The purchasing department is responsible for acquiring the inventory that a company sells. To get more value for the company’s dollar, the purchasing department determines the most desirable vendor source and does its best to acquire them at the lowest prices while maintaining mutually beneficial relationships with suppliers.
An efficient purchasing department is vital in achieving a significant profit margin. Its goal is to procure inventory at the lowest acquisition costs. Basically, the equation is as follows : decrease in acquisition costs = substantial product margins. To have your purchasing department achieve these goals, it is wise to adapt a set of purchasing best practices:
Choose suppliers that are known to provide quality products at reasonable prices, with good terms. Questions to ask yourself during the vendor selection phase: Does this vendor deliver on time? Can they keep up with the demands of my business? An unreliable vendor is a liability you cannot afford. Look for new ones or an alternatives whenever possible; it’s good to have diversified pool of suppliers.
Maintaining good supplier relations is a balancing act. Your purchaser must be a reasonable negotiator who understands that your supplier needs to make an adequate profit too. On the other hand, your company must get the best prices and deals that any particular supplier is offering in the marketplace. In the long run, a trusted supplier who understands your business may be better equipped to help you reach a solution, should you encounter problems, than a vendor that offers merely the lowest cost.
Inventory and Delivery
Always keep your inventory at optimal levels. Make sure that you issue purchase orders when you need to replenish your best sellers. This seems obvious, but you'll be surprise on how many companies drop the ball on this one. Consolidate deliveries whenever possible, not only will you save on shipping cost, but you also save time and money on processing all that paper work.
It may be tempting to always go with suppliers who offer the lowest price; however, relying on price alone could cost you more, especially if you’ve switched from a long-time supplier. As mentioned above, a supplier’s commitment to quality and delivery should be considered. While I have established that you could generate a bigger margin from a product that is bought at a lower cost, you must also try to look at the bigger picture. Will a cheaper material deliver the same result as the pricier one? Will your customers notice the difference? Sometimes, a slightly more expensive but higher-quality material can be more cost-effective, in the long run (fewer returns, complaints), than an average model with a lower price tag.
Ensure that all staff are properly trained and motivated to achieve the business goals. Make sure that they understand their respective roles in the supply chain. For example, the merchandiser should understand that his job is to select the product for your store. He must create the criteria on how to pick products for your site then coordinate with the Purchaser and agree on which items to discontinue. Your merchandiser must coordinate with Marketing to remove the slow sellers. On the other hand, the Purchaser must ensure that the best sellers are always in stock. He should know how to buy and manages inventory level.
The purchasing department can make or break your business. How it functions - buying and managing your inventory – can greatly affect your store’s profitability.
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