Procurement Analysis – Saving Purchasing Costs

Procurement is an important part of your business so you need to undertake regular procurement analysis to ensure that you are making the best use of your hard earned money. Procurement analysis is the analysis of what goes on in your purchasing department, are they keeping to the purchasing strategy and are inventories being kept to the optimum levels.  With respect to suppliers, are the best suppliers been chosen and are they offering the best prices and terms?

Whatever the size of your company you must analyze costs and inventories.  As you become larger and your purchasing needs become more complex, you should be analyzing delivery times, maverick spending and whether you are making the best use of your suppliers.  Let us look at each of these procurement analysis needs individually.

Cost Analysis
Obviously, the first thing that you will look at is the actual cost to purchase the goods is.  Costs do not stop there unfortunately, there are also the costs incurred for delivery, handling and storage.  You may also have a supplier that requires advanced payments.  So if you are ordering large items that take several people to move and you have to pay for them to be delivered, your actual costs are far higher than just the costs of the goods.  If you also have an overstock of these goods, holding costs also have to be added to the total cost.  A full procurement analysis will identify the total cost of purchasing from a particular supplier.

Inventory Analysis
The next most important area to analyze is the costs of storing the items as well as the costs of not having the items available for sale or manufacture. 
A correct procurement analysis on your current inventory will be able to predict the optimal future inventory.  It should also tell you the optimum inventory levels that will not negatively influence sales or productivity.  People and machines being idle are expensive.  This kind of inventory was designed by the Japanese and called JIT (Just In Time).

Best Use Of Suppliers Analysis
If you have a number of suppliers, you might like to analyze who is supplying what to you.  You may find that you rely on one supplier too much and this is never a good idea.  On the other hand, it might be that by consolidating suppliers you may get the better prices and terms that correspond to larger orders.

Maverick Spending
Sometimes, particularly if you use purchase requisitions, items may be ordered that are not appropriate or of a higher price or lower quality than you usually purchase.  It could also be that an item is purchased from one supplier, when another could have been cheaper. A procurement analysis of all your purchase requisitions and ad hoc purchases will soon identify these maverick purchases that could be costing your company far more than need be.

Delivery Time Analysis
Delivery times can be important to some large companies, particularly when perishable and large goods are concerned.  A large delivery that needs to be paid for very quickly can play havoc with a tight cash flow.  Large goods need staff handling and a correspondingly large storage area.

Some goods need special storage facilities such as freezer areas that may not be available.  Careful control of a company’s inventory needs to be maintained.  All of these areas will be highlighted with a thorough procurement analysis of the delivery times.

Look how much you could save if you analyzed what was happening in your purchasing department.

 

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