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Year End Review – Do Audits Reveal Wasteful Spending

The end of the year does not just mean that it’s time to say hello to a new year, but also, this indicates that it is the season of expiring budgets. Businesses and some organizations have budgets that expire at the end of the year. The majority of the departments that handle the expiring budget tend to spend it on something that is not beneficial to their organization. They do this instead of returning the money to the fund. Why? These organizations have a policy you may have heard called “use it or lose it” that in essence forces organizations to spend the full budget amount, rushing to get it all in before the budget expires.

It is an obligation of an organization’s department to return the unused budget to the fund. However, it is optional and it depends on the situation. That is the reason why some organizations rush to spend the budget on low quality projects and useless equipments and services for their organization. According to experts and surveys conducted about wasteful spending, almost all organizations abuse the essence of the budget of organization. There are many reasons why they do wasteful year-end spending and one of them is that they don’t know how to manage money properly.  Moreover, they don’t know where they can put the budget.

So, what do organizations do about wasteful ending every year end? Some analysts said that there is no good way at this point in the year to go back and track the quality of budget spending because employees in the accounting division should have been measuring it since the very beginning of the year. It is hard to monitor everything in the budget even for the very small companies. It’s quite a tricky process if you will imagine. Accuracy must be present at all times to avoid issues and shortage of budget.

There is still a way to measure the quality of spending budgets and that is through year -nd audits. For those people who are not aware of importance of audits, they are a procedure that examines the overall condition of budget spending throughout the year or specific months. They are accurate and involve the use of various accounting strategies and methods that would lead to the desired results. The process of auditing can be done by the employees who know everything about accounting.

If you want to avoid wasteful spending when the year ends, the best solution you can consider is to use software that will help you audit your budget for the entire year. With the available innovative technology nowadays there is even the option to do real time audit checks at any point throughout the year. If you don’t want to your budget or money disappearing at the end of the year into useless projects and expenditures, this software will give you a boost and can assist you to manage your budget properly and responsibly. So, get rid of wasteful and useless spending today and let your budget cycle runs continuously. You still have time to make a change for this coming year. Now is the time to look into a software solution to end wasteful spending.

December 27, 2012
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BY Bellwether
Ethical Purchasing – Does it Matter

A purchasing manager plays an important role in vendor development, negotiation and procurement of the things needed by the company. The manager directs, organizes, plans, evaluates and controls the procurement activities of the organization. He or she provides expertise in identifying and purchasing new and replacement parts, equipment and components. In addition, he or she also reviews quality and technical requirements for the procurement of spare parts, services and items. The manager develops purchasing procedures and policies and controls the procurement budget of the company. Overall, the purchasing manager has a very important role in making sure that the procurement activities of the company are well done.

This includes purchasing office supplies based not only on the price, but also considering the work conditions of the vendors where the manager is ordering from. Does ethical purchasing matter? Should purchasing managers consider it?

Ethical purchasing pertains to intentionally purchasing products which are manufactured with minimal harm to animals, environment and humans. This kind of purchasing has given birth to an ethical marketplace where the products sold are particularly aimed at ethical customers. Businesses are now marketing goods with conscience and as such, they are producing ethical products like electric cars and organic footwear.

Purchasing managers and buyers want to find the best products at the lowest cost possible. However, one should always make sure that the vendor where they are buying the products has good working conditions. This also includes the shipping conditions provided by the vendor. Guaranteeing excellent working conditions for seafarers is another requirement that should be kept in mind when purchasing products overseas.

Ethical consumerism levels depend upon an individual. For instance, some animal rights aficionados can go to the extent of not eating meat. Other people are against the mistreatment of animals, but do not have any problem grabbing a hamburger for snacks. Lots of these individuals have allowed their hard-earned cash to speak for their concerns and have searched companies that offer ethically conscious products or services. Some of them even started their own companies that produce or market products which reflect their values. This has increased the popularity of the ethical market. Other businesses are also starting to see the potential of this market and have begun producing or marketing ethical services and goods.

Ethical purchasing is also starting to impact global marketing in various ways. You can always go online and search for these ethical products and you will surely find lots of them. To find the best vendor, it is highly advised to do your research as an ethical customer. A vendor must not only offer affordable ethical products and services, but should also consider the proper packaging and shipping of their products. More than that, they should also ensure the safety of their workers and that their working condition is always at its best.

As a purchasing manager, it is your duty to make sure that the equipment or supplies you will procure for your company are from a vendor that offers ethical products and has a good working condition. Thus, ethical purchasing is important to consider when purchasing office supplies for the company. 

December 20, 2012
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BY Bellwether
Should Purchasing Manager Source Locally Regardless of Price

Nowadays, lots of businesses are moving some of their responsibilities, in-house functions, activities and processes to other service providers. This technique is called outsourcing and it has gained so much popularity due to the many benefits it can provide to business organizations. Outsourcing takes place when contract agreements are made and sealed with another party who assumes the other responsibilities of the company. These responsibilities and processes include human resources, customer service, production processes, key asset management, quality control and other functions.

This arrangement can be temporary or permanent depending on the needs of the company. This can be done to bridge some gaps, to improve production and to get better systems at a more affordable cost. Usually, business aspects or functions that are outsourced include information technology, marketing research, legal services, facility management, human resources, accounting & payroll, manufacturing and customer call centers. Why do businessmen and entrepreneurs outsource?

Reducing the company’s overhead costs is the most common reason why businesses are after low-cost sourcing. The transfer of non-core jobs also allows companies to focus on their more important tasks. Another factor that encourages organizations to outsource is the cost savings. Usually, employers spend large amounts of money on providing work spaces, compensation for employees and other technology and human-related purposes.

Outsourcing also provides a way for businesses to accomplish efficient operations. This strategy is particularly beneficial if it is provided by parties with specific specialties. This will result to faster and higher quality turnaround time to produce services and products. However, outsourcing also has some downsides that business owners need to know.  This technique could mean employee layoffs and job losses. It can also cause negative customer service issues if the services are outsourced to an unreliable or incompetent provider.

If you are a purchasing manager and you are aware of the benefits and downsides of this technique, would you still pursue it? Nowadays, sourcing decisions are increasingly being influenced by ethical, labor, environment and even political considerations. This is clearly shown in the US presidential election where procurement strategies have been strangely caught up. But while politicians focus on employment issues, companies are more concerned over the fact that the suppliers or manufacturers’ location is an intricate evaluation of risk, lead-time and cost. Procurement strategies are becoming more refined and are often differentiated or divided based on the complexity and product. 

Although outsourcing has some downsides that one needs to carefully weigh before actually venturing into this kind of industry, it cannot be avoided that low labor costs is the most common driving cause behind this strategy. If a purchasing manager thinks that low-cost sourcing is the best way to ensure the growth of the business, then he should pursue it. But if he thinks that this will not give positive results to the company, it is better to carefully think about it again.

To guarantee long-term economic success, companies should properly serve their clients, irrespective of whether or not they need to outsource the tasks. By focusing on emphasizing a balance between providing quality services and products to the clients and saving money, a company will have a better chance to grow and serve many faithful customers in the future. 

December 18, 2012
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BY Bellwether
It is Time to Update your Purchasing Job Description

As discussed in Tuesday’s post, the purchasing manager position has changed and evolved over the last couple of decades from one of primarily clerical function to that of a strategic thinker. The extensive use of international markets led to creation of situations in which various companies are closely competing from a broader geographic footprint. Prices of the commodities have skyrocketed and many companies decided to outsource some of their tasks that were once done within their jurisdictions. These changes made the purchasing performance even more critical to the success of the company. That is why your company also needs to update the kind of individuals that they are hiring in order to better position themselves for the future.

The Significance of Updating Purchasing Job Descriptions

Purchasing job descriptions play a very significant role in the company regardless of the pursued management option.  Hence, an outdated job description may have undesired effects on the management strategy of the company. It can set a very low standard in terms of skill levels that the company is looking for in its employees. In addition, utilizing outdated job description may result to hiring new members of the team who appear to have the necessary skills to succeed in purchasing. These skills however are only applicable for the past years and not the skills needed to succeed today.   That is why, in today’s challenging field of business, it is vital to have an updated purchasing job description.

When evaluating the job description you will need to consider the 2 major parts of the purchasing job; one section is the description of responsibilities and the other one is the qualifications for the said position. The qualifications section will include experience, education and certification.  Among the qualifications, the certification is the part wherein most companies  unknowingly sabotage their efforts in recruitment.  Even during the past 5 years, certifications and education has changed.  Unless your company is closely monitoring these changes, your job descriptions might be suffering from it.

Tips on How to Re-Evaluate Job Descriptions

Here are the guidelines on how you can re-evaluate your job descriptions.

  • Certifications should match the job responsibility – preferably, the responsibilities written in the job description should perfectly match with the curriculum content of the certification required.  Take note that certification programs are not all uniform so you should take into consideration the specific skills your company utilizes such strategic sourcing, spend analysis, and eProcurement.
  • Confirm the specified certifications availability – due to the rise of SPSM certification, it is also connected to the changes in outdated certification programs. In 2007 as well as in 2008, there were important deadlines for 2 older certifications wherein the capability of the aspirants to register or apply in certification were shortened. The decision on whether to retain these certifications to the purchasing job description will depend on you.
  • Other factors – if you wish to utilize the most recent practices consider the level of education (associate degree vs bachelor degree), the date the degree was achieved, and then account for changes over time with additional certifications. With the continued change over time, the further back the degree the less practical and helpful that is to today’s purchasing environment. Current work and certifications can show that the individual has taken steps to improve and maintain skills necessary for today.

Remember that it is essential to include qualification stability in the purchasing job description for recruitment of new employees and motivating the present ones.

 

 

December 13, 2012
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BY Bellwether
From Clerical Function to Strategic Thinker

For the past 1-2 decades, there has been a dramatic change in the procurement profession and it is continuously changing.  These changes required the procurement professional or purchase manager to enhance his or her skills and become proficient on the topics not dealt with before123.

More than one decade ago the procurement profession was purely seen as a clerical function wherein they do little more than enter and track purchase orders without any critical or analytical thinking. It simply wasn’t in the job description at that time. However, over time, many companies began to realize that if a procurement department performs better, it can have a huge impact on their income especially for small organizations. Timely performance and modernization can have an incredible effect in the competitive advantage and boost their income as well.  Therefore, the change in the role of procurement or purchasing manager was partly driven by the senior executives who discover that a procurement department has a big potential to become even more productive.

Certainly, more skills are required to reduce and contain the costs compared to changing requisitions.  Purchasing managers need more skills and these skills can be obtained through various trainings provided by his company.  The trend for higher skills is shown by the continuous increase in the trainings that a procurement professional may obtain.  Having more complicated responsibilities means more skills are being required.  The individuals who pursue the ever-changing world of procurement and have a desire for additional education are those who acquire personal and professional success.

The Evolution

The procurement professional or purchasing manager understands that extensive skills are needed in order to become successful in today’s job market.  These skills include mastering the process of negotiation and procurement.  A procurement professional is also required to be excellent in other things such as managing risks, utilizing innovative tools available, conducting various sophisticated analyses, using the best practices for project management, working together with the suppliers, searching for supply sources worldwide and many more.

A purchasing manager is also aware that he needs other skills that will allow him to integrate better his procurement function in the business. For instance, he or she is expected to understand the finances and how his work contributes to the entire performance of the organization. Because of these added knowledge and skills, the role of the purchase manager as a clerical function has transitioned into one of a strategic thinker.

As a strategic thinker, the manager’s mindset is expected to be focusing on the organization or business.   They try to find ways on how to make the vision of the business come into reality by developing the team-work abilities, critical thinking and problem solving.  A strategic thinker carefully examines the repercussion of every decision or choice and cautiously analyzes the available options before making a final decision.  They provide emphasis on the objectives and vision of the company for the future and then move backwards to work on the current situation. The role of a strategic thinker in the company is extremely important as without this forward-thinking position, the organization risks making decisions which are lacking in insights and creativity developed from the process of strategic thinking.  Purchasing managers as strategic thinkers should be an essential part of your business.

December 11, 2012
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BY Bellwether
Purchasing Best Practices Part 2

Tuesday we looked at 5 Best Practices for purchasing professionals. Today we will look at 5 more and conclude this topic.

  1. Make Use of the Available Technologies

Several businesses are already using various types of technologies to effectively manage their operations. From computers to smartphones and software, companies are utilizing every form of technology to have effective business communication, improve productivity, efficient supply management, and better customer service.

The purchasing operations of companies can be improved using purchasing software. This type of software is beneficial in the inventory management as it helps monitor the existing inventory of the company and automatically generates the orders when the stock has reached a certain inventory level. A purchasing software also helps expedite the purchasing process of the company. Overall, this software is beneficial in handling and tracking purchases.

  1. Create and Maintain a Preferred Vendor List

A preferred vendor list is commonly used by large companies to assist them in choosing the right suppliers that meet their requirements and have completed a comprehensive review process. Ideally, a preferred vendor should have a good reputation and is fully licensed. By using a preferred vendor list, companies can maximize the best overall value offered by preferred vendors. It also helps in reducing company costs as some vendors tend to offer big discounts and deals to their loyal customers. In some cases, preferred vendors honor the special requests of their clients and customize certain products or service based on the budgetary requirement of a company.

  1. Conceptualize  and Implement Incentive Programs The Are Beneficial to the Company and its Employees

Incentive programs are one way the companies can motivate their employees to work harder and improve their job performance. As a result, companies are able to reduce their cost, improve their profits, and increase their sales without the need to hire more employees. A good incentive program should be realistic, time-oriented, and simple.    

  1. Develop a Good Negotiation Technique

Negotiating successfully with the suppliers takes some practice and strong negotiation skills. Good negotiators clearly understand the company’s goals and objectives. They also exert some time and effort to determine the strategy and goals of the suppliers for the negotiation. A good negotiator also knows when to negotiate.

When negotiating, it is important that the negotiator only relay reliable figures and facts. It would be helpful if the negotiating team prepares an agenda and discusses it among themselves ahead of time. A good negotiating team only negotiates with suppliers that are willing to make concessions.

  1. Organize a Centrally-Led Purchasing Model

A centrally-led purchasing model will allow companies to develop a flexible supply chain management process that can be customized at the local level if needed. This type of procurement model also helps companies reduce their operational expenses while increasing their operational efficiencies. Overall, this model is helpful in the company’s purchasing management strategy.

The effectiveness of these 10 purchasing best practices depends on their proper implementation. Moreover, the success of the purchasing strategies does not solely depend on the purchasing departments but on other members of the company as well. Working as a team     will make it easier for companies to attain business success.

December 6, 2012
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BY Bellwether
Purchasing Best Practices Part 1

The success of a company or organization depends on several aspects such as marketing, planning, and purchasing.  These aspects are as important as the managerial and leadership skills needed by businesspeople to run their companies smoothly. Understanding these aspects will enable businesspeople to deal with various challenges and risks associated with business.

Strategic purchasing allows certain companies or organizations to openly communicate with their suppliers, improve their relationship with them, and develop a strategic plan to maintain a long-term relationship with the suppliers and attain mutual goals. Most business executives believe that good purchasing management plays a significant role in attaining business success. A good purchasing strategy can withstand the negative effects that are associated with unhealthy economic condition.

Over the years, purchasing consultants and experts have developed several purchasing best practices that can be used by companies to create a solid foundation for their supply chain. These practices are designed to guide companies when making purchasing decisions. Some of these purchasing best practices are:

  1. Improve the Company’s Relationship With its Suppliers

Most successful companies have a good working relationship with their suppliers. This will allow them to have quality supplies at reasonable prices and better deals. An effective relationship with suppliers will also give companies the chance to develop a strategy that would be beneficial for both parties. Companies that have an open communication with its suppliers can freely discuss the things that might affect or improve their relationship. Companies should make sure that their suppliers enjoy doing business with them.

  1. Attain the Information Needed for Developing a Good Purchasing Strategy

It is important that the finance and purchasing departments in your company develop a team that would determine the company’s current spending as well as any areas that have opportunity for improvement. When brainstorming ideas for the improvement of the company’s product or service, certain factors should be considered such as manufacturing, sales, and engineering.

  1. Keep a Record About the Supplier’s Performance

Companies need to monitor the performance of the suppliers in terms of their product quality, service, pricing, and delivery. It would be helpful if the chosen suppliers have a big picture of how the supplies they provide fit into the overall scope of your business. This way, the suppliers can determine the appropriate options and may make suggestion or seek out options that would be better for you down the road. It is also important that the company and the suppliers understand the needs and requirements of one another.

  1. Create an Effective Team of Purchasing Executives

Purchasing executives are some of the key people who play a fundamental role in the success of a business. These executives should have a fine-tuned knowledge and understanding regarding the effect of price increases on core business supplies will have on the overall business. Purchasing executives should be able to make wise decisions as to how they would offset this potential price increase to provide everything the business needs without sacrificing quality or negatively effecting the cash flow of the business.

  1. Form an Experienced and Knowledgeable Purchasing Staff

Effective members of a purchasing team have good analytical and negotiation skills. Suppliers will better understand the need of a company through better negotiation. Purchasing personnel should understand the importance of achieving the company’s goals and complying with the agreements, policies, and terms set in the company-supplier contact. An effective purchasing team can work in other areas of the company such as sales and finance departments.  

(Part 2 on Thursday will cover 5 additional best practices)

December 4, 2012
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BY Bellwether

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