6 ways the purchasing department can improve your business
Purchasing departments are at the centre of successful supply chain management.
Typically, they help other departments identify their needs, manage the requisition process and source competitive prices, and generally act as controllers to ensure adherence to budgets.
To ensure quality and to prevent unethical practices, purchasing is usually separate from receiving and accounts payable.
Here are the top objectives of most business’s purchasing departments.
1. Lower costs
This is by far the primary function of the purchasing department. A well-run department should allow you to achieve immediate savings by choosing a mix of suppliers who can provide the best prices and terms. In this process, relationships with suppliers who cannot provide the right level of quality at the prices required are terminated.
The purchasing department can also provide savings by taking advantage of warranties and discounts often forgotten by non-specialists.
Purchasing can also help you save by providing better transparency in how your company spends. This will, in turn, allow you to negotiate better contracts and free up your cash flow.
2. Reduce risk and ensure the security of supply
Supply chain management involves sharing and managing risks with suppliers. This can be done by moving the risks to the suppliers who are best able to manage it. Or it can be done through diversification of supply.
The purchasing department has to identify what goods and services are crucial to the company and take the appropriate steps to secure their supply chains accordingly. Often, this comes down to an economic decision, where higher risks can result in lower prices, or vice-versa.
3. Manage relationships
Purchasing is not only about sharing risk, it is also about sharing benefits.
Passing on risk to a supplier or outsourcing a service often requires more management of the supply chain, not less. The challenge of the purchasing department is to get the supplier interested in working with your business, getting them to invest in the long-term relationship.
The department also has to manage relationships within your company. It has to work with internal stakeholders such as marketing, finance, logistics and distribution to ensure that they are all aligned.
4. Improve quality
Purchasing departments can help to improve quality by establishing target performance levels for quality and then tracking performance against those targets. Critical to quality characteristics is a typical metric used to measure things such as durability, the look and feel of the product or the timeliness of delivery.
Some companies work closely with their vendors to develop their processes and assist them in improving quality.
5. Pursue innovation
Because the purchasing department is always in contact with a variety of outside businesses, it is in an ideal position to source innovative goods and services that can provide a competitive advantage to your business—an edge in either price, quality or convenience.
The purchasing department will also play an important role in helping you source supplies for innovative products or services developed by your own firm. Commercializing R&D can often require close cooperation with suppliers.
6. Leverage technology
Your purchasing department should identify technology solutions to address your supply chain problems. The purchasing department should also play an important role in the selection and implementation of ERP systems, inventory control systems and other technology that aims to improve the efficiency of your supply chain management.