Purchasing department management
Find out about trends, skills and information to improve the management of your purchasing sector, optimizing your time and reducing expenses.
4 tips to optimize time within the purchasing sector
From the time allotted to work meetings, studies and the time dedicated to the family, many activities compete for our attention during the day. And almost always we end up with the feeling that 24 hours are not enough to take care of all the commitments.
Because of this, the economist Daniel Hamermesh, in his book Spending Time: the most valuable resource, defines time as the most scarce commodity of today.
He goes further, stating that even if we manage to gain some time living near work or hiring a person to perform some tasks that can be delegated, there will still be a list of non-transferable activities left – such as an important meeting with a supplier, where complex negotiations will take place, or a child’s birthday. And again, time will seem insufficient.
One way to overcome this situation is with efficient time planning and administration – which will contribute to greater productivity in the purchasing industry.
To get that balance right for you, check out some time management tips below.
4 tips to optimize your time within the purchasing sector
“Until we can manage time, we can manage nothing else”. This quote from the father of modern administration, Peter Drucker, sums up the importance of time management and to help you get good administration on your agenda, we list some important tips. Check it out!
1) Count on solid procedures
When all the work within the purchasing department is carried out following previously planned standards and processes – based on both theoretical knowledge and practical experience – the risks of errors are reduced and, consequently, the need to spend time correcting problems in the future.
In this sense, it is important that the purchasing department:
- Has a good Compliance program;
- Be aware of the hiring process and make sure that all the hires are, in fact, qualified to be a part of the team and manage your purchase portfolio;
- Adopt appropriate technological solutions that automate repetitive tasks and offer agility to the processes and projects in the area. Tools such as Evernote (allows creating task lists and controlling deadlines, among other functions) or RescueTime (it helps understand routine work habits and generates reports for user analysis), is one of these options – see other software useful to work in the purchasing sector.
These measures, in the medium and long term, usually bring very successful results for productivity in the purchasing sector.
2) Counting on an efficient training program and teamwork
It is not enough to have a competent team, it is necessary to offer constant training that helps to develop the necessary skills for the digital era.
In this sense, two practices aimed at professional development deserve to be considered:
- Upskilling: refers to professional development in the field in which you already have a certain domain, improving and expanding your current qualifications.
- Reskilling: learning new skills in order to perform tasks different from those you already do.
Moreover, transparent and clear communication and well prepared employees are a great asset in optimizing time – since the work gains in quality, doubts usually appear in smaller numbers, possible mistakes are less recurrent and solutions for them often come from the team itself.
Therefore, invest in good communication channels, so that the whole team knows the objectives of the sector, the work process and has space to clarify doubts;
Moreover, a competent team is usually more creative and proactive. Therefore, it is important that everyone knows your skills and those of your fellow workers, and there is trust between everyone.
3) Adopt a time management method
There are techniques specifically developed for time management, that leverage productivity in the purchasing sector. Get to know some of them and see how they can help in your day-to-day.
3.A) GTD Method (Getting Things Done)
This methodology assumes greater control of the routine to obtain better results. To do this, it is necessary to follow 5 steps:
- Capture: gather everything that’s important and organize it into a task list – which can be done on the computer or on paper;
- Clarify: evaluate each item to define which ones demand an action;
- Organize: after the selection made in the previous step, organize a list grouping the tasks according to similarities and, within each group, by priority;
- Reflect: check this planning weekly to make sure it’s up to date and with all the necessary tasks – you can include something new or delete some items;
- Engage: it’s time to actually perform the selected tasks in your lists.
The market offers tools that help apply the GTD method, among them:
- Google Keep: available for Chrome, iOS and Android, it allows the user to create notes and task lists with audio, image and virtual “post-its”;
- Workflowy: It can be used on the site or on the app that creates lists by categories, organizing into areas of responsibility that help define priorities;
- Evernote: stores different content such as photos, drawings, audios and videos, allowing the organization of ideas in “notebooks” using the same concept of mind map. It also allows organization through notes, label, etc.
3.B) Kanban Method
This is a technique consisting of grouping tasks in a table divided into sections. Example: tasks to be started, tasks in progress, tasks completed.
There are computer programs that do this work – Trello is one of them – but this method can also be done manually.
In this case, you must have a board to place cards with a summary of the task in the appropriate section as the process progresses. This board can be personal or for the whole purchasing sector.
If it is the second option, it should be placed in a space where the entire team has access and the cards should have a specific color for each employee, who is in charge of allocating his or her card in the appropriate section according to the progress of the activity.
This method ensures transparency to the team, since everyone knows what is being developed and can collaborate with colleagues, giving suggestions that can facilitate and improve the activities. They also avoid the same task (such as product quotation) being performed in duplication.
Important tips for using the Kanban method:
- Set deadlines for each task;
- Plan weekly or daily priority tasks to be executed in the period, only adding other activities when these, considered most important at the time, are completed!
3.C) Pomodoro Method
Created in the 1980’s, this methodology works with the division of tasks in time intervals called “pomodoro” (each one with 25 minutes), aiming to stimulate brain focus and agility – check out the article about the Triune Brain and see how to use the knowledge about the brain in your work and relationships.
Put the Pomodoro technique in action, following the steps:
- List: make a list of the tasks to be performed;
- Work without pauses: after selecting the task you will perform, program a timer for 25 minutes and work on it without interruptions;
- Relax: as soon as the time is up, take a 5 minute break, doing something that relaxes you;
- Restart: after the break, resume the activities for one more “pomodoro”, always taking breaks at the end of each period;
- Pause for longer: after four “pomodoros”, take a 30 minute break – then restart the process.
- Finish: when you finish the task, cross it off your list and move on to the next one.
To make it easier to draw up your task list and get better results with the Pomodoro method, follow the step-by-step below:
4) Count on the best suppliers
Working with reliable suppliers is one of the most efficient ways to save time, by avoiding problems such as late delivery or purchasing the wrong product/material.
However, searching for and selecting suppliers is a time-consuming task. Therefore, the most efficient strategy is to count on the support of a company specialized in indirect material procurement, such as Soluparts.
We are a global company, specialized in purchases of all types of industrial materials, with access to the world’s most relevant and committed manufacturers. We make several quotations, with various suppliers and send our customers a unified offer, with the best options in terms of value and commercial conditions (of all materials requested).
We also work with annual contracts – please contact us to find out more. Based on a list of parts the company may need during the following year, we quote each item with suppliers around the world and send a consolidated document with all the information about the materials to our customers.
If, during the year, there is demand for any of the materials included in the planning, it will not be necessary to make a new quotation, if the contract has been closed. All you have to do is send us the purchase order that we have arranged for the purchase, as previously informed.
Please contact our team for more details on the operation and conditions of the annual contract.
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4 ways to improve the management of indirect materials purchases
The process of purchasing indirect materials, which allows the continued existence of business, is essential to the functioning of an organization and requires proper management to avoid losses – this is because the lack of these materials may mean interruptions in production and delays in projects.
In this article, we will address the challenges one must overcome for a good management of indirect material procurement.
Purchasing indirect materials: challenges
The NelsonHall study, titled Improving and redefining the role of indirect procurement, revealed that only 47% of purchasing executives surveyed showed a high level of satisfaction with the purchase of indirect materials at their companies – and this percentage dropped to 45% when the management capacity of the indirect procurement team was analyzed.
According to the survey, the main challenges that contribute to these numbers are:
1- Strong demand for cost reduction
Often viewed as an area of expense, the purchasing sector is constantly charged to reduce organizational spending, which must be achieved without representing a loss of productivity for the company.
2- Difficulty managing suppliers
This stage of the purchasing process is considered one of the most complex, involving continuous research, often complex negotiations and, as a consequence, consuming a great deal of time in the procurement routine.
3- Lack of expertise
It is very complex to develop an indirect material procurement team that specializes in purchasing such varied and infrequently requested products. And this lack of knowledge can generate problems such as mistaken purchase of materials or inadequate negotiation.
Improving indirect purchasing management
Although there are obstacles to overcome, as already pointed out in Procurement Department 4.0: challenges and trends, it is necessary to see them as motivation to improve the work and management of indirect material purchasing.
Below are some suggestions for improving the way indirect procurement is managed.
1- Be a partner of the other sectors of the company
It’s necessary to get closer to other sectors, gaining their trust by understanding their main needs: what they are trying to achieve, what challenges they face in their routine, and how do acquisitions influence and collaborate in this regard?
Investing time and effort to really listen and deliver what they need will lead to the realization that indirect material procurement is an essential operation for all sectors of the organization to achieve good results.
It is also essential to collaborate to train the procurement team, with training and other resources that provide tools to improve the performance of all employees.
2- Use appropriate technology to identify and consolidate expenditures
The use of a holistic technology tool to track, identify and categorize the expenses of indirect material purchases will give the procurement manager the ability to add the needs of all sectors into fewer orders and, as a consequence, obtain benefits such as volume discounts and more favorable contracts.
To identify the level of digital maturity and the technologies most commonly used in the purchasing sector, check out our articles: The purchasing sector in Industry 4.0 and 4 technologies that will change global trade.
3- Control the stock effectively
The demand for indirect materials may occur due to unforeseen circumstances. But it is usually derived from predictive maintenance planning and the service life of equipment and parts.
Therefore, inventory control requires technical information on the condition of the equipment, as well as statistics that can project the need for indirect material purchases in the future. This must always be based on historical data, the criticality level of the operation and the difficulty of acquiring the items.
For this, stock management software can be used or RFID tags, intelligent sensors, among other options that we have already addressed in an article about the benefits of an intelligent supply chain – worth reading for more details!
4. Suppliers: essential for good indirect materials purchasing management
A healthy relationship with suppliers is essential to improve the management of indirect material purchases, which requires constant communication and analysis that transcends prices and deadlines, such as verification of risks that the supplier company may offer or legal requirements and social and environmental responsibility – among other factors.
This monitoring allows a clearer vision of the current conditions and the place that suppliers occupy in the market to always guarantee the best possible business and also to identify points for continuous improvement.
Counting on specialists in the search for the best suppliers in the international market offers many benefits, such as optimization of the purchasing process and cost reduction. In addition, a company specialized in indirect material purchases also allows the manager to optimize his time, focusing on more strategic functions.
Soluparts, with offices in Germany, Brazil, United States, Hong Kong and Portugal, maintains contact with the world’s main suppliers. All you need to do is send us the specifications of the material (manufacturer and part number) and we will find the best conditions in the market, sending you a consolidated quotation to optimize your time.
Solving the 5 main problems of the purchasing department
You can probably agree that boredom does not exist within the purchasing department. With responsibilities ranging from complex negotiations to supplier management, the industry has a strategic role within a business and a stressful routine.
When well planned and executed, the purchasing process becomes an important ally for the success of the organization, contributing to greater productivity and also reducing costs.
However, due to its importance, certain precautions are essential in order to avoid the main problems related to this area. Check out, below, the main ones, with their respective solutions.
1) Purchase orders with unclear requirements
Purchase orders usually come from the industry that will be the end user of the ordered material, and not always do these areas send the necessary (or correct) information for price research, negotiation and procurement.
However, the purchasing department needs the order to contain precise information: part number, manufacturer, quantity, minimum and maximum delivery time, and the cost center where the value of the acquisition will be directed – to name a few items.
This clarity in the issuance of the order, which will make all the difference so that the best possible work occurs in the selection and delivery of requests, can be guaranteed with the use of specific software for issuing the order – which, also, will allow additional benefits such as:
- overview of all the company’s purchase orders;
- time optimization;
- real-time monitoring of processes.
The choice of the ideal tool should be part of a broad process, where digital security is also considered – no company wants to see its data leaked, leading to financial and image losses.
Regarding the use of technological tools, check our Top 10 software for the purchasing department.
2) Difficulty in Negotiation
The purchasing process requires good negotiation strategies, and it is up to the professional of this department to know how to negotiate values, deadlines and other payment conditions in order to reach an agreement that offers the best possible conditions for your company.
Negotiation skills can be learned – or improved – with experience and with an attention always focused on market trends, following the movement of the economy and the reality of each supplier.
Due to the importance of the subject, we have created several articles on the subject – among them:
3) Untrained staff
To work well, any team, from any industry, needs regular training and capacity building – and with the purchasing department it’s no different. It is about improving employees’ skills and knowledge, as well as keeping them updated about new systems and ways of operating in a certain segment of the company, or even keeping them aligned with the goals and objectives of the organization.
A training program, which can be conducted through virtual channels, is an excellent way to ensure better team performance.
It is also essential for the team to be up to date with the novalties and news in the sector, by getting to know new methodologies such as Strategic Sourcing, which greatly improves the acquisition process, and is focused on generating results and reducing costs for the company.
4) Lack of transparency in the purchasing process
Among several aspects, the purchasing process involves the judgment of the best proposals for the supply of materials and services; the selection and contracting of suppliers; and the work with bids, whenever appropriate.
The best option to avoid problems such as fraud in the purchasing process is the implementation of an efficient compliance program in the company – we talk specifically about this subject in another of our articles, check it out: Benefits of Compliance in the Purchasing Department.
Another important factor is to make use of Business Intelligence indicators and software, as we show in the article on this subject.
5) Inadequate evaluation of suppliers
Among the several variables within the purchasing process, it is essential to consider the cost-benefit ratio in terms of suppliers. Remember that the quality of your suppliers’ products or services affects your company’s product or services – in other words, it impacts the progress and evolution of the business. This is also why the process of selecting these partners requires a great deal of attention and dedication.
In this sense, when choosing suppliers for your company, search for references, seek the opinion of other companies that are already customers of the supplier in question, and check whether it is aligned with the goals and values of the venture in which you are inserted.
After acquiring the products, give feedback to the selected partners, observe if they will take this into consideration and if they will try to adapt to your notes (if any); also evaluate if the partner is flexible in terms of negotiation, if there is room for this; analyze, also, the general progress of this partner; and implement improvement policies for this whole part of the purchasing process.
Also, remember that to avoid or minimize the negative effects caused by adversities such as those mentioned above, especially regarding the relationship with suppliers, you can also count on the help of a company specialized in indirect material procurement, which offers numerous benefits to your purchasing process!
Soluparts is a global company – with offices in Brazil, Germany, Portugal, Hong Kong and the United States – that is able to connect your company to the most relevant manufacturers in the world. We specialize in purchasing all types of industrial materials and have access to thousands of products and suppliers worldwide. Learn more about our value proposition!
To better understand how Soluparts can facilitate your company’s purchasing process, please contact our team!
Strategic Sourcing: improving the purchasing process
Have you ever heard of Strategic Sourcing? This concept has become very widespread among professionals in the purchasing area and in the business environment.
Basically, this methodology intends to analyze the total cost for the aquisition of products or services through observation, mapping and analysis of the specifications of materials, service levels and suppliers.
Read down below so you can understand a little more about Strategic Sourcing and how it helps you to have a more strategic purchasing process.
What is Strategic Sourcing after all?
Issues such as political and economic volatility, technological transformation, among other factors, make the market increasingly competitive. For this reason, it is essential to adopt effective sourcing processes to maximize business performance and efficiency, which helps you stand out from the competition.
Directly linked to the financial health of a business, this strategy is based on evaluating all angles of the acquisition of a material or product, by identifying the impact generated on the organization’s finances. This method starts from the premise that even if the purchase is made to meet the needs of an industry, it is part of the overall strategy of the business.
The use of Strategic Sourcing allows a thorough analysis of all external and internal costs that influence the value of the end products – among them: logistics, storage and procurement. In this way, it is possible to obtain, among other advantages:
- Cost reduction in purchased products and services;
- Improvement in the delivery time of suppliers;
- Improvement of the negotiation capacity with suppliers and speeding up the acquisition flow.
- Standardization of processes according to the formalization of routines, which are now documented;
- Greater knowledge of the supplier market;
- Rationalization of the supplier base;
- Improvement in the internal and external relationship of the organizations’ purchasing department.
In a practical way, with Strategic Sourcing, purchasing organizations can stop focusing only on transactional aspects of purchasing, incorporating greater intelligence into the process as a whole, including the choice of suppliers.
This avoids problems such as buying the same category of materials/products from different suppliers, paying different amounts – which is not good for organizational costs.
How to incorporate Strategic Sourcing
Given the importance of strategy, the consulting firm AT Kearney developed and popularized seven steps in the Sourcing process:
1. Analysis of the product categories used by the business, spending patterns and processes and departments involved
Identifying areas of spending by categorizing them because of their criticality – this categorization will help prioritize the purchasing process. If necessary, other categorization criteria can be created (direct or indirect, international or domestic expenditures, for example).
2. Development of a strategy based on business objectives
The strategy must be based on the objectives of the company, establishing a communication flow in which all those interested in procurement have visibility into the purchasing process as a whole.
3. Market evaluation and creation of a supplier portfolio
In-depth analysis of current and future suppliers, checking their market position and assessing the risks and opportunities they offer.
4. Preparation and formalization of documents for proposal request
Inform suppliers, of expected performance expectations, in addition to the desired material data, allowing them to have a clear understanding of what the organization needs. After these arrangements, which must be repeated with each of the suppliers, the only thing left for you to do is wait for their offer and only then select the ideal supplier.
In fact, this process can be optimized by hiring a company specialized in spare parts, which is responsible for the quotation with the main suppliers in the world and which, among other advantages, still offers the manufacturer’s warranty- see the article and discover the practicality of this type of service.
5. Negotiation with selected suppliers based on careful analysis
It aims to get the best possible deal for the company. This is a very important and detailed step, so we suggest reading the article: Advanced Negotiation: prepare yourself for great results
6. Choice of suppliers and agreements signed
This is the bureaucratic step in which documents and contracts are written, that is, it represents the end of the purchasing process. But be aware: Strategic Sourcing does not end here, since the relationship with suppliers is constant, especially when they are responsible for delivering strategic resource to the organization.
7. Performance monitoring and supply plan optimization when needed
Effectively measuring supplier performance against the organization’s requirements and objectives is an ongoing job that will help you understand risks and plan strategies to minimize possible supply chain disruptions.
Among the forms of monitoring, it is possible to adopt the QBR (Quartely Business Review) technique, which, as the name says, consists of talking quarterly with the main suppliers of the company and discuss topics such as cost reduction and improvement of service.
Doing a satisfaction and quality control survey with the departments that requested the services of the purchasing sector is a good way to collect other data and evaluate the performance of suppliers, as well as identify whether the contract is being fulfilled. This data will be very useful for the QBR meeting and also for directing improvements and seeking the best solutions to anticipate and/or solve problems.
Making a detailed analysis of your suppliers using the Strategic Sourcing Kraljic Matrix (below) is another way to track supplier performance.
Strategic Sourcing Kraljic Matrix
After the 7 steps of Strategic Sourcing we recommend the formation of the so-called Kraljic Matrix – download here our spreadsheet that will help you design your Kraljic Matrix!
It is basically a chart divided internally into 4 quadrants – see the model below:
We have prepared a Kraljic Matrix model to help you map your suppliers! To download the material click here!
Analyzing the Criticality/Business Impact axis, we will see at the top the items of greater financial weight for the company, representing greater strategic importance for the business. At the bottom, we have the items with less financial weight and less relevance to the company.
Difficulty in Obtaining/Complexity of Market is the axis where, on the right, we have the materials inserted in a more complex market (few suppliers, influenced prices, monopolies, cartels, etc). On the left side, we see the products or services that are in a more competitive market, with several suppliers fighting for supply contracts.
Positioning each product on a chart like this helps purchasing professionals to have a broader view of the company’s needs and their respective financial impacts on the business.
Don’t forget to access here the material we prepared to help you with supplier mapping!
Therefore, the implementation of Strategic Sourcing in an organization requires collaboration and awareness of the importance of data collection. In addition to technology management, operational intelligence is required – see the article Essential skills for the 4.0 purchasing manager – and the use of platforms and systems, such as Business Intelligence, for example.
Take the opportunity to try Soluparts’ services, a specialist in indirect material procurement, that counts on the world’s leading suppliers. We negotiate the best prices and payment conditions to optimize your company’s purchasing process: request a quote with Soluparts!
The role of Strategic Force’s in Procurement 4.0
Competitive strategy, or Strategic Force, is a concept that allows the identification of the competitiveness and profitable potential of a business.
Since 1979, with the publication of an article entitled “How Competitive Forces Shape Strategy” by Michael E. Porter, the definition has been explored in the business world.
Read below and learn more about this concept and its application in Procurement 4.0.
What is Strategic Force?
Professor at the renowned Harvard Business School, in the areas of Administration and Economics, Michael Porter, who is also the author of several books on competitiveness strategies, developed the concept he called Strategic Force.
According to him, there are five competitive forces that determine the potential profitability of an industry or sector of activity. For Porter, the state of competition in a sector depends on five basic forces, as outlined below:
With this model, describing strengths in sectors and identifying competitive strengths becomes easier for purchasing and supply chain professionals. Let’s look at the most important points of Michael Porter’s five strengths:
Strength 1 – Intensity of competitive rivalry
Competition allows professionals in the purchasing and supply chain industries to analyze the speed of growth in the industry.
That is why it is important to use strategies to accompany the growth of competitors, without leaving aside the evolution of the product in the market. To analyze the strength of the competition, try to answer the following questions:
- How many competitors does your company have?
- Who are these competitors?
- What is the quality of the products and services they offer?
- Comparing the competitor’s products with yours, what are the competitor’s strengths and weaknesses?
This information will allow you to identify the level of rivalry and develop a plan that includes price and marketing campaigns, for example. If the competition is very intense, discounts and advertising should be more aggressive, but with little competitive rivalry, your brand is likely to have more space and higher profits.
Strength 2 – Threat of new participants
It refers to the likelihood that your customers will find a different way to get the products and/or services you offer.
Imagine a company that offers a unique solution for automating an important process, with a wide portfolio of customers. If, over time, your customers find it more advantageous to outsource the services than to purchase the tool, there will be a real threat to the profitability of the organization.
That’s why it’s so important to be able to monitor new market participants, and understand their innovation processes and technology to improve their products and services.
Strength 3 – Threat of substitute products or services
Evaluate constantly: can your position be affected by the ability of other companies to enter your market? Is it easy to get a position in your industry? What is the cost for this – high, low, medium?
It is essential to have the ability to do this analysis, and identify ways to diversify or optimize the product/service that is already offered. Thus, it is possible to remain in alignment with market demands, without giving gaps for “substitute products” to be inserted in the market by rival companies.
Strength 4 – Consumer bargaining power
The questions to identify the bargaining level of your buyers are: How many customers does my company have and how big are their orders? Would it be difficult for them to stop acquiring my products and services and seek a competitor? Is the strength my customers have enough to influence my company and products?
The answers to these questions will determine whether or not your customers have the strength to lower their prices or change the products/services offered.
Strength 5 – bargaining power of suppliers
In this last strength, the power of suppliers and the possibility of increasing prices are considered. Try answering: Who and how many are your suppliers? Is what they offer something exclusive? How much would it cost to change suppliers?
Of course, the fewer suppliers you have and the more dependent your company is on them, the greater the risk you run of higher prices being charged – which could affect your profit margin.
On this issue, we suggest reading this article which shows the benefits offered by companies specialized in the purchase of indirect materials, among them, the ability to interact quickly with suppliers around the world, which helps you obtain better prices in negotiations.
Strategic Force in Procurement 4.0
The Global SciQuest 2017 Survey, conducted by Cision PR Newswire with over 500 purchasing professionals, revealed that the sector is evolving and is increasingly important to organizational strategy. Among the information obtained by the survey, we highlight:
- 25% of the professionals believe that purchasing is a profit center in their companies;
- 72% said they are accessing data to have greater visibility of the supplier and thus conduct their business decisions;
- 67% of purchasing professionals said they expect greater recognition for the sector, as there is a requirement for purchasing to offer savings and value to their organizations.
And if the scope of the work is evolving to become increasingly strategic, the concept born at Harvard shows itself to be extremely advantageous for the 4.0 purchasing department.
The analysis and application of Michael Porter’s theory in the sector allows it, among other benefits, to examine the current status of the sector, pinpoint its strengths and competitive forces; identify and minimize risks related to suppliers; observe and understand the market, including competition.
Methods that extend the intelligence of the procurement industry are indeed welcome. Among them the optimization of the purchasing process, through the services of a company specialized in acquiring indirect materials.
This is the case of Soluparts, which has access to over 15,000 brands around the world and therefore offers the best commercial conditions and greater security in the purchase of indirect materials for your company.
Try our services: request a quote!
Business Intelligence: what is your application in the purchasing department?
Business Intelligence (BI) is the process of collecting, organizing, analyzing and monitoring data and information related to a business or department.
This data is converted into applicable information to facilitate decision-making and help companies solve problems – based on accurate, real-time information.
By helping to manage routine, efficiently and optimally, Business Intelligence in Purchasing 4.0 is very important because it provides the necessary foundation for:
- To see possible failures in the purchasing department’s processes;
- Improving the sector’s strategies;
- Optimize negotiations.
Leaving assumptions aside, it is easier to reduce the distance to achieve the goals and objectives of the sector and the company. Follow in the next topic the important information that the purchasing industry can obtain with BI.
Important information for an effective purchasing sector
It is known that the data and information volume related to an enterprise and to each of its sectors is very large. It is necessary to filter it, paying attention to the main indicators, those that have the greatest impact on the sector’s results.
For Business Intelligence in the purchasing department we list the most relevant indicators below.
1) Lead time
Lead time is one of the most important indicators within the purchasing department. It measures the time interval between a purchase request and its execution. It involves the creation of a purchase order, quotations and choice of supplier, delivery time, receipt and entry record for each item.
It is worth noting that the lead time is fundamental in programming purchases. Thinking about it is essential to avoid keeping the stock depleted.
The reduction of lead time can be achieved by mapping the entire route the order takes to reach the supplier, and promoting improvements, including the use of appropriate technologies.
2) Payment terms
The average payment term is the indicator that, as the name says, measures the average payment term to suppliers. The purpose of this data is to collaborate for an efficient control of the business cash flow.
3) Cost per order
Within Business Intelligence in the purchasing department, it is also important to be aware of the “cost per order” indicator. It is common for the purchasing department to negotiate better prices and good payment terms with their suppliers when placing orders in larger volumes.
Some strategies in this regard, which help improve efficiency in the purchasing department, are:
- Place orders for a particular vendor on a single day of the month;
- Seek to purchase as many products from the same vendor as possible;
- Analyze whether it is worth increasing the quantity of items per order to achieve a better price – of course, if this is positive for stock requirements;
- Counting on the collaboration of a company specialized in indirect material purchasing that can unify orders from different manufacturers and coming from different continents.
4) Supplier performance
The performance of suppliers is the indicator that measures their efficiency in several issues – among them:
- Availability and quality of products;
- Prices and payment conditions;
- Delivery times;
- Quality of service in pre and post-sale;
- Commitment to comply with what was agreed.
Here, the most indicated is to make a periodic analysis and constant monitoring of each supplier’s performance, observing all the issues mentioned above (among others, such as social and environmental responsibility) [sustainable purchasing link]. This helps to maintain partnerships with the best suppliers.
5) Price Evolution
To measure the price evolution of the products purchased by the company’s purchasing department means to compare the previous values with the current ones practiced by suppliers (if there is such variation).
The intention of this indicator within Business Intelligence is to analyze the oscillations in this sense and verify if they are justified – as well as, if there is any purchase period that provides greater financial advantages to the business.
6) Saving in purchasing
Saving in purchasing is the indicator that represents the cost reduction made in the acquisition of a material, created to calculate gains with negotiations in the procurement department.
In addition to the costs, the variables time and payment terms must also be considered. As an example, we can think of the interruption of production due to the lack of an unsolicited part by the factory with the necessary anticipation.
What is the daily loss of the company with this stoppage? How much will be saved if the purchasing department gets an urgent delivery that ends the stoppage? These figures should be accounted for in the indicator that shows the cost reduction provided by the purchasing department’s action – on costs, read our article on how to better balance organizational finances, knowing how to choose between Opex and Capex.
Putting BI into practice
Purchasing expert Gerard Chick says the use of BI will allow procurement professionals to work proactively, staying ahead of the game. But to gain competitive advantage it is not enough to have up-to-date information on hand, you have to condense it and know how to analyze it so that it can be useful for the decision-making process.
And this is where BI comes in, by avoiding trial-and-error and waste of time and money – two challenges that the procurement department continually faces.
In practice, Business Intelligence in the purchasing department must follow the steps that follow:
A- Data collection and organization
At this stage, the objectives must be defined and the indicators that will serve as a basis for processing the information must be selected. Then, all data needs to be recorded in the database in an organized manner, to facilitate subsequent searches. One way to do this is by sorting this data into different groups of information: material type, quantity, price, suppliers, etc.
An important factor to note is choosing the right tool for data collection – in addition to those developed to record information specific to the purchasing sector, there are solutions aimed at monitoring social networks, websites and news, for example.
Depending on the needs of the business it may be necessary to have a series of platforms available in the market, so having the support of experienced professionals who know the existing technologies and the characteristics of the company is the most appropriate way to make the ideal choice.
B- Data Analysis
After feeding the database, you need to interpret information, define metrics, and make dashboards to make it easier to visualize the data – this is one of the skills that the purchasing professional needs to master today to succeed in this task.
The use of BI-specific technology solutions is essential at this stage, as they are programmed to provide reports based on user-defined metrics – vendor performance, price, timeframe, etc.
Microsoft Power BI, IBM Cognos Analytics, SAS Business Intelligence, SAP Business Objects and Domo are some examples of BI platforms. When choosing one of them, you need to analyze the demands of your company and the available budget for this investment.
C- Data sharing
After obtaining the information, the reports extracted from the BI software should be shared with all stakeholders, which contributes to more agile and assertive decisions. The development of the Business Intelligence strategy must also be monitored, and adapted to any changes that may occur in the company/procurement sector.
Business Intelligence in the purchasing department helps track supplier performance
Applying Business Intelligence to the purchasing sector means coming out of the dark and working in the light of facts, by providing concrete elements for one of the most complex steps: analyzing supplier performance.
It is a process in which the lack of concrete information can directly interfere in the company’s results. But BI helps in a greater transparency, considering the facilities it offers.
- Partnership analysis and improvement: the buyer needs quality products, delivered on time, and BI offers real-time data for a correct and fast evaluation;
- Supplier performance monitoring: Business Intelligence enables insights that will collaborate so that the supplier knows where he can improve his services and thus become a partner;
- Increase transparency in the purchasing process: BI organizes all data that involves each purchasing transaction, offering comparisons between suppliers on each defined indicator, generating transparency to the purchasing process within the company and with suppliers.
Without concrete information, purchasing decisions often are made by what feels right. The tools, however, expand supplier evaluation – not only related to the lowest price, but also involving other significant metrics such as quality and on-time delivery!
On the improvement of the purchasing process, we suggest reading the articles:
Business Intelligence offers greater efficiency in the purchasing process. Efficiency that can also be obtained by having the support of a company specialized in providing spare parts, such as Soluparts.
We are a global company with offices in Brazil, Germany, Portugal, Hong Kong and the United States. We facilitate the entire process of acquiring indirect materials from your company, as we have access to thousands of products and suppliers worldwide.
To better understand how Soluparts can contribute to your company’s purchasing department, please contact our team!
7 tips to not exceed the purchasing area budget
In the corporate environment, budget planning is intrinsically linked to the maintenance and growth of a company.
In the purchasing department, particularly, the collection for reduction and control of expenses, on the part of the management is enormous. The profitability of the whole company depends on the good management of the department and the activities directly linked to it, such as logistics and maintenance. Thus, the purchasing professionals stop acting only in the acquisition process and start to participate actively in the budget discussion.
In this article, we will discuss the importance of budgeting for the purchasing area. Also, we will bring some tips on how to stay in line with it and even reduce costs (a great challenge, facing the complex, volatile, dynamic and competitive reality of a company).
Why is the purchasing budget important?
The experts who discuss the subject point out some factors related to the relevance of a budget for purchases:
- It informs the purchasing strategy, making clear what is possible or not to buy, according to the established budget;
- It helps to measure spending, signaling when there are problems with finances, if there is a spending beyond the forecast that can hinder the acquisition process, or if there are parts being purchased with the value above the market average;
- It ensures transparency between the areas of the company, and the purchasing department can be responsible for their finances;
- It assists in a more effective management of the acquisition finances, since a budget will allow the appropriate allocation of resources for purchasing projects;
- It provides insights for decision making. Purchasing budget information (spending trends) can help you make better choices.
- Because of the advantages described above, budgeting for the procurement area is essential for reducing short, medium and long term expenses.
Tips to stay within your purchasing budget
In order to obtain success in the elaboration and monitoring of information regarding the purchasing budget, there are several guidelines that can be followed:
1. Identify the products that need to be purchased
Define which parts should be purchased, how much, when they will need to be used and how much you are willing to pay. Search supplier options and consider those that have a good reputation, good prices, customer service and better response time. Finally, close the deal with the supplier that offers the best conditions.
This process can become tiring, as it involves negotiation steps, but it is extremely necessary!
Stock management, which extends to other branches or other plants, is also very important to maintain the budget of the area. Before buying a part whose use is low, it is worth to verify if it is in stock in other branches and, if so, request the part to the branch that needs it.
When this stock check is not done in the correct way, there is the risk that parts are scrapped – and this is the main cause of unnecessary expenses and waste.
It is worth remembering that low turnover indirect materials stored in fixed assets deposits decrease the working capital and can lead to the loss of good purchase opportunities due to lack of available capital.
2. Get approval from other stakeholders
Promote budget credibility and legitimacy by involving other strategic areas (such as accounting and finance), which may suggest savings.
Some companies have the annual budget defined by the financial board and, during the month, a meeting is held with the entire purchasing department and the board to follow up on expenses. Similarly, other internal department meetings are needed to study spending reduction strategies – these periodic budget-focused meetings are important to keep expenses under control!
3. Plan your expenses in advance
The person responsible for the purchasing area needs to know the amount available to purchase a specific item, and they should clarify to the suppliers how much they are willing to pay for a certain product.
Planning here is also essential to understand what the negotiated condition for delivery should be. A purchase made a few months in advance allows the low price to be prioritized over lead time, for example.
A last-minute purchase, even if it is very necessary for the production, ends up having a higher price – not to mention the price of urgent freight, which ends up being more expensive.
A well-planned budget allows load consolidation, which decreases the price of material shipment. This is because a unique shipment is made of all the parts – but, for this it is important to have a partner that supplies several brands and that is able to keep the products in a warehouse for a unique shipment, something that Soluparts offers.
4. Have a margin to make your budget more flexible
This margin will help adjust the purchasing area’s budget when faced with uncertainties and risks such as those related to projects, acquisitions and deliveries. It is important to keep stakeholders aware of these changes, so that they understand the real situation and how much of this margin has already been used. This caution is fundamental in times of economic crisis like the one we are living at the moment.
5. Document and monitor the terms with your suppliers
This step is essential to assist in the control of the agreements signed, which consequently keeps the budget updated.
Among the essential points it should be clear what the supplier should offer (and what the price, payment conditions and delivery terms are), conditions in case of breach of contract and the guarantee of confidentiality – check out the full article on the benefits of contract management in purchasing.
6. Use technology to your advantage
Use software that updates spending in real time and helps track orders and approvals. This way, the information will be more organized and the professionals will be able to focus on less operational activities and perform a more analytical work, seeking to optimize processes, reduce expenses and, consequently, increase the company’s profit. See our article about the 10 softwares for the purchasing department for tips.
Some purchasing department software issues automatic purchase orders for parts that are purchased regularly – for example every three months – based on the last price offered by the supplier. It is necessary to follow these orders closely so that it is possible to renegotiate the prices, which tend to increase depending on the contract.
It is ideal to try to understand why the possible increase happened and in what way it will impact on the expenses – this readjustment can be due to tariffs, for instance.
Keep quotations and contacts of other suppliers that have this same piece to contact them in case the price increases to the point of it not being feasible to purchase with the same company. As we can see, renegotiation and contract control are very important and need to be monitored.
In addition, create in your Business Intelligence software, a unique dashboard to analyze metrics related to expense reduction and budget control.
7. Have a team that understands budget
Large companies offer their purchasing professionals training on cash flow, financial management and budgeting to qualify them to make important decisions to control spending.
Knowing the operation of the supply chain and having logistics knowledge is fundamental. Also try to understand the productivity and profit cycle generated by each part purchased. This will help you define the priority and urgency of a specific purchase and the ideal Incoterms and payment conditions for it. For example, if the valve you purchased needs to produce for X months to generate Y of profit in 180 days, and this amount pay the valve, you can negotiate the payment for 180 days after shipping it.
In this article, we discuss the importance of closely controlling the purchasing area budget. The growth of a company, in today’s world, is complex and brings several challenges, which makes budget planning an important part of its success and profitability.
It is important to have a frequent dialogue between the purchasing team and the financial department in order to have an alignment among all. In addition, it is necessary to maintain flexibility, control and transparency over the decisions made.
The effectiveness of strategies to reduce spending in organizations makes them more competitive, by enabling investments in their growth and in people, for example:
- Renewal of machinery;
- Training of employees;
- Improvement and expansion of the physical structure.
To make purchases with good prices, a great option is to count on a company like Soluparts. Our team of experts in indirect material procurement always gets the best commercial proposals for your company.
We also offer an Annual Contract: from your subscription, the prices quoted for each piece remain unchanged for a period of one year, which assures more freedom to make purchases in the period you prefer.
This helps you to map and plan the approximate costs of spare parts for the next year, allowing better control of your budget. Try these benefits and keep your budget under control: Learn more about our Annual Contract.
Transforming the purchasing sector with planning
In an agile world like the one we live in, in which the dynamics and paradigms of supply chains change rapidly, digital transformation in any sector, including the purchasing sector, is unavoidable.
But for this transformation to be successful and expand the competitiveness and profitable potential of a business, we need to ask ourselves: how to promote this structural change in a sector that normally has traditional methods and needs to invest in updating and qualifying its employees?
Elaborating a good purchase planning that ensures greater predictability of demands, greater agility and better negotiation conditions – especially when opting for an annual contract with suppliers, which keeps the value of the parts quotations unchanged during the contracted period.
Benefits of purchasing planning
Planning in the purchasing sector is fundamental for the financial and cash flow health of an organization. It ensures that production will never stop due to lack of parts and that, when necessary, there will always be parts in stock. In addition, it avoids scrapping of parts, waste, unnecessary expenses – such as air freight in the case of last-minute purchases – and no lack of cash for any fundamental purchase.
Proper planning is capable of offering the procurement sector greater visibility of purchases, which can provide many benefits. Some of them are:
- Avoiding extra expenses, which blows the department’s budget;
- Greater efficiency: it avoids rework, forgetting materials to be purchased and prevents the same material from being quoted by more than one employee;
- Allowing the consolidation of orders, which makes negotiating the prices and deadlines for payment and shipment easier, and generates savings;
- Avoiding delays in the arrival of materials;
- Evaluating the need for technical knowledge to support the acquisition process. Especially when the internal technical capacity of the purchasing department is not available or is insufficient;
- Monitoring the purchasing process to analyze actual performance regarding planned activities and thus promoting adjustments – continuously and agilely;
- Allowing the purchasing department to meet additional needs with more quality and speed that were not foreseen in the initial planning;
- Increasing the transparency and predictability of the purchasing process.
The role of supplier choice in procurement planning
Procurement planning will only be effective if it includes the supplier qualification stage, which can avoid several inconveniences related to contracts closed with inadequate companies.
And problems with suppliers happen more often than you might think. A virtual community dedicated to purchasing professionals, Sales Hacker, has evaluated the relationship with its suppliers. Among the results obtained, we highlight two very worrying data:
- 84% of professional buyers reported that they always or often do not receive feedback from suppliers regarding their inquiries to purchase various materials;
- In relation to after-sales, 76% admit that the lack of return always or frequently occurs when they ask for information from the seller about any aspect of the purchased product – and many times already paid.
Many times, the discovery of a bad service, whether in quality, price, punctuality, ethics or transparency, only happens after being hired. That’s why it’s so important to research the supplier’s reputation before closing the contract, use advanced negotiation techniques and create performance indicators to analyze the services offered.
An even more practical option is to count on the services of companies specialized in the acquisition of materials, which can offer many advantages to the organization.
Annual purchase contract: is it worth it?
The option of an annual purchase contract with a specific supplier helps to plan most of next year’s purchases and close their values, ensuring that everything is within budget. Also, this modality optimizes the purchaser’s routine, since the same quotations made when the contract was closed don’t need to be repeated when the part becomes necessary. Having an annual contract is our golden tip to strategically plan your department’s purchases, from short, medium and even long term.
Soluparts is a spare parts specialist that offers an annual contract. In order to close said contract, it’s necessary to make a survey of the acquisitions made in the previous period, as well as meetings with all sectors of the company to understand the individual demand of each one of them in the next year.
With this list of indirect materials, sent by the client, Soluparts’ team quotes each one of the items, consolidating them in a single document – which is used for contract elaboration. This way, during the current year, when there is demand for any of the listed parts, there is no need to send a new quotation request – just send the purchase order, which greatly benefits the process of purchasing parts as it becomes more agile.
In Soluparts’ Annual Contract, the price of parts remains unchanged for one year. Thus, the buyer becomes a contract manager, and gains time to handle other strategic tasks.
If you still have any questions about how it works and what are the benefits of the Annual Contract, we have prepared an infographic to help you, click here to download.
To understand how to start drafting an annual contract for your company, talk to our spare parts specialists.
Benefits of contract management in purchasing
In the current moment of economic crisis that the world is experiencing, the purchasing area is going through several challenges.
These include the increasing pressure to reduce costs and optimize financial and operational performance, the increase in the complexity and volume of contracts to be managed, the need to automate processes related to this area and the emergence of new regulatory requirements.
These factors make it essential that procurement and contracting processes converge very closely. This statement, made by the Chartered Institute of Procurement and Supply, clarifies the relevance of this issue for organizations.
In addition, this scenario requires procurement professionals to increasingly develop certain soft skills (such as judgment, strategic thinking, analytical thinking, common sense, cultural and emotional intelligence) to manage demands related to contract management.
In this text, we will discuss the benefits of contract management in purchasing, in addition to presenting strategies on how to adopt it successfully in your company’s day-to-day.
The importance of contract management in purchasing
In short, the contract management process can be understood as the interaction between suppliers and buyers that guarantees the performance of obligations (by both parties) in a purchasing relationship.
There are five essential points that should be contemplated in this process, whether in the purchasing sector or any other department:
- Goods and services: accurately describe what will be provided by the supplier, which avoids misinterpretation;
- Prices and payment: define what are the costs of each product or service, how and when it will be paid and what are the penalties in case of delays;
- Confidentiality and proprietary information: decide who will own the intellectual property if something has been developed in partnership. In addition, in the case of information that cannot be disclosed, it is essential that there are confidentiality clauses to protect the company that owns it, in the best possible way, against leaks;
- Disclaimer: limit the other party’s ability to file a lawsuit and recover possible damages – see more details on this item at Incoterms 2020;
- Violations and breaches of contract: set conditions if either party decide to terminate the contract.
In addition, according to the Purchasing and Procurement Center article, the contract management process includes the following steps:
- Manage the delivery of services in order to ensure compliance with the deadlines set;
- Establish a fruitful relationship between suppliers and buyers;
- Manage the contract itself, ensuring that the clauses are in line with the negotiation and respected by all. Make sure that the purchasing activities follow what has been agreed upon;
- Seek improvements, consequently increasing efficiency and profitability;
- Implement changes when necessary, as in long-term contracts, changes regarding activities, requests and available products are common.
There are also strategies that can be adopted that help in the better management of purchasing contracts:
Using contract management software for organized archiving of information is a great option, since it allows having a single database of related documents. If this management is done by different areas (Purchasing and Legal), it is important to ensure coordination and communication between them.
Audits are crucial to improve supplier performance (punctuality, quality controls, pricing and payment schedules) and ensure the organization is acting in accordance with defined rules and regulations – see the benefits of compliance in purchasing.
Improve risk management
Delays in the delivery, late payments, mistaken inventory counts, among other risks, can be avoided if there is an efficient management of the contract with the supplier.
Practical tip for contract management: prepare checklists
Performing checklists is an efficient way to describe aspects and good practices related to contract management. The checklist can be divided into three columns, contemplating the activities to be performed, the stakeholders involved and the frequency to perform them (use the periodicity that makes more sense for your work routine: daily, biweekly, monthly, semiannually, annually, at the beginning or end of the contract).
In order to optimize the purchasing sector’s time and make the list of activities more organized, it is ideal that they be divided into four main blocks. See below the topics and some suggestions of tasks to be contemplated in the checklist:
1. Planning and Preparation
The definition of policies and procedures for contract management (e.g., establishing the responsibilities of the parties, assessing the need for staff training, creating an action plan, and listing possible risks).
2. Pre-contract period
Phase after the negotiation, in which the document is revised again in order to detect possible errors, which avoids risks for the company. In addition, at this stage it is important to ensure that the documents related to the contract are consistent and that all parties receive the updated versions.
3. Contract period
It refers to the moment when the contract is active. One should pay attention to its optimization and the detection of trends and opportunities for future contracts. It is important that the documents are in the management tools and their execution is monitored through performance indicators.
4. Post-contract period
Stage in which the contract is no longer active. It considers the tasks related to its closure and the elaboration of final evaluation reports.
In this article, we brought some aspects related to contract management in purchasing (its importance, strategies and practical tips to adopt it), which helps the procurement team to promote the operational and financial optimization of its sector.
The purchasing professional must be attentive to strategies that guarantee the best products and services for a fair price, with the fulfillment of the responsibilities formalized during the contracting process.
Soluparts offers the Annual Purchase Contract. With it, the client guarantees the prices quoted for one year – from the signature of the document – and only needs to send the purchase order of the desired part when it was necessary, increasing productivity, reducing costs and optimizing the time of the professional in the area.
Talk to our specialists and learn how to simplify contract management in purchasing: CHECK OUT THE ANNUAL CONTRACT
Benefits of a trading company for the purchasing department
Opting to buy products in other countries through a Trading Company offers many advantages. We highlight the main ones below.
1. It optimizes the purchasing process and reduces costs
Acquiring the best products at the best price is essential for every company, but it is a task that demands time and effort from the purchasing department, especially for companies with high demands.
Trading companies optimize your time by enabling you to concentrate all your demands on just one company. No matter if the demand is for 1 or 300 items, trading companies receive your quotation and will do all the work to seek the best offer from international manufacturers and offer you the best commercial proposal.
2. It gives you access to the best suppliers in the world
Trading Companies – especially those with offices in the main world markets – ensure that any brand and product your company needs can be found under the best possible conditions – Soluparts can even search for materials considered obsolete. Here it is not only the quantity, but the quality of the selected suppliers that counts!
3. It Improves communication and raises the level of negotiation
Negotiating with suppliers can be a difficult process, especially when the language and culture of the place where the supplier is located is not mastered.
Trading companies relie on multicultural and experienced professionals who are able to negotiate in several languages. Another differential of these professionals is the high level of relationship with the manufacturers who are negotiating, guaranteeing the best prices and market conditions.
4. It allows you to buy smaller quantities and speeds up the receipt of purchased materials
A trading business allows you to buy any volume, which avoids the purchasing team to buy over the real need and formulate volumous stocks.
the purchase of parts in any volume, avoiding the purchase of products in excess of the real need and the formation of volumous stocks. This way, it keeps the purchasing department’s expenses within budget and avoids costs with deposit rental.
A Trading Company also allows:
- Spot purchase – made on time, according to the company’s needs;
- Purchase by contract – list of materials previously quoted and with extended quotation validity ( 2 to 3 years ). This modality turns the buyer into a contract manager, greatly reducing the volume of spot quotations and optimizing the purchase process.
5. It makes load consolidation a possibility
Relying on a trading company is essential to facilitate logistics, since it will gather different products, from different suppliers, in a single warehouse, offering a safe storage, while waiting for the purchasing company to arrange the removal of the materials.
The reception and consolidation of loads by a trading company guarantees total security in the process since all items are carefully checked in order to guarantee that, when they are exported, they are exactly the items needed by the client. Besides all this security, it also allows significant reduction of logistic costs through the reduction of international freight and customs costs.
Soluparts, a global trading company
Soluparts is able to offer quotations from the most relevant manufacturers in the world – read an article that shows our differentials and learn how we can optimize the routine of your purchasing department.
We are a supplier specialized in all types of industrial materials and have offices in Brazil, Germany, Portugal, Hong Kong and the United States.
Ways of improving purchasing performance exponentially
There is always room for improvement. Especially in a department as strategic as purchasing, but which, at the same time, can be so impacted by issues external to the company, such as political, economic, technological, among others. In this context, constantly reviewing and evaluating the processes themselves becomes essential.
In order to highlight several points of improvement for the area, on this page, we have compiled articles that can help assess activities both in a macro and micro dimensions.