suppliers to keep you advised of delivery dates and any problems associated with your order. Ensure that you reciprocate--advise them if you are expecting a sudden decrease in purchases or indeed an increased requirement. Just as you should tell them exactly what you want of them, get them to tell you precisely what they expect of you. Show an interest in your supplier's other business. Have they won or lost any major contracts? How are they affected by the economy? Will transport costs increase as a result of rising fuel prices? Will the price of paper materially affect your major print job scheduled for the end of the year--can you pre-purchase the paper to minimise the effect? Good communication and understanding of your supplier's business will ultimately filter back into your own. Get to know your suppliers as human beings. It is much easier to deal with matters (especially tricky Adrian Thaws (born January 27, 1968), better known as Tricky, is an English rapper and musician important in the trip hop and British music scene (despite loathing the "trip hop" tag). He is noted for a whispering lyrical style that is half-rapped, half-sung. ones) when you know the person at the other end of the phone (but don't let personal considerations outweigh out·weigh tr.v. out·weighed, out·weigh·ing, out·weighs 1. To weigh more than. 2. To be more significant than; exceed in value or importance: The benefits outweigh the risks. organisational ones). 6. Use your supplier's expertise You cannot be an expert in everything. Use your supplier's expertise and knowledge to help you draw up specifications of work. 7. Maintain a competitive element Always review the price and service you are getting from your supplier. Let them know they have to remain competitive. For audit purposes retain documentation which shows you sought alternative prices. 8. Compare quotations Ensure quotes are based on a level playing field See net neutrality. . Check the exclusions such as delivery, installation, training and insurance. Check the contract period, renewal dates and how long the price is held for. What provision is made to hold prices at current level or within the realms of RPI RPI - Rockwell Protocol Interface for long term contracts? What are the payment terms? 9. Visit trade exhibitions Visiting trade exhibitions and reading trade journals are fundamental to keeping up-to-date with the marketplace and what is on offer. 10. Negotiate when the price must rise Try to negotiate other advantages, such as longer payment terms, prompt payment discounts, quarterly invoicing (as opposed to monthly), management reports, price stability for a fixed period, free delivery or increased delivery frequency. Remember, the supplier wants to maintain your business and may be able to help in other ways. Action checklist--General hints/good practice 1. Establish a code of ethics Code of Ethics can refer to:
Respect confidentiality--do not disclose suppliers' prices and methods of trading to competitors. Declare any personal interest. Do not accept gifts from suppliers or potential suppliers (it is good practice to advise all suppliers of this in writing when you commence trading with them and prior to the Christmas period when most suppliers traditionally bear gifts!). 2. Beware be·ware v. be·wared, be·war·ing, be·wares v.tr. To be on guard against; be cautious of: "Beware the ides of March" Shakespeare. v. If you have a roll-over contract, make sure you know when you have to give notice should you wish to terminate. Be aware of authority limits and do not exceed your authority. Never make assumptions--ensure all details are clarified in writing. 3. Fulfil ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. your side of the contract Ensure payment is made in accord with your agreement. 4. Maintain an audit trail Always maintain an audit trail of all purchase documents. Dos and don'ts for effective purchasing Do Involve your internal customers in the purchasing process Purchasing Purchasing is the formal process of buying goods and services. The Purchasing Process can vary from one organization to another but there are some key elements that are common throughout The process usually starts with a 'Demand' or requirements . Assess and visit your suppliers regularly. Build relationships with suppliers based upon mutual trust and good communication. Establish a clear code of ethics. Don't Allow yourself to be dragged into a 'Dutch auction' by your suppliers. Stay with the same supplier 'because you've always used them'--be sure you're using them 'because they're the best'. Useful reading The sourcing solution: a step by step guide to creating a successful purchasing program, Larry Paquette New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of NY: AMACOM AMACOM American Management Association , 2004 Purchasing and supply Purchasing and Supply can have several different definitions. According to the Institute for Supply Management (ISM) [1], purchasing is defined as a major function of an organization that is responsible for acquisition of required materials, services, and equipment. chain management, 6th ed, Kenneth Lysons and Michael Gillingham Harlow: Financial Times and Prentice Hall Prentice Hall is a leading educational publisher. It is an imprint of Pearson Education, Inc., based in Upper Saddle River, New Jersey, USA. Prentice Hall publishes print and digital content for the 6-12 and higher education market. History In 1913, law professor Dr. , 2003 Purchasing contracts: a practical guide, Graham Fuller Oxford: Chandos, 2001 Useful address Chartered Institute of Purchasing & Supply, Easton House, Easton on the Hill, Stamford, Lincolnshire PE9 3NZ Tel: 01780 756777 www.cips.org Thought starters * How much do you know about your organisation's annual purchases? * What is your organisation's annual spend with each of its major suppliers? * How often have you visited your major suppliers? |
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