Best tips for your purchasing department
There is always room to improve the daily activities in the purchasing department. For this reason, we have prepared and compiled 4 great articles to help you optimize your routine. Enjoy!
I received quotations, how do I compare them?
How to make a good purchase order
7 strategic KPIs for the purchasing department
OPEX X CAPEX: Which is ideal for industry 4.0?
I received quotations, how do I compare them?
Quotes are part of the purchasing process of all companies. As you probably know, first you receive a demand from one of the company’s departments. Then, you must contact the suppliers.
The quotations are used so that the contractor can understand under which conditions the supplier will work, such as the price charged for the product or service, deadlines, technical specifications of delivery, payment methods and more – learn here about supplier compliance.
It is through quotations that the purchasing department chooses the supplier. Although it seems like a very simple process, the quotes have some peculiarities that can make all the difference in the final price of the product or service.
It is very important to learn how to compare quotations, know which information is relevant and how you can put suppliers in competition. The stage of quotations is one of the first steps in the purchasing process, and one of the most important to the success of the purchase in the Industry 4.0!
Check it out:
Another supplier, another quotation
Each supplier presents its quotations in their own format. This means that your company’s purchasing department will receive hundreds of different quotations for the same product or service, which will not always contain the same information or be under the same conditions.
Some suppliers, for example, include the freight cost in the quotation; others will allow the customer to search the products directly from the factory or the distributor. Some offer low prices, but they determine minimum amounts to guarantee this value; others will always work at the same price, but offer other advantageous conditions.
Because of these distinctions, it is crucial to know what to check to compare quotes. We have outlined some points that you cannot fail to check in a quote, and which criteria you should use to choose between suppliers. First read here how to get unified quotations of different parts optimizing your process.
Technical specifications
Always check the technical specifications of the quote. This includes all information about the product, such as weight, color, size, and other data. It is important that the quotation specifies the conditions under which the product will arrive on delivery, if assembled or dismantled, and whether the supplier provides equipment for assembly, for example.
Unit and packing
Speaking of conditions, it’s fundamental to check the unit and packing specifications. Some products are purchased in large quantities, such as small spare parts, tools, screws, nails. Others are bought only in case of need or in small quantities, like engines. The quotation must specify in which unit the product will be purchased (for example, by pounds or kilos, hundreds or thousands), as well as the packaging in which it will be delivered.
Packaging is really important because it has a direct influence on price! Some inputs are transported in pallet boxes, others in plastic bags with bubble wrap or pieces of foam for protection, and this makes all the difference in the final price.
The transport and Incoterm should also be evaluated. Air freight is faster, but more expensive, while transportation by highways or railways may be cheaper (despite the greater risks of accidents and longer lead time). Transport by ships involves port tariffs, in addition to the time of loading and unloading, demanding a thorough analysis of the price and estimated deadline.
This leads us to the next point.
Deadline
The delivery time is perhaps the most fundamental information of the quote – after the final price, of course. The delivery time must be in line with what the company specifies in the purchase order, and the supplier must undertake to meet this deadline, except in extreme circumstances such as accidents or strikes, for example.
Payment conditions
Each supplier receives payment in the way that best suits them. Some offer the option of installments with a deposit, while others do not request one payment, others offer discounts for cash payment, and so on. The payment conditions must be very well discriminated in the quotation, since it is a prime factor for the choice of supplier!
Validity of the proposal
All quotes have an expiration date. Watch out for this! Make sure that the quote that was sent to you is valid for enough time to make the purchase under those conditions, since the pricing and supplier selection process can be a little time-consuming.
Place and conditions of delivery
The quotes from the suppliers usually indicate the place of delivery or pick up of the product. It can be in the company itself, in the factory, in the distributor’s warehouse, in the port, in the airport, in the carrier, at the border. Identify the location and what is embedded in the price by the acronym CIF (cost, insurance and freight) for insurance and freight costs included, and FOB (free on board) for merchandise that will be withdrawn by the buyer. Make sure these delivery terms meet the needs of your business before evaluating the final price!
Different information
If two quotes for the same product or service present different information, the best thing to do is to break the quotation down, point by point. Take each category that we mentioned above and put together a table. Then, divide each quote into those points, fill in the individual price of each item, and enter the specifics as they appear.
For example: if a supplier offers free shipping and a fee to assemble the equipment, and another supplier considers freight and assembly a single fee, you must enter this information separately in the table, but add the values from the first supplier, to make a correct comparison with the second.
By doing so, you will be able to compare quotes that seem to be completely different!
So, do you feel ready to compare quotations without missing the relevant points? Don’t forget to unravel every quotation, especially if there is different information to compare. It takes more time than only looking and comparing final prices, but your analysis becomes much more assertive, and so does your supplier choice. To learn more tips on how to choose your suppliers read the articles below:
Strategic sourcing improving the purchasing process
The role of Strategic Force in Procurement 4.0
Advantages of sustainable purchasing and how to implement this concept
Soluparts, a global trading company
You can also leave the task of comparing quotations and choosing the best suppliers with a company that is specialized in all types of industrial materials such as Soluparts.
Soluparts is able to offer quotations from the most relevant manufacturers in the world – read an article that shows our differentials and learn how we can optimize the routine of your purchasing department.
Take the opportunity and quote with our team!
How to make a good purchase order
Assembling a purchase order is a common part of the routine of a company’s purchasing department. Within the company, the flow of materials is a fundamental part of the business’ economy and if carried out in a non-strategic way it can result in high risks and losses.
Companies that manage purchases inefficiently tend to lose market competitiveness in the market, which could lead to bankruptcy. With this in mind, acquiring quality inputs means, in short, maintaining a high standard of quality in the services provided. And as we know, high quality service translates into staying in the market!
A good purchase order process is essential to ensure this. In addition to organizing the demands, making the purchasing process simplified and optimizing the time, a good purchase order process is critical to maintaining a healthy and lasting relationship with suppliers.
The purchase order process follows simple 8 steps:
1- Purchase Order Analysis
In general, purchase orders come from a requesting department or employee. With a certain frequency, a single department or employee does not have a clear idea of what is in the company’s best interests, such as prices and payment terms, and tend to take into account only the need they have at a given moment.
Because of this, the overwhelming majority of purchase orders need to be reviewed, and adjusted to the reality of each company. This means that there are some internal communication problems in the company, and this can be solved quite simply!
Training employees to fill out a purchase order is critical. Each detail of the document should be presented, and their respective need explained. This way, the employees will begin to better understand what they are filling out, and will do so with greater zeal.
It is common that purchase orders contain quantities, minimum and maximum deadlines for delivery, conditions of delivery (assembly of equipment, the possibility to assemble at delivery, etc.) and the costs. Feel free to include any information you find useful!
Remember: orders need to be strategically thought out to make it easier to find suppliers and close the deal!
2- Supplier selection
After identifying the need for purchases, it’s time to select suppliers. For this, a search is made to choose the best options for each demand, and price quotes are requested for evaluation.
In order to choose the most suited suppliers, factors such as company reputation, price, punctuality and compliance with deadlines and conditions, company experience in the area, negotiation criteria, and even the values that govern the company’s activity should be considered.
This task needs to be done with caution so that the choice of vendors is assertive!
Once chosen, suppliers must send quotes, containing the prices and conditions they can offer for each need. Remember to ask for full quotes, with all possible information! This is important so that you can cross check them with what you were informed in the purchase order, and decide which supplier will serve you the best.
Attention: Try to keep this process as light and fast as possible, so you do not cause delays in the next steps!
3- Choice of supplier and order shipment
After receiving the quotes, it’s time to weigh the pros and cons of each supplier. In addition to analyzing the prices and conditions that each company has proposed, you can request samples or demonstrations of the products, to help you in the final choice.
With the supplier chosen, the purchase order is submitted, and from here the process will be out of your hands, momentarily!
Here’s a note: Always set an average time to submit your order to suppliers to create a standard within your business. By always following this deadline, you develop one more credibility factor with your vendor concerning meeting deadlines!
4- Product delivery
When you receive a delivery, verify that all conditions of the purchase order have been met. Check quantities, formats and other data in the invoice, and watch out for incidents or delays not reported or justified.
Once checked, the merchandise can be sent to the requesting department, which will review all the information. The person responsible for the order must inform if everything is in agreement, and release the request for the last step!
5- Supplier Billing and Payment
After all necessary inspections, the department responsible for payment must receive the receipt and the acceptance report from the requesting area. With this information in hand, the purchase will be approved and paid for!
If everything goes smoothly, without any unforeseen circumstances or problems, this will be the basis for the next deals.
Now, some final tips:
6- Use a management software
You can make the process easier and more organized with the help of a management software. There are many options available, that allow you to insert every important information and do quick follow ups on every purchase order.
7- Keep a good control of your inventory
The best way to prevent purchasing items unnecessarily is to keep good control of inventory. You can also use a management software here, to make things simpler to keep up with, and much more organized. Learn here how to control closely your stock.
8- Stay loyal to the sales predictions
Every company makes predictions concerning the sales expectations for the next year, or semester. What some people seem to forget is that the sales predictions are fundamental to understand how the financial situation will be for the period in question.
When analyzing purchase orders, always check if the sales predictions justify the acquisition, and if it is possible to pay for it without jeopardizing the company’s budget.
Always adjust your purchase predictions to the sales predictions! Even though some of the purchases come from unplanned needs, the majority of them are predictive repairs and replacements that you can map quite easily.
We hope that you’ve learned why it is so important to assemble a good purchase order, and how to do it without complication!
Soluparts offers the Annual Purchase Contract. With it, the client guarantees the prices quoted for one year – from the signature of the document – and only needs to send the purchase order of the desired part when it was necessary, increasing productivity, reducing costs and optimizing the time of the professional in the area.
Talk to our specialists and learn how to simplify contract management in purchasing: CHECK OUT THE ANNUAL CONTRACT
7 strategic KPIs for the purchasing department
Do you know what the best strategies have in common, other than absolute success?
Some researches show that more than half of the companies consider themselves more successful just because they keep a closer look on performance indicators. And those companies are not wrong!
Basically, keeping a closer eye on performance indicators is the best way to determine the results of your strategy – which decisions were right, which were not, how much money was saved or lost in the process… It’s all about the data!
Within a company, every department has its own indicators, which display the quality and efficiency of the work. Which indicators are used to measure the performance of your department in your company?
Here, we like to use KPIs!
Key Performance Indicators
Key Performance Indicators (KPI’s) are a group of parameters used to evaluate the performance of different areas of an organization. This type of management emerged in the early 90s, and is now considered the best way to keep up with the most important metrics in each sector of any business.
KPIs are relevant not only because they allow measurement and performance evaluation in each department, but also and mainly because they make it easier for the manager to see where are the rights and wrongs, and which areas need more investment and attention.
KPIs in the Purchasing Department
The purchasing department is one of the most important in any business, be it large or small. This sector is responsible for mediating the company’s relationship with suppliers: from the choice of best supplier at the best price and quality required, to the control of performance standards, without an effective management the purchasing department is left disorganized and can be accountable for large losses – and even the bankruptcy of the company.
To measure up the performance of the purchasing department, KPIs cannot be forgotten! Let’s go through the 7 most essential KPIs to keep up with the purchasing department:
#1. Delivery
This KPI measures how well the purchasing department is when it comes to finding what the organization needs when it needs it.
How to measure: Number of on time deliveries / Total number of deliveries per supplier
Important: the company should not penalize a supplier for missing delivery dates if the lead time required by the supplier is not complied by the company or a change was requested at the purchase order. These two situations need to be taken into consideration when calculating this metric.
#2. Cycle time
It’s the average amount of time spent between the moment when the requisition from another department is submitted and the placement of the purchase order. In other words, the time the purchasing department takes to fulfill the needs of the organization.
How to measure: Moment of purchase order placement – Moment of requisition submission
This metric is usually measured in day and it excludes the supplier lead time.
#3. Supplier lead time
It’s the average amount of time spent from the moment of the order placement until the delivery.
How to measure: Moment of delivery – Moment of order
This metric is also measured in days and must be measured per supplier. It relates directly to the Delivery KPI.
#4. Quality
It’s important to keep track of the quality standards, which means knowing exactly if the goods purchased fulfill the needs of the company. If they do, great. If not, a change of supplier may be necessary – read here about compliance in the purchasing department.
How to measure: Amount of rejected items / Total amount of items ordered
This metric is usually calculated on a monthly basis.
If the percentage is too high, an analysis must be held to determine why the items are being rejected – if it’s due to problems with the supplier, with the purchasing orders or something else. To improve your purchasing department’s strategy read our article about Strategic Sourcing.
#5. Inventory risk
The obsolescence of goods is a real problem for companies that make large purchases. Over time, the entire inventory can become obsolete, and the money spent to buy and maintain them goes down the drain – read here the applications of the Opex and Capex concepts, considering the 4.0 Industry era.
How to measure: Amount of money lost due to obsolescence / Total worth of the inventory
This metric is usually measured on a monthly basis, but could also be by trimester or semester.
Soluparts can help you find obsolete spare parts: send us a request for quotation.
#6. Employee Learning
This metric should be used more by all companies, big and small. Here, the purchasing manager must verify if the personnel are striving to deliver more quality and efficiency at work.
Keep tabs on the number of purchasing employees with certifications that improve their performance on the job. The certifications can be college degrees, participation in lectures, specializations, MBAs, etc. The more they search for knowledge and improvement, the better for the company – check out 3 essential skills for purchasing professionals to stand out in the digital age.
This is a very good way to find out if the team feels motivated and driven, and also to reward the employees who show the biggest efforts of improvement. Finally, it’s an easy way to realize the need to provide training to the team.
#7 Cost
Here, we are looking at 3 metrics.
Number one is the Cost Avoidance, that helps the purchasing team find the lowest price for the same good among suppliers.
Here’s how you calculate it: Actual Purchasing Price – Lowest Price Quoted
Number two, Cost Saving. This indicator differs from the latter as it shows how much the department has been able to save when buying the same good, from the same supplier, for the second time, for a lower price. It demonstrates how well the department is at negotiating.
It can be calculated as: Actual Purchasing Price – Last Price Paid
Last, but not least, is the well-known ROI, Return Over Investment. It shows if investments were made wisely, if the return is positive. If it’s negative, it means that something went wrong in the process, and the company is losing money – See here the best way of comparing quotation.
ROI = (Cost Saving + Cost Avoidance) / Cost of Purchasing Operation
Conclusion
These 7 are just examples of KPIs that you should follow in your company!
By keeping up with these indicators, your purchasing team will be able to better understand the purchasing habits of the company, the performance of suppliers and if the procedures are working as they are supposed to. This way, it becomes easier to make changes in staff, reallocate investments, and, in short, assess the issues and find the appropriate solutions.
Other than analyzing KPIs do you keep up with the new technologies for the purchasing department? We have some articles in this regards you will enjoy reading:
The purchasing sector in industry 4.0
Benefits of an intelligent supply chain
The second wave of industry 4.0
Soluparts – a global company with offices in Brazil, Germany, Portugal, Hong Kong and the United States – can connect you to the most relevant manufacturers around the world.
We specialize in purchasing all types of industrial materials and have access to thousands of products and suppliers from around the world – Send us a request for quotation.
OPEX X CAPEX: Which is ideal for industry 4.0?
The rise of technological innovations changes routines and the operation of companies, with transformations related to products, processes and people. In addition, it is necessary to consider the economic scenario in the country and in the world, which requires special attention to avoid damages that put profitability and business maintenance at risk.
In this text, we will show the applications of the Opex and Capex concepts, considering the 4.0 Industry era. Read and find out the best way for finance in your organization.
Opex and Capex
Opex and Capex are acronyms that mean Operational Expenditure and Capital Expenditure – and they are widely used when planning an organization2s finances.
Capex is an expense related to investments and acquisitions of capital goods, while Opex focuses on the expenses and costs of maintenance of equipment and resources related to activities and services of the company.
The purchase of a printer to print catalogs, for example, is Capex. The hiring of a printer to print these materials is Opex.
In the first case, the payment is made at the time of purchase and the tax discounts occur from the depreciation of the asset, while in the second the expenses occur only when there is need for service and the tax deduction occurs in the current year.
Opex and Capex in Industry 4.0
In view of the rapid technological advance – a characteristic inherent to Industry 4.0, which has already reached its second wave – Opex has taken on a leading role in organizations. And there are good arguments in favor of that.
The rhythm of discoveries and technological innovations that make outdated technologies faster, as well as the possibility of outsourcing services and reducing burdens, make Opex offer an excellent cost-benefit ratio for business.
Thus, instead of employing a high investment in the acquisition of computers, for example, it is possible to rent the equipment. Besides the capital savings, the company:
- doesn’t have to worry about maintenance, which is already included in the rent;
- avoids depreciation, since every product or equipment loses value as soon as it leaves the store;
- can more easily replace the equipment with more modern ones whenever necessary – you can even change the supplier at the end of the contract;
- does not need to decapitalize, keeping the cash on hand or using it for whatever it thinks is most interesting.
We must not forget, however, that Capex expenses are incorporated as assets in the company’s balance sheet. These tangible assets are responsible for demonstrating the asset value of the organization, making it more valuable in the market.
Other examples of the replacement of Capex by Opex are:
- renting a commercial property (Opex), instead of buying it;
- signing applications using the software as a service model (SaaS), instead of the final acquisition (Capex).
In the next topic, learn more about these two perspectives, their advantages and disadvantages, in view of the current phase of the world industry and how they should be analyzed to generate benefits to the activities.
Capex and Opex: what is ideal in Industry 4.0?
To start answering that question, check out the main advantages and disadvantages of Opex and Capex:
- Advantages – Opex: it is easier to approve expenditures (which is usually lower when compared to the other modality); greater flexibility of costs, without resorting to decapitalization; deduction in the taxation of the current year;
- Disadvantages – Opex : values are understood as expenses (and not investments); there is the possibility of high costs in the long term;
- Advantages – Capex: value spent is understood as investment; it gives long term return; it increases the assets cash flow;
- Disadvantages – Capex: high costs in the short term; greater difficulty in approving expenditures, usually higher in Opex; depreciation of assets acquired.
Deciding whether to use Capex or Opex therefore depends on an assessment that identifies the best option for organizational results, and a careful study is essential to compare the costs of: manufacturing equipment, acquisition or provision of services, taxes, revenues and return on investment time for each option (Capex and Opex).
But, as we said, it is undeniable that Opex offers the agility and flexibility necessary for companies to remain competitive in a market that is constantly changing, making use of the most modern products and services and generating savings for the organization.
In fact, the current market moment has even gained its own name. It is the VUCA moment, an acronym that describes four resources very present in our daily lives: volatility, uncertainty, complexity and ambiguity – learn more by reading this Forbes article.
Having subsidies to define Capex and Opex will ensure the best benefits for your company. And, speaking of advantages, take the opportunity to know Soluparts differentials by reading this article about our value proposition.
