Why do you need a purchasing department? In each organization, this department is presented in one form or another. And his work directly affects the effectiveness of the entire organization as a whole. Let us consider in more detail how exactly the work of the department affects the results of the organization.
Division Objectives
The procurement department is a department specializing in the acquisition of goods from a supplier on the most favorable terms for the company.
The work of the department has a direct impact on all the activities of the company. On the assortment, on sales, the fullness of warehouses, the availability of the necessary goods, the effective use of working capital.
The goals of the purchasing department can be ranked depending on the global goals of the company, but the general list often looks something like this:
- determine the company's need for a particular product;
- purchase goods at the best possible price;
- promote high turnover of goods;
- create conditions for receiving goods on time;
- evaluate the quality of goods and purchase the highest quality;
- maintain relationships with a supplier or suppliers;
- effectively interact with other departments of the company;
- effectively keep records of purchased goods;
- monitor the turnover, maximizing the benefit for the company.
Main functions
In different organizations, the functions of the procurement department can differ significantly from each other. But still there are functions and responsibilities that will characterize the department of almost every company:
- supplier market monitoring ;
- control of stock availability;
- timely replenishment of the assortment;
- search for the best suppliers and prices;
- negotiations with suppliers;
- control over the delivery and transportation of goods;
- receipt of goods;
- quality control of the purchased goods;
- if necessary, make complaints.
Additional functions of the procurement department, which may or may not take place in the organization, depending on its specifics and structure:
- assortment management;
- gathering information about competitors;
- involvement of suppliers in the organization of sales of products.
Structure
The structure of the procurement department is built up depending on:
- size of organization;
- industry;
- the number of assortment units in the turnover;
- number of suppliers;
- their geographical location.
Depending on the type of organization, the procurement department can be managed centrally or regionally.
As a rule, this is a matrix structure consisting of the head (head, director) of the procurement department and procurement managers (specialists).
The average number of product units or categories per manager is about 7, but it can vary depending on the volume of production or turnover.
Responsibilities of the department and its employees
For the effective work of the procurement department, a clear distribution of the responsibilities of the procurement department between its employees is necessary.
The main responsibility of the department head is to ensure the continuity and stability of the supply of the necessary goods by optimizing the work of the department and coordinating the activities of employees. Also, the procurement manager must have an idea of all the contracts and categories concluded in order to organize and continue the effective work of the department even if there is no employee.
The duties of purchasing managers or ordinary specialists of the department include organizing the supply of goods, tracking freight transportation, controlling the payment of purchased lots, planning purchases.
An effective model will be where each buyer has his own area of responsibility, consisting of a list of articles or product categories.
Employee Requirements
Given the responsibilities of employees and the functions of the department, you can make a list of requirements for the ideal candidate for the position of purchaser.
Procurement staff should accordingly possess the following skills, knowledge and personal qualities:
- Ability to analyze information. Supplier selection should be based on many criteria. This is the best price, and geographical advantage, and alignment of the logistics of the supplier company and your organization.
- Knowledge of pricing principles.
- Knowledge of the legal basis of procurement.
- The ability to draw up and conclude contracts.
- Ability to negotiate. Sometimes it is very important to create individual conditions with the supplier for your company. Reducing the supplier’s price or using the supplier’s resources to carry out promotions, train its staff on the specifics of the product, installment plans and post-pay systems can all serve as a good competitive advantage among similar companies.
- Ability to maintain business relationships.
- Ability to plan your activities.
Motivation of purchasers and procurement manager
The motivation system of the procurement department should be built in such a way that the employee works with maximum efficiency. But at the same time, there should be no conflicting requirements and requirements that exceed the capabilities of the employee.
To implement a monthly motivation system, you must:
- Create a model of key performance indicators for the department. These are indicators such as the implementation of the procurement plan, turnover ratio, profitability of product sales, the presence and absence of stale goods.
- Create a model of key performance indicators for each employee based on criteria such as the organization’s price delta, in comparison with competitors, the availability of the necessary goods, the quality of the purchased goods, the launch of new brands, individual conditions of suppliers and more.
- Based on the KPI model, the premium is calculated. Moreover, it will effectively pay a bonus consisting of two parts: a bonus for the performance of the department and a bonus for the personal fulfillment of plans.
Moreover, each KPI criterion should have such properties as:
- measurability;
- transparency;
- A planned criterion should be created taking into account market trends.
That is, the buyer can, if desired, independently calculate the size of his premium.
The prize of the department head can be built from the indicators of the entire department, and also include the performance indicators of each employee individually.
At the same time, the bonus part of the ordinary employee of the procurement department should be about 50% of the total salary, and the premium of the department head should be about 30-40%. The rest is salary, because not all department performance indicators can be tied to the activities of a particular employee.
Are sales part of the buyer's responsibility?
In calculating the KPI of the purchasing department, one can use such a criterion as the turnover of purchased goods - the ratio of sales to its assets.
It seems that the buyer should only deal with the purchase of goods, but still the quality of the purchased goods, their price attractiveness for the end consumer or client of the company significantly affects the implementation of the sales plan.
Therefore, the quantity and quality of sales is half dependent on well-conducted procurement.
Place of the procurement department in the structure of the organization
Tasks that are solved by the purchasing department, in accordance with current marketing trends, should be solved in this order:
- First, a sales strategy (finished product or purchased product) is built.
- Then, if the procurement department at the enterprise, the issue of production strategy is decided.
- And only then a procurement strategy for the necessary goods, raw materials or components is developed.
The head of the procurement department is often directly subordinate to the general manager of the company.
Effective communication between the procurement department and the marketing and sales department should also be established. Without this, a lot of efforts to create a procurement department, improve its structure and motivation will be left without a proper result.
If a category management system is implemented in a holding or organization, the purchaser must work in conjunction with the category manager. At the same time, it is necessary to distinguish the area of responsibility of each specialist so that the motivation system remains transparent and understandable to everyone.