Q: How can I make company purchasing more effective?
A: Some companies have a dedicated department for purchasing supplies and materials; others spread the task among key employees. Knowing which type of setup works best for your business can be a major factor in streamlining and cutting waste.
First, you'll need to make sure you're working with a clean set of numbers. Your accounting system should capture and report costs--and this includes purchasing--in a way that enables you to measure and control them effectively.
A small manufacturer I once helped had lumped all of its purchases into either direct or indirect costs. This was fine when they were just starting out. But as they grew, they found they needed to identify and measure the components of those costs so they could make better deals with vendors. A year after installing a more robust chart of accounts, we were able to reduce costs by $200,000. This more than repaid the cost of the accounting changes and the addition of a purchasing employee.
The more complex your company's needs, the more important a dedicated purchasing department becomes. If you can answer yes to any of the following questions, you're a prime candidate:
- Do you publish, send out and evaluate RFQs (Requests for Quotes) when making purchases?
- Do you negotiate contracts with each of your vendors on a project, quarterly or annual basis?
- Do you track each vendor's performance to make sure they deliver on time and invoice correctly?
- Is there a degree of specialized experience and knowledge required to evaluate your company's materials or to communicate concerns and specifications with suppliers?
- Does the quality of materials and products you buy and then sell determine the perceived quality of your company? (This matters, because if you end up distributing a defective product to the public, your company takes the blame.)
A smartly run purchasing department will avoid duplication of effort and can reduce costs through the purchase of larger quantities at reduced shipping rates; furthermore, a dedicated team can develop relationships with vendors that can pay dividends when you have, say, a last-minute change or an urgent order increase.
Consider how many work functions you, as a small-business owner, must manage simultaneously: product, staff, sales, marketing, etc. Perhaps it's time to bring in a dedicated purchaser, someone who can take the time to approach every vendor with the goal of getting the best possible delivery, quality, price and payment terms for your company.
Joe Worth, Vice president of operations and partner at B2B CFO, has been a CFO for several public and privately held companies.