Cost of Purchasing 1

[MMDeacon]

My management is looking to determine if we have the appropriate number of staff in our Purchasing department or if we have too many. Does anyone have a method/plan/ whatever to determine how much it costs to issue a Purchase Order and cost for other tasks performed by purchasing?

 

[gerhardl]

There will always be a possibel ratonalization and economical gain by looking at any process, especially if things have evolved over time without anyone analyzing the process.

The cost question is impossible to answer directly without taking the broader view.

Two methodes:

a) Matching against a given benchmark.

Drawback is that this benchmark would have to be taken from a company or branch with almost exact same purchasing process and content.

A benchmark would only indicate that something should be done, and not what. (If the benchmark does not include figures and tools for pinpointing deviating areas).

b) Go the whole way.

Chart the purchasing process step by step. Start asking questions on basis of this: what can be changed? Process itself? Organization? Could some of the tasks be moved to the suppliers or better be moved to other departments? (For instance stock orders handeled by stocking department? Do we have the right tools (hardware, software, human resourches ?.. etc.

Note: Do not forget that purchasing also has a purpose, not only a cost : Do we get the things we want at the price we want at the time we want? Would cut down on manpower have a negative influence on any side of this if we do not change other parts of the process at the same time?

Could we gain something by rechecking market prices, technological level, quality level, competition in the market and on basis on this ask for new offers and renegotiate with new against existing suppliers?

 

[PSE]

I would agree with gerhardl in that to correctly find your answer, you are going to have to evaluate the processes that go on in the purchasing department. In my experience with different companies, the purchasing groups had material procurement in common but from there the similarities ended. I do not think you will find an effective generic benchmark for comparison purposes.

Identify the tasks that the group performs.
Identify the tasks that the group needs to perform (may be differences there).
Identify the processes used in performing the tasks.
Go into a process evaluation such as gerhardl suggests.
Determine if staff level changes are appropriate. You will likely need to change at least several processes before making staff level adjustments.

Regards,

 

[tomwalz]

Make sure you are not losing valuable expertise. People who have been doing purchasing for a while know who to trust. Check with manufacturing, customers, etc and see how many problems purchasing is causing by buying the wrong stuff.

See how well purchasing is using their software. My guess is that software utilization is somewhere around 50%. You could eliminate half of them on routine tasks.

The real question is what you want purchasing to do.

We sell hardmetal tools and parts to build them. Think tungsten carbide tipped saws as well as saw tipped with cermets and ceramics. Our niche is the very top end in performance. In order to do purchasing here we need to know which company makes the best grade and which company can supply when. We know that company A has lousy customer service, beautiful custom parts but old grades. Company B has pretty good customer service if you call regularly, very good custom parts and a great high wear grade but not good for rough use. Company C has so-so customer service, good standard parts, poor quality custom parts and a really good advanced general purpose grade that it takes them forever to make. Company D has a lazy sales rep who only sells what is easy, great grades and custom parts but they steal our customers every time they get a chance. Company E has a unique material but everything else is really bad including billing that drives accounting crazy. And so on.

Purchasing here involves actively searching for superior products, service and price.

I received a call yesterday from an aerospace supplier whose carbide parts are breaking. All they knew was the grade number but no information on performance values. Turns out they were using a grade of carbide with an HRA of 90.8 , Transverse Rupture Strength of 400,000 psi and grain size of 1 – 6 microns. This is a very old grade. Good purchasing should be constantly looking for better materials. A modern grade would have a sub-micron grain size giving it a HRA of 92.2 and a TRS of 537,000. Other strengths would also be better. With a TRS 305 higher and a hardness 2.2 points higher this part would both wear much longer and be much harder to break.

They were using a single supplier, they didn’t know why they were using them, all they knew about the material was a grade number. When they called the supplier to find out why they were having problems the answer was that they were the only ones having problems and it was their fault. So no tech support.

See if purchasing is using specifications for what they buy or just grade references.

Find out how cozy purchasing is with vendors. Trips to inspect plants in Europe? Actual cash? Ask the suppliers? Ask their competition.

OR

Do what everyone else does. Lay off all but the cheapest person and buy the least expensive of everything from a single source.

tom


Thomas J. Walz
Carbide Processors, Inc.

http://www.carbideprocessors.com

 

[plasgears]

Don't let purchasing proceed without supervision oversight. I had a purchasing agent who filled the warehouse with a couple years supply of toilet paper, and the supplier sent him to LasVegas. He had the nerve to ask for more space in the warehouse, which was newly expanded. I passed the word to the top boss.

More important is the discipline of economic order quantity [EOQ]. A purchasing pro could come up with EOQ for all commodities and even design an automatic purchase order system. I saw it in operation at a major meat products plant. The plant engr was a smart Navy Academy grad with good mentoring experience at the Pentagon.

 

[limct]

This is kind of tricky.
To me, it depends on how the boss look at the department, if she/he feels purchasing is just a supportive department, doing the routine job like issuing orders..etc. then the headcount is always too many.
But if she/he has a roadmap to turn purchasing into a strategic department, aiming for millions of cost saving each year, then it's a totally different story.

Best regards,
ct