Savings in purchasing go straight to the bottom line of a business balance sheet. For instance, a $5,000 saving in purchasing may be equivalent to a $50,000 increase in sales.
The question people in business need to ask is: which is easier to achieve?
Improving the efficiency of purchasing does not have to be difficult. It may simply be improving the planning stage to more clearly define the goods required, time frames and performance measures.
Buying the cheapest products may not always be the cheapest end result. Enquiries about delivery charges, delivery times, after-sales support, insurance, taxes, training, warranty, availability of spare parts and discounts for prompt payments provide a global picture of the overall costs – not just the purchasing price. Alternatively, you can look at whether you may buy, lease, build or hire a certain item. There is also the alternative to paying with cash or getting finance.
It may be a good idea to discuss a supplier’s past performance with business colleagues. For instance, you may be able to ask them:
- Was the delivery as per the quotation?
- Was the staff helpful?
- Did the goods arrive undamaged and inappropriate packaging?
- Was the invoice accurate and was the supplier honest and ethical?
- Was the after-sales service and response to warranty adequate?
An effective stock control system will also help the business to deliver better purchasing strategies.
An efficient measure of stock control is one that ensures that sales can be met without holding excessive stock, which ties up money, occupies space and does not generate cash flow. A stock control system does not need to be complex or time-consuming as the business’ sales figure can provide the information to help calculate the minimum stock level requirements.
To find out how effective your stock control is asking yourself these questions:
- How much obsolete or slow-moving stock is being carried?
- Is there excess stock?
- Is there a system of maximum or minimum stock levels?
- What is the effect of a certain supplier’s minimum stock holding?
- What is the usage, lead time and cost of stock holding?
To achieve some standard of stock control, set a budget at the beginning of a buying period and adjust the budget each time an order is placed. This way an ongoing record is kept for both stock and finances.
Also, analyse stock by classification. This may be done by using the break down of categories on the cash register and recording daily sales, or by introducing a simple card file system where the sale of each type of stock is recorded.
Records must also be kept on a regular basis so that a quick reaction is possible if stock levels change due to a shift in sales or problems with supply.
By analysing stock trends, you can effectively determine the fast and slow moving items and plan their purchases accordingly.
Want to know more?
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‘How to Protect Your Food Business ’ eGuide
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