Effective Purchasing Equals More Profits

Most people focus on sales to improve their profits. However, most experienced and successful businessmen are more concerned with the effectiveness of their purchasing. This is because problems in purchasing are usually persistent that solving them would result in lasting benefits. Replacing an overpricing supplier with a low cost provider of the same quality, for example, would have an immediate and long-term impact.

In sales the situation is more dynamic, and resolving a problem now does not mean it would not reappear next year. Bagging a big client now does not always mean that next year, it will be the same story. Your moves are usually visible to your competitors, which means they tend to react faster than if you made a good policy change in your purchasing. Most of the concerns in sales involve tactics, while that of purchasing needs to be strategic.

The road map to improving your purchasing practices can be long and tedious, but the results will more than make up for the difficulties. Below are some of the critical milestones a business will go through in order to bring maximum benefits from your purchasing:

• Determine how many suppliers you can ideally accommodate. Having too many suppliers may mean having too little volume per supplier to bargain for good discounts. However, too few suppliers may leave you with no quick recourse in case there is a shortage.

• Evaluate and select suppliers thoroughly. Besides the price, there are many other factors to consider in selecting a supplier. A comprehensive research must be undertaken especially for items which are critical to your operations. It is important to visit the supplier’s premises to properly assess his/her ability to deliver a quality product at the volume you require.

• Decide who will have the authority to purchase and determine their spending limit. Since this is a position prone to abuse, the purchaser must be a person of unquestioned honesty. Still, to protect the company from excess losses in case of fraud or error, the amount within his/her authority must be fixed.

• Forecast your demand and make your orders using scientific methods. Learn the right formulas and procedures to enable you to accurately calculate how much and when to make an order.

• Benchmark your purchasing strategy. Try to learn how your competitors are doing their purchasing. You can do this by directly asking competitors in trade shows. You can also tap the knowledge of your supplier’s salesmen as they are a rich source of information.

• Develop or buy purchasing software. Manual methods are inefficient except for the smallest operations. It would be best if your purchasing software is integrated with other modules, especially point-of-sale and inventory systems.

Purchasing is one of the most vital business functions and it is usually an area where you can bring a long-term improvement. Since savings generated by better purchasing policies and procedures tend to be sustainable, it is high time to invest more effort in purchasing management. Furthermore, do not forget that improving your purchasing is a continuous process.

Learn more about scientific purchasing by attending BusinessCoach Inc.’s seminar on “Purchasing Management”.

Click here to view details of the training program on: Purchasing Management »

*Originally published by the Manila Bulletin. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.