Being a procurement person or a buyer in a large organization is a specialty. That’s not for who this post is for. For small and medium-sized organizations, “charitable” or “for profit” organizations the “buyer hat” is just one hat of several that individual team members wear during their day, week, month, or year. Some wear it well and others not so much.
As a buyer or procurement officer, I can share some tips and suggestions that can help. Whether your organization is a small or medium-sized “for-profit” or a similar sized “not-for-profit,” these “lessons learned” will help that “hat” fit better whenever and whenever you need to go to market.
Have a plan before “going to market.” If you have ever done groceries without a list, you will understand; a person who does groceries will buy far more things they don’t need and quite often forget key things if they don’t have a plan or a shopping list; the same thing is true in any organization, only the scale is different. In creating your plan, define what product or service is needed, and what budget you have, and do some preliminary research before “going to market.”
When you start to approach suppliers look for reputable organizations and representatives who make the effort to learn about what you want, what your needs are, and who makes the effort to provide value to you.
Grow or shrink your market according to your needs. A common oversight for many buyers is not to truly appreciate what is available. Remember scope matters. For small needs, local suppliers may satisfy your requirements; however, for larger procurements, learn what is available, learn through research and speaking to similar organizations about who they use, what they know, and what is available that you haven’t considered.
Funding, space, and time is finite. For every new product you buy; decisions need to be made about what products may have to be replaced or discontinued. For SME merchants, a common source of stress is not managing what to do with old products or having a transition strategy to bring new products to their customers AND clear the products being replaced in a way that doesn’t erode margins. Timing and managing cash flow is critical for any organization, especially for small organizations such as charities, both of these are critical for purchasing but also for ongoing survival.
Review your relationship with prospective suppliers. Trust is key for any relationship, whether you are buying something for yourself or something for your organization only the scope is different. Learn about organizations that provide the products and services you require. Ask questions, ask for references, and build relationships where possible. When deciding to expand the range of products or services you are buying, don’t forget to review their history of handling your business for service and credits, as a buyer the first thing I do when meeting with a vendor is review what issues are outstanding before even discussing something new.
What are your “Open to buys?” The obvious one is what can you afford to purchase from a cash flow perspective. Just like the grocery example, without considering their budget, I have seen many experienced buyers absolutely cripple their store’s cash flow situation by buying too much, if a dozen of something is a great deal, two dozen isn’t necessarily a better deal.
One that is less obvious but potentially just as important is what is your “space open-to-buy.” For example, as a Furniture and Appliance buyer, I have seen buyers, owners, and managers forget this principle and overload their warehouses resulting in increased damages; stress, and frustration from their people who have to work and function with insufficient space to do their jobs; misplacement of product; inventory control that is more difficult or lost; customer and clients suffer; and cash flow is significantly threatened or impacted.
Purchase orders must be entered into your system immediately. Depending on your organization’s operating processes, purchase orders are an external transaction that must be entered into your system. Too often buyers, particularly ones who may wear many “hats” will process their purchase orders “when they have time.” Issues arise when more than one person may be buying and unentered purchase orders will have consequences for budgets, duplication, and on space requirements.
Determine what the appropriate lead times will be. When does your organization require whatever product are service you need. It is inefficient to purchase more than what is necessary and it is also inefficient to experience shortages. When making purchases, document when the purchase is to be delivered as well as what contingency plans are required should delays occur.
80/20 Rule – For sales organizations, industry experts preach that 80% of sales comes from 20% of your products; therefore, procuring and maintaining those 20% of products and services is a top priority. For other organizations, prioritization of the products or services used most often will help determine your allocation of resources.
Ask about payment terms. As a small or medium-sized organization, you may have zero purchasing power or influence but ask, always ask. Failure to monitor and manage cash flow has crippled or killed many organizations and obtaining terms like 2%20MF or 2% off the invoice prices if you pay by the 20th of the month after you receive the product can be the difference between survival and failure.
Ask about volume rebates and other possible credits that are available. As a buyer in the home appliances sector, we operate on razor-thin margins, these credits and “sell-thru” credits make the difference between being profitable or operating at a loss. In other sectors, volume discounts and other incentives may also be available to help stretch your limited resources.
Ask about service support. Customer service is a process, as a buyer part of your job is to ensure that you and everyone who will use or rebuy those products and services know that process. Value more than price should be one of your prime objectives.
Ask about training and point-of-purchase support? When wearing your buyer “hat” there will be times when purchases concerning Information Technology (IT) will be sought or as a merchant, products will be obtained for resale; in both of these applications, training will be required. When making procurement decisions, vendor training support should be a key consideration when evaluating solutions.
What about shipping, handling, and freight charges? In a global economy, even small or medium-sized enterprises may shop the world for solutions to their procurement needs. Most people are aware of shipping charges because of online providers such as Amazon or Esty; as a buyer, you need to be aware of freight, pre-paid freight thresholds, minimum order size, tariffs, and exchange rates as well as the inevitable shipping timeframes. Unexpected shipping costs can be an unpleasant surprise to your organization, so make sure you ask.
Remember sales representatives don’t work for you. Depending on the scope of your procurement, some reps will wine and dine you; they provide free tickets to the ball or hockey game; remember they want you to buy and buy lots. There are many great and very helpful reps out there and they work hard to help you, but always be careful when they offer you a great deal, analyze it, it might be great, but it needs to fit into your plans for it to be a great deal for you.
Measure the effectiveness of what you buy. Often lost in the craziness of most small and medium-sized organizations’ daily activities is any post-procurement analysis of buying decisions. Creating and using some key performance indices (KPI) will help you and your organizations make better decisions regardless of your economic sector.
As a buyer, remember to stick to your plan, buy only what you need, and be wary of special sales, if you diverge from your plan ensure that it is a good deal for you, not just for your supplier. Trust your instincts because there will always be another sale. If you have any doubts about a purchase, DON’T MAKE IT. When in doubt always put your order book away … there will always be deals.
Being an effective buyer is more than just finding the lowest price, it is about delivering the best value for your organization and for your customers/clients.
Good luck,
Paul.