Daily Archives: November 15, 2006

14 Purchasing Best Practices, A Review Part II

To hit home my point that I believe the online course 14 Purchasing Best Practices from Next Level Purchasing is worth the time and investment for an average purchasing agent, with kind permission, I am going to dive into a few topics covered in the course that I believe hit home on the importance of best practices and a well-designed course to convey them.

The course starts off by noting that the three main functions of a purchasing department are:

  • managing spend
  • supporting operations
  • risk management

and that the three main benefits of a dedicated purchasing organization are:

  • efficiency
  • effectiveness
  • organizational objective alignment

This conveys the message that purchasing is about more than cutting orders and that good procurement is more than just beating suppliers up for cost concessions (despite what some industries still believe). To this end, the best practices are designed to address the functions and goals, improving your performance and that of your organization overall.

This leads into the first best practice defined in the report, “utilize an annual buying plan”. The course defines in detail, and with examples, what a buying plan actually is and why it is key to success. A buying plan is more than just “I’m going to use competitive bidding through an auction in an attempt to reduce costs” – it’s also why you are employing the tactic, what results you expect to get, and how you quantify those expectations. The course prescribes a step-by-step methodology for the creation of a good buying plan that will assist you in the most effective allocation of your purchasing efforts and offers easy to understand methods and formulas to calculate savings and future spend, which is also important since organizations run on cash flow – a key fact that many resources on savings and buying plans ignore. Executives often assume that “savings” will decrease overall spend, but if demand is increasing rapidly, spend will still go up. But that’s okay, because as long as spend is going down relative to each unit, you are saving money – which means that a future spending increase can be a really good thing – more savings and more profit.

The fifth best practice in the course is “utilize long term contracts”. You’re probably saying “that’s obvious – everyone knows that long term contracts can lock in great volume rates and save you money”, but what’s not always obvious is that a good long-term contract can address many of the six types of risk – supply, price, financial, legal, safety, and PR – that your organization faces on a daily basis, since things can go wrong at any time.

The twelfth best-practice, which might not be as obvious, is “measuring purchasing performance”. Everyone supposedly knows that you can’t manage, and thus improve, what you don’t measure, but I’m sure not everybody knows how important measurement is or how to do it properly in a purchasing organization. The course not only provides you with a straight-forward six-step methodology to properly implement purchasing performance measurement in your organization, but also advises you on what should be measured and what shouldn’t be. The reality is that key metrics will improve performance, but trivial metrics will not.

I hope this gives you some more insight into the importance of continued education and appropriate courses for your development and why I believe 14 Purchasing Best Practices from Next Level Purchasing is most likely worth your time and investment as a procurement professional.