5 steps to an effective purchasing budget
Good management and the growth of a company are closely linked to the budget planning of the purchasing department – after all, profitability depends on this area and the activities related to it, such as logistics and transportation.
Hence, the importance of purchasing professionals to act not only in the acquisition process, but also in the discussion on this topic.
It is based on the budget that we can define the purchasing strategy, deciding, for example, when is the best time of the year for a purchase, according to what has been established, avoiding expenses beyond the expected, or if there are materials being purchased with values above the average.
The guarantee of transparency between the areas of the company is another important factor that the budget provides, since everyone is aware of what was or will be invested in material, avoiding extra expenses and inconvenience.
With a good budget, management becomes more effective, allowing a more adequate allocation of resources and providing security for decision-making, since the debate is encouraged.
How to make a budget for the purchasing area
With all these advantages, the budget is essential in the short, medium and long term – especially when aiming at cost reduction.
The process of defining expenses for the next period requires full engagement of the areas involved throughout the process, so that the budget is met in a way that does not generate extra costs but saves the company.
Some steps are essential for building a budget with high credibility:
1. Identify the materials you need:
The purchasing department’s first step is to make a forecast of what the company will need to purchase in the next year. Make a list of what needs to be budgeted, also adding how much the department is willing to pay for that material or service.
For this, it is possible to analyze the purchases of the previous year and the quantity and variety of parts in stock. With the help of predictive algorithms, try to do a study on which parts could be repaired instead of being exchanged and calculate the costs that could be saved in this process.
Also note the price paid for each piece and consider a possible increase in value on that same purchase for the following year. Do not include in this calculation the parts that are part of fixed price contracts that will be maintained for the next year.
In this way, purchasing management is carried out more effectively, helping with decisions regarding whether to close a contract with suppliers.
Tip: It can help in understanding the budget to divide the materials into categories.
2. Search vendor options
From the analysis of what you need to buy, the time comes to look for where to get such materials. Consider suppliers that, in addition to a good price, have a good reputation, good customer relationships and favorable delivery times.
Be sure to search for suppliers abroad, they can present much lower prices in relation to national suppliers, mainly with cargo consolidation strategies and a planning that allows you to buy the parts in advance.
This is a step that requires a lot of attention and also a willingness to negotiate. Try to establish better payment terms, minimize prices and obtain more advantageous terms. Remember that signing the contract is not the final stage, it is necessary to closely monitor the supplier’s performance to make sure that the agreed terms are being met and to evaluate the possibility of a future contract.
3. Align everything with the finance area
All parts of the acquisition process must be aware of and aligned with the budget, especially the financial area that will make payments throughout the year.
Most companies follow a traditional management process, monitoring every step of an acquisition, from the beginning of the purchase process to its delivery. However, the financial sector may have some difficulty in carrying out this follow-up, generating uncertainties in relation to the figures reported by the acquisition and even payment delays. In order for this not to happen, it is important to make a detailed prior budget.
4. Be realistic
You must incorporate the availability of your budget into the purchase requisition process. The buyer must know how much of the budget is available for a given item, speeding up the purchase cycle. Therefore, make sure that your purchases are within the established parameters.
5. Have technology as an ally
The use of tools such as software provides greater control of data, as well as spending, since it is possible to have an overview of the data in a quick and practical way.
The budget must be monitored on a regular and centralized basis, preferably in a single database, available for the different sectors of the company. The purchasing area must act jointly with the finance and the supplier, always being in contact to ensure that everything that has been agreed is done on time and at the correct value, making technology essential.
As we can see, the budget is among the most important aspects of an organization, and the role of the purchasing area is fundamental for its fulfillment. It is during purchase planning that the company guarantees the continuity of offering its products or services in the market.
Budget control allows companies to compare actual performance with the goals established during the planning phase making them able to increasingly optimize their operations.
At the same time, it can also turn on the red light when finances are out of control and excessive spending can affect the department, which can happen in times of recession, requiring resilience in your supply chain.
The biggest factors to reduce budget expenditures are linked not only to technology, but mainly to the collaboration of the areas that participate in this process, therefore, it is essential that purchases, finances and management are aligned.
Don’t forget: to shop at good prices, a great option is to count on Soluparts. Our team of specialists in the purchase of indirect materials always receives the best commercial proposals for your company. Request a quote.