5 criteria to assess procurement effectiveness
Purchases give the company great financial benefits and competitive advantage. To identify the efficiency of your procurement process we single out 5 criteria.
1. Procurement cycle duration
This criterion, many of procurement managers find most effective.
The decision to manufacture is the beginning of the procurement cycle of necessary materials or raw materials. The end of the cycle is the moment when products are released from production and sent to the warehouse. Uniformity of the cycle and the absence of sharp changes ensure the production efficiency and stable profit.
Management of purchases is not so difficult. It is enough to control each stage and make optimal decisions about time and money costs. For each manager is so important to maintain established and smooth procurement process. After all, delays can be expensive, so the time spent should be minimal, and the efficiency should be maximum.
2. Quality of purchased products
Sometimes a certain percentage of the raw materials can be defective. Because purchasers spend a lot of time to exchange defective goods, the purchasing cycle is extended. It is possible to increase this criterion for procurement.
There is one option to purchase raw materials a little more than necessary. The process of exchanging low-quality raw materials will pass separately from the production process and will not stop it.
3. Economic efficiency
Assessment of expenses is an important criterion for measuring the effectiveness of purchaser’s work.
If the purchaser receives a discount from the supplier it can reduce the cost of the order and the budget for purchases will not be fully spent. Management can review the budget for purchases and identify the possibility of investing in the manufacturing through the release of additional funds.
4. Return on investment
In fact, the procurement process is a process of investing in raw materials to get a return on investment and profit from the finished product in the future. The purchasing process is a long-term strategy, therefore, it is necessary to assiduously establish appropriate long-term relationships for effective company's activity.
Competent management is important in any department, in the procurement department in particular. Cost control not only allows you to make justified decisions but also allows to reduce costs.
For effective purchasing process you should strive to make each of these criteria was at a high level. It is possible to achieve it if you develop a company's strategy considering the purchasing department efficiency and productivity the initially.