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Buy Your Way to Cost Control

Almost by definition, the person who spends the most money in your organization is the person who can save your organization the most money.

This is especially true of your purchasing manager. There are a number of ways that the person in charge of purchasing can save your company money:

Bulk purchases can result in significantly reduced costs. If your procurement or purchasing department is highly effective, it will not only coordinate purchases within your company but -- particularly in a small business -- will aggressively look for other purchasers outisde of the company to combine with in order to obtain bulk purchases at discounted prices.

Close coordination with the storeroom or warehouse facility can ensure that inventories are kept to a minimum, so that the company doesn't pay a lot for material that sits on a shelf for a long time.

The purchasing department can keep records on vendor performance, so that the company doesn't rely on the false promises of suppliers who routinely promise great quality at bargain prices -- and then don't deliver.

A particularly aggressive purchasing manager will actively manage suppliers, ensuring that the company pays the lowest price by constantly maintaining contacts with competing vendors and letting suppliers know that their price and performance are constantly being monitored. And the best purchasing managers set an example, by ensuring that the purchasing or procurement department itself operates cost effectively. If the person who does the buying is cost conscious, other employees will think twice before asking that person to buy goods or services that are unnecessarily expensive.

Q. What is "just-in-time" delivery, and can it work for my company?

A. "Just-in-time" delivery means what it says: Your vendor agrees to deliver your material right at the time you need it. Not so early that you wind up with warehousing expenses, but not so late that your big expensive projects are held up.

Just-in-time delivery works best with companies that have projects that are carefully scheduled and effectively managed so that work is performed according to a strict schedule. For example, construction companies may effectively use just-in-time delivery so that goods and materials arrive at the construction site just in time. Money is saved largely by not having to provide warehouse facilities for these goods and materials. This means that there could be trouble if your project falls behind. You'll have to scramble to find a place to store that material until you need it.

For companies that have substantial warehousing costs and large well-scheduled projects, just-in-time delivery may make sense. Those companies should ensure that there is no premium in the price for such delivery -- or, if there is, that the premium is more than offset by the savings in warehousing costs.

NOTE: This column was written in 1994. Just-in-time delivery has since expanded well beyond the realm of large construction projects, and into retailing and other smaller operations.

Q. When we buy things at our company, we generally have to fill out requisitions and purchase orders in quadruplicate! What's the best way around this?

A. Forget about reducing the number of copies. Instead, be more dramatic: Work with information system experts to create "paperless purchasing" in your office. You punch in your requisition and, with a keystroke, send it out to the purchasing department. The purchasing department supplements your requisition with purchase order information, which gets sent out by computer to you, the warehouse, and accounts payable. When the material is received by the warehouse, a few keystrokes notifies you that the material arrived, and lets accounts payable know that it should pay the invoice. It may sound like a fantasy, but it's working for an increasing number of companies.

NOTE: Again, this column was written in 1994, and the "fantasy" world of paperless procurement has become increasingly a reality for most large organizations.