How Antiquated is Your Purchasing Process?
Throughout my career I’ve had the not so pleasurable experience of being a part of doing physical inventory counts and recounts monthly, quarterly, annually which, in the end tied up lots of people for a couple of days and resulted in significant and unexplained variances that were just written off. As computers made their way into business, companies were quick to automate the sales process because that brought cash in the door faster, but they were always hesitant when it came to automating procurement, even though that was, and is today a key part of inventory management. The same remains true today to some extent, but it is unclear why.
At one place of employment several years ago, the buyer was an older gentlemen who always seemed to have someone in his office. They leaned back in their chairs, smoked cigars, laughed and appeared to be socializing more than anything else. What I learned over time, was that “negotiations” were taking place. “I can give you a better price on that product if you commit to taking twice as much as you want for delivery next week instead of 2 weeks from now.” The buyer might agree to that deal as long as the salesman threw in a personal spiff of some kind; maybe a pair of prime tickets to a coveted sporting event or something more expensive such as a set of golf clubs depending of the value of the deal.
The deal would be sealed with a handshake, both parties would leave happy and the goods would be delivered as promised – with nothing in writing. The buyer’s signature on the packing slip was authorization for accounting to pay the supplier when the invoice arrived. In this scenario, chances are the receiver never knew when or how much of the product was going to arrive, the department that needed the product never knew they were going to get more than they needed and only the buyer knew what price and quality had been agreed upon. Whether the vendor always delivered when promised might also be questionable. While this arrangement worked because it was based on trust and valuable relationships built over time, it provided no accountability or visibility within the organization.
While most organizations have moved beyond purchasing commitments on a handshake, why is it many are still reluctant to implement a purchasing module/piece as part of their business management software?
Buyers still need to build and maintain relationships with suppliers; they still need to negotiate for quality and price and if the truth be known, the personal spiffs can still be had here and there, although many employers frown upon acceptance of “gifts” from suppliers. Where purchasing automation makes a huge improvement is in visibility to inventory availability, vendor performance and cost control. When an automated purchase order system is properly implemented, the purchase order serves as the control document that spells out the details of a purchase contract.
Details such as inventory items, quantities, expected ship dates, price, vendor and acceptable substitute items are all captured and visible to those in the organization who need the information. With open purchase orders in the system, the receiver has the ability to plan based on shipments expected to arrive by date, the department waiting for goods can see when they are expected to arrive, salespeople can see if inventory is on hand, available to sell or if out of stock, when the product is due to arrive, accounting can accrue goods received but not invoiced at month end and immediately question a supplier invoice if it arrives with a different price than what was recorded on the purchase order.
Tracking inventory receipts against purchase orders allows the organization to track vendor performance; for example; do they deliver on time; do they always over ship; does the product arrive damaged? Finally, automated purchasing systems help with inventory control and often reduce or eliminate those dreaded physical inventory counts that tie up lots of resources. If you are still issuing purchase orders manually, what are you waiting for – it’s time to consider automation. Turn the time that used to be wasted on inefficiencies into business and relationship building opportunities instead! After all, isn’t that one of the key components in keeping your business successful?
We specialize in providing technical assessments, break-fix support, optimization services, and solution expansion projects for Dynamics AX (Dynamics 365 for Finance and Operations)