Whether you are a new start-up or an established business in need of a more efficient purchasing system the right tools implemented correctly can have a huge impact on operations and your bottom line. A well-structured process provides the business confidence in their purchasing while eliminating potential waste. This process provides a way to conserve cash and make good decisions on where savings can be made while supporting the performance and sustainability of the business.
Let’s get started:
1. Collect Data- This may seem simple enough but learning to pull tribal knowledge from people that may be hesitant to share can make this quite difficult. You may also run into poor record keeping, determining the what, where from and when will be a huge asset if successful. You’ll want to collect as much raw data as possible, what was purchased, who from, the quantity, the frequency and the price paid. Some valuable additional information that often is overlooked is price breaks available, terms of sale, and the logistics or shipping information. In short, you will want to obtain any and all purchasing data
2. Build a database- Now that you have sufficient data you’ll want to create a repository for it. In the lean world this is called a Plan for Every Part (PFEP). The PFEP is exactly that, a plan for every part. It provides granular details on all items at all levels. We are currently focusing on the purchased component level. This database should be your bible for your procurement organization or individual.
3. Validate/Ensure accuracy- With the data collected and stored in a logical format, the next step will be to validate for accuracy. You likely will not have time to go through this to ensure all records are accurate so just start to take little bites at a time. This step includes reviewing receipts, copies of invoices, or calling the supplier to confirm the data. You should start with the larger dollar and high frequency/quantity purchases as they will have the most impact and provide the biggest opportunity for savings.
4. Communicate- You’ve built a great tool and for it to be success it must be utilized by the organization as a whole. It’s critical that everyone understands the concept, why it’s being done and the goal of the tool. It should also be kept easily accessible, the goal is to have this readily avail to all members of the team. By doing so, you can avoid creating another tribal knowledge situation.
5. Analyze- This database is a great start for purchasing decisions. It will provide a great insight of where your cash is going, how long it will be tied up, and your potential partners you’d want to create as the business develops or continues.
These are the 5 basic steps to creating a standard for your procurement team. Executed efficiently, it will prevent rogue purchasing events from happening and give a baseline to compare how your spending is trending. Cash conservation is good for any company at any stage of their business. This tool will provide an easy to follow, logical, and analytical device to provide savings. Contact Taktion Consulting to obtain a free copy of the PFEP tool. (www.Taktion.com).