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Long Business Systems, Inc. (LBSi) Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011 Slide 1

10 Ways To Improve Your Purchasing Department

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10 ways to improve your purchasing department. Includes tips from a purchasing and materials management professional with over 22 years experience. www.lbsi.com

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Page 1: 10 Ways To Improve Your Purchasing Department

Long Business Systems, Inc. (LBSi)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Who am I: Keith Taylor

� 22 years of “hands on” purchasing and materials management experience with a Cleveland, OH area manufacturer and distributor of

My background:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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experience with a Cleveland, OH area manufacturer and distributor of municipal and industrial truck mounted sewer cleaning equipment, parts, and supplies.

� 16 plus years experience implementing business systems and helping companies improve their efficiencies and bottom line through Business Process Improvements.

� Certified SAP Consultant all versions since 2004

� SAP Partner since 2004.

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Ten Ways to Improve Your Purchasing DepartmentAgenda

1. Establish, monitor and follow Department Goals

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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1. Establish, monitor and follow Department Goals

2. CRM and now VRM

3. Requisitions / Purchase Request for Quotes

4. Purchase Orders

5. Purchase Order Acknowledgements

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Ten Ways to Improve Your Purchasing DepartmentAgenda

6. Expediting of Past Due Purchase Orders

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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6. Expediting of Past Due Purchase Orders

7. Vendor Managed Inventory (VMI)

8. Vendor Performance Reviews

9. Vendor Purchase History Analysis

10. Networking and Continued Education

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Establish Department Goals

� Some examples:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Some examples:

� Cost Savings by buyer / product line or other measurement. Establish measurable cost savings goals. Monitor and report on progress monthly.

� Vendor Reductions. The more vendors you maintain and use the higher your costs.

� Vendor on time delivery improvements.

� Vendor quality improvements

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Establish Department Goals (continued)

Measure and track the goals:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Measure and track the goals:

�If you are not utilizing a business software or your business software does not provide tools to help you monitor and measure your goals you probably will not meet your goals. Manual or antiquated methods of tracking goals:

� Excel or other spreadsheet tools

� Word Processor

�Many Software packages include methods and tools to allow you to easily monitor and track your department goals.

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Are you utilizing VRM to run your purchasing and materials management departments?

CRM (Customer Relationship Management) has been around for

CRM and Now VRM

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� CRM (Customer Relationship Management) has been around for several years. Many organizations utilize this to manage their prospect and customer relationships but surprisingly we find that few organizations incorporate methods to manage their relationships with their vendors.

� VRM (Vendor Relationship Management) can be used to effectively keep track of vendor quality issues, expediting of purchase orders, request for quotes and other every day purchasing functions.

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Examples of manual methods:

� Hand written notes on purchase orders pertaining to

VRM (Vendor Relationship Management)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Hand written notes on purchase orders pertaining to

expediting and other issues.

� Keeping track of purchase order receipts by hand on the

purchase order.

� Manual vendor correspondence concerning quality issues.

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Methods to manage using a software solution:

� Notes, documents, drawings, etc that can be attached

directly to purchase orders or vendor records so that they

VRM (Vendor Relationship Management)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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directly to purchase orders or vendor records so that they

are visible to all personnel.

� Manual vendor correspondence concerning quality issues.

� The benefits of including VRM in your business system are

huge as you have one source for all information that can

be viewed by all departments and users.

� Examples of some of the above in SAP Business One

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Does your company utilize requisitions in their day to day operations?

� Requisitions are used by many companies to control and limit

purchases.

Requisitions

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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purchases.

� Sometimes used in conjunction with dollar amount restrictions:

� Maximum per requestor

� Approval limits by approver

�Be consistent. What ever the polices and procedures say follow

them always.

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When to use requisitions:

� All materials, capital expenditures, expenses, and supplies

Requisitions (continued)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� All materials, capital expenditures, expenses, and supplies

� Only capital expenditures, expenses and supplies Manual

vendor correspondence concerning quality issues.

�Again, be consistent and follow the company’s policies in all

cases

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Manual Methods:

� Hand written forms

Requisitions (continued)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Hand written forms

� Excel or Word Forms

� Emails

� Notes

� Verbal

� None – “we don’t have any controls in place and do not need them”

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When incorporated within a Software solution:

� Many software business systems include requisition capabilities

Requisitions (continued)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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with functionality such as the following:

� Users create their own requisitions

� Ability to track and monitor open, in process, closed and

converted requisitions.

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When incorporated within a Software solution:

�Functionality (continued)

Requisitions (continued)

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Functionality (continued)

� Easily convert requisitions to purchase orders

� Ability to send requests for quotations to multiple

vendors

� Examples of requisition capabilities utilizing SAP Business

One

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Manual Methods:

� Hand written forms

Purchase Request for Quotations

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Hand written forms

� Excel or Word Forms

� Emails

� Notes

� Verbal

� None – “I placed the order with the vendor I last purchased

from”

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When incorporated within a Software solution:

� Many software business systems include purchase request for

Purchase Request For Quotations

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Many software business systems include purchase request for

quotation capabilities with functionality such as the following:

�Users can create their own Request for Quotations

�Ability to track, monitor, and convert Request for Quotations

to purchase orders

�Ability to send Requests for Quotations to Multiple vendors

�Example of Request for Quote generated by SAP Business

One

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Purchase Orders

� Purchase Orders are legal contracts with your vendors.

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Purchase Orders are legal contracts with your vendors.

� Should always be placed in writing. Verbal purchase

orders lead to errors or disputes as to what is being

purchased and the terms and conditions that apply.

� Email

� Fax

� Snail mail

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Purchase Orders (continued)

�Must be complete including:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Must be complete including:

� Complete descriptive information for all items, supplies and services requested including your company’s part numbers, vendor part numbers, etc.

� Include prices

� Required delivery dates

� Terms and conditions

� Examples in SAP Business One

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Purchase Order Acknowledgements

� Require your vendors to acknowledge receipt of your purchase orders

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Track acknowledgements either manually or within your software solution.

� Manually this can be time consuming and is usually done by just making notations on printed purchase orders

� Utilizing a software solution to track acknowledgements

� Examples of purchase order acknowledgement capabilities in SAP Business One

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Expediting of Past Due Purchase Orders

� Throughout my purchasing and materials management career this was one of the most inefficient tasks to be conducted by purchasing and

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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one of the most inefficient tasks to be conducted by purchasing and sourcing departments. Many companies still struggle with this area on a daily basis.

� Many companies employ several “expeditors” whose sole jobs are to verbally phone suppliers to check on the status of shipments that are late or due to arrive.

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Expediting of Past Due Purchase Orders (continued)

� Run the open purchase order report and highlight vendors to call.

The Hard Way:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� Pull the “old hard copy” of the purchase order out of the file drawer and call the vendor. While we have the hard copy on our desk let’s make notes on it and then re-file the purchase order back in the file drawer. Great concept but only the expeditor knows the details of the call and only if he or she pulls the purchase order back out of the old file drawer.

� Do nothing and wait until the shop floor, warehouse, customer service personnel, owner or your boss calls you to ask where the material is.

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Expediting of Past Due Purchase Orders

�Some software business systems provide you with tools,

The Pro-active (easy) way:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Some software business systems provide you with tools,

features and capabilities to easily perform this function without

adding personnel to the staff. In fact if properly setup, you can

actually reduce staff while maintaining better on time shipping

performance and customer satisfaction.

�Think of how much more business you can realize from your

customers if you improved your on time delivery performance

from industry averages of 80% to more than 95% and above.

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Expediting of Past Due Purchase Orders

�Sound hard?

The Pro-active (easy) way:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Actually very easy by setting up alerts to notify buyers in

advance that purchase orders are either due to arrive or are

late.

�Send notices to vendors regarding their late shipments

requesting responses via email

�Update purchase orders with new delivery dates

�Let’s look at a simple late purchase order alert in SAP

Business One

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Vendor Managed Inventory (VMI)

�Once an unheard of concept Vendor Managed Inventory concepts are a great way of reducing your inventories and cost of doing business.

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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way of reducing your inventories and cost of doing business.

�Negotiate with your vendors to place their inventory in your facilities without cost to you until you use it.

�Benefits for you (the customer) include:

� Improved cash flow

� Lower cost of doing business – no need to constantly be checking with your vendor and placing purchase orders for the same materials over and over again

Page 25: 10 Ways To Improve Your Purchasing Department

Vendor Managed Inventory (VMI)

�Benefits for you (the customer) include (continued):

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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� No stock outages

�Benefits to your vendor include:

� a happy customer (You)

� Less chance of you constantly shopping for a better price or a different vendor.

� Maybe you use those Purchase request for Quotations you learned about less often.

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Vendor Performance Reviews

�Conduct periodic performance reviews with your top vendors:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Conduct periodic performance reviews with your top vendors:

�Areas should include:

� Ease of doing business

� Quality and Customer Service

� On time delivery

� Cost

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Vendor Purchase History Analysis

Ability to track:

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Ability to track:

�How many times an item or service is purchased over a

period of time

�Dates

�Quantities

�Costs

�Detailed Purchase Information

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Vendor Purchase History Analysis

�Could you do a better job with vendor negotiations if

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Could you do a better job with vendor negotiations if

you had the ability to easily track and retrieve

information such as that listed above??

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Vendor Purchase History Analysis (continued)

�Many companies maintain this information in spreadsheets,

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Many companies maintain this information in spreadsheets,

manual cards, or files or not at all.

�The ability to easily track and retrieve this information from

your software solution can in many cases pay for the

software solution.

�The following are some examples of how information such

as this is easily stored and maintained in SAP Business

One.

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Network and Continued Education

Network …. Network ….Network

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Attend conferences like this SAP Business One User Conference

�Participate in local SAP Business One User Groups

�Meet with your vendors and ask them for suggestions, solutions and recommendations for other vendors.

�Meet with your peers and other professionals

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Network and Continued Education (continued)

Network …. Network ….Network

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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�Constantly be changing yourself. The way we are doing business today is very different then when I began my purchasing career back in 1973

�Join local and national purchasing organizations such as:

APICS (The association for Operations Management)

American Purchasing Society

National Purchasing Association

Page 32: 10 Ways To Improve Your Purchasing Department

Long Business Systems, Inc. (LBSi)

Helping businesses manage technology for success

Questions or need assistance in using or implementing

Copyright 2011 * Keith Taylor presentation for: SAP Business One Summit Lake Lanier, GA * 10/26/2011 – 10/28/2011

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Questions or need assistance in using or implementing Business One?

Keith Taylor, Vice President

email: [email protected]: 440-846-8500 ext 26www.lbsi.com

Connect with me on twitter: @keithtraylorLBSi