MEASURING PURCHASING PERFORMANCE

Buying

Buying

Written by Martin Murray, About.com Guide

Measuring purchasing performance is important as the purchasing department plays an ever increasingly important role in the supply chain in an economic downturn. A reduction in the cost of raw material and services can allow companies to competitively market the price of their finished goods in order to win business. An obvious performance measure of the success of any purchasing department is the amount of money saved by the company. However there are a number of performance measurements that businesses can use when they measure purchasing performance.

Purchasing Efficiency

Administrative costs are the basis for measuring purchasing efficiency. This performance measurement does not relate to the amount of purchased items that the department has procured. The measurement relates to how well the purchasing department is performing in the activities they are expected to perform against the budget that is in place for the department. If the purchasing costs are within the budget then the efficiency of the purchasing department will exceed expectations. If the department is using funds over and above the budget then the purchasing function is not efficient.
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Three Important Things in Procurement

Procurement

Procurement

 

Someone ask me during the interview session. What is three important things in Procurement, for you?

Saya sudah pernah memikirkan tentang hal ini, dan dengan mudah saya jawab: Proper, Faster, Better.

Proper. Proper berarti Tepat, Layak, Pantas, Wajar, Patut. Procurement adalah pekerjaan menjaga proses pengadaan. Kata kuncinya ada di Proses. kenapa Proses? karena jika procurement ditekankan pada negosiasi, pengadaan dan pembelian, maka hampir semua stakeholders/user di perusahaan bisa melakukannya bukan?. Pada beberapa departemen di perusahaan, mereka diperbolehkan melakukan pengadaan sendiri “by them self”, sehingga menurut mereka sebenarnya tidak perlu ada Procurement, kami bisa melakukan negosiasi, kami tahu spesifikasi detail, dan kami mengerti apa yang kami perlukan. Nah, diperlukannya Procurement adalah untuk mengelola proses tersebut agar berjalan Tepat, Patut dan Wajar, atau yang saya simpulkan dengan satu kata Proper.

 

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HISTORY OF PROCUREMENT

History

Prior to 1900, purchasing was recognized as an independent function by many railroad organizations, but not in most other industries.

Prior to World War I, purchasing was regarded as primarily clerical.

During World War I & II – The function increased due to the importance of obtaining raw materials, supplies, and services needed to keep the factories and mines operating.

1950s & 1960s – Purchasing continued to gain stature as the techniques for performing the function became more refined and as the number of trained professionals increased. The emphasis became more managerial. With introduction of major public bodies and intergovernmental organizations, such as United Nations, procurement becomes a well-recognized science.

1970s & 1980s – More emphasis was placed on purchasing strategy as the ability to obtain needed items from suppliers at realistic prices increased.

1983 – In September 1983, Harvard Business Review published a ground-breaking article by Peter Kraljic on purchasing strategy that is widely cited today as the beginning of the transformation of the function from “purchasing,” something that is viewed as highly tactical to procurement or supply management, something that is viewed as very strategic to the business.

1990s – Procurement starts to become more integrated into the overall corporate strategy and a broad-based transformation of the business function is ignited, fueled strongly by the development of supply management software solutions which help automate the source-to-settle process.

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Sourcing Strategies & Procurement Processes

connect

Connectivity

Not long ago, purchase function was seen to be a desk job, monotonous paper work, dull and passive and more of an administrative function. The purchase managements were the fall guys whose only aim was to keep feeding shop floor and avoiding stock out situation.

Today the situation has changed totally. Procurement function is considered to be a strategic initiative and seen to be adding value to entire business process. Profile of the procurement managers has changed and expectations from these managers are different.

Modern day procurement managers manage procurement and sourcing function both at strategic and operational levels. They are proactively engaged in building supplier networks, estimating, controlling and reducing costs besides performing other functions and ensuring service levels. Their job functions are increasing becoming cross functional together with supply chain and manufacturing functions.

Procurement process and paper work is today managed by the ERP systems which drive the procurement business process.

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Inventory Classification – ABC Classification, Advantages & Disadvantages

Aenergy-classification-symbolBC Classification

Inventory in any organization can run in thousands of part numbers or classifications and millions of part numbers in quantity. Therefore inventory is required to be classified with some logic to be able to manage the same.

In most of the organizations inventory is categorized according to ABC Classification Method, which is based on pareto principle. Here the inventory is classified based on the value of the units. The principle applied here is based on 80/20 principles. Accordingly the classification can be as under:

A Category Items Comprise 20% of SKU & Contribute to 80% of $ spend. B Category Items Comprise 30% of SKU & Contribute to 15% of $ spend. C Category Items Comprise 50% of SKU & Contribute to 5% of $ spend.

The above is only an illustration and the actual numbers as well as percentages can vary.

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