Economic cycles are seldom forecast, often misread, and always present. There are macro cycles that affect the national or even global economy, and micro ones that can also support, or play havoc with your business. As a modern purchasing professional, active in managing the supply chain at your company, it often falls on you to recognize these cycles, and plan and act accordingly to minimize problems and maximize opportunities.

The truth is, you’re not an economist, even if you’ve been at the purchasing game for some time. While you may understand supply and demand in your own business, it’s somewhat of a stretch to assume full awareness of global, or even national trends and how they can affect the flow of goods and services.

What you do know is that in any economic environment, at whatever point in the business cycle, you and your department, regardless of size, are charged with doing three things:

• Containing costs
• Producing Results
• Measuring Effectiveness

Here are our Five Best Practices for Small Purchasing Departments – tips culled from purchasing professionals throughout industry. They can help you meet the demands listed above. Keep them in mind and take steps to implement them based on the needs and capabilities of your own organization.

1.  MAKE TECHNOLOGY WORK FOR YOU

The procurement “system” you work with should function to help you effectively manage to your corporate goals. You shouldn’t be laboring to match the demands of the system. Simply put, don’t fit your structure to the technology. Match the technology to your individual needs and organization. Review your unique processes, demands, workflow and reporting, and select the technology that matches your model and satisfies your needs.

Modern purchasing management systems (PMS) are adaptable and scalable. Effective implementation is everything. You must determine the information your department needs, what your corporate management requires in reporting, and the data production and entry that your department will need to track in order to drive an efficient information flow. That will enable you to build and use a custom metrics dashboard to make data-driven decisions at the level you require. Ignore the bells and whistles of complicated systems, especially if your department is small. They won’t make your task any easier and can actually get in the way of productivity.

2.  DEFINE A PURCHASING STRATEGY

Effective purchasing departments in any size organization need to define their procurement strategies and tactics and stick with them in order to align the department with company goals. This begins with a realistic assessment of objectives, resources available, budget restrictions and timelines. Here are some questions to ask:

• Are you tasked with obtaining best pricing on component sourcing, best quality, or a mix of both? If both, then what is that optimum mix ratio?
• Will you commit to volume buying to obtain favorable pricing, or avoid inventory build-up at all cost?
• Will you use procurement auctions to obtain best pricing?
• Do you desire and need excellent, predictable service from a limited supplier list rather than lowest pricing?
• Is strategic sourcing important to your business?
• Is individual component branding a key sales factor in your downstream marketing or can you substitute to-spec parts?
• Are you willing to partner with suppliers to share inventory, burn rate, and projected component needs in order to guarantee price and/or availability of what you need?  
• Can you define the best strategy for you to optimize supplier contribution to your process, get acceptable quality levels, efficiently manage risk, and match the needs of your end markets?
• Does your purchasing strategy involve the whole corporate team in the sourcing process, from engineering through marketing, to enable a broad perspective that can facilitate constant change to support efficiency?

Only when you have answered the questions that apply to your own situation, and developed a coherent strategy for your company and department, can you effectively begin to produce the ongoing results you need.

3.  FOCUS ON TOTAL COST OF OWNERSHIP

It is important, if not critical, to consider all of the factors that affect total product cost, and not just single-out individual component pricing.

Up front acquisition costs account for roughly 25 to 40% of the total cost for most products and services. The balance is made up of warehousing, transportation, quality assurance, testing, disposal, etc. Inventory costs alone can account for up to 60% of component cost, and can include things like insurance, obsolescence, and waste management.

By establishing alliances with key suppliers you can work together to reduce the total cost of ownership through smart use of programs like just-in-time delivery, certified testing, etc. Working with a modern national distributor that has many of these programs in place can also help you get to where you need to be much more quickly than doing it on your own.     

4.  MAXIMIZE INCENTIVES FROM SUPPLIERS & DISTRIBUTORS

This sounds simple, but using an efficient electronic procurement system can flag your department to take advantage of incentive dates for early payment to earn rebates, discounts, or additional product. It is amazing how many purchasing departments can neglect this simple strategy. Don’t rely on your accounting department or a tickler file to remind you of program expiration dates or rebate guidelines.

Close relationships with your suppliers and distributor partners can also help you take advantage of discounts on end runs of viable components, spec-compliant substitutions, and special pricing on shipping, testing or custom packaging. Especially if your department is small, you need all the help you can get.

5.  HAVE CONTINGENCY PLANS IN PLACE

An intelligent contingency plan with meaningful action steps, timeline, and action points can mean the difference between profit and loss on a manufacturing run and your company’s quarterly profits. The plan should be developed in conjunction with key suppliers to avoid scenarios like components not arriving on-time, out-of-spec components, shipment damage, etc.

You should take the time to develop “what-if” scenarios with key stakeholders, like your distributor partners, that lead to well-thought-out alternatives. What if in-line component testing doesn’t match supplier specs? What if a shipment is lost to accident, or delayed by weather or customs? What if a customer rejects product due to substitute components?

Think through your potential developments and plan your actions up-front, with concrete steps to take when things occur. It is much easier to plan and act, than to experience and react.

6.  CHOOSE DISTRIBUTORS WISELY

Wait – we said at the beginning that there were only five Best Practices? Well, we didn’t mean to mislead you, but there are literally dozens of best practices that can apply to purchasing operations. But here is one more to keep in mind as you seek continuous improvement in your own department. At the end of the day, it may be one of the more important ones to take into consideration.

Choosing a modern distribution operation to partner with, source parts, suggest substitutions, manage inventory, deliver on-time, and anticipate future needs can add significantly to the success of your business operations. Not only in time, cost and material savings, but also in bottom-line return on investment for your entire operation.

A national distributor like Online Components, with programs in place to help streamline your sourcing operations, can help you contain costs, produce results, and measure effectiveness. The three keys to purchasing success.