HomeNewsIndicators to measure a buyer’s savings

Indicators to measure a buyer’s savings

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Buyers are expected to deliver savings in their organisations. Measure of savings is one means of evaluating the buyers’ performance.

Savings are outcomes that reduce the budget without compromising quality of output. Outcomes are only savings if they are realised and quantifiable.

Outcomes would lead to greater market share, increased profitability, improved cash flows, or reduced organisational costs.

Buyers, however, find it difficult to report their performance because the function’s decision-making is mainly subdued in the finance and/or administration functions.

On the other hand, the lack of acceptance by management that procurement can add value to the business complicates the matter.

Most procurement units operate without a strategy and their relevance is therefore marginalised in organisations.

Procurement professionals need to develop supply management skills to enhance their competences and build trust in their organisations and nation at large.

Reported savings must be quantifiable, measureable and tangible in order to show that they add value to their institutions.

Although most procurement decisions are dependent on many organisational variables such as availability of funding, the function’s performance can still be measured under those circumstances.

Baseline is one factor to check a buyer’s performance.

The buyer must procure goods and services at the baseline price or less without compromising quality.

The exception is only when significant changes happen in the supply market like world commodity prices variations.

What this basically means is that a procurement report must include issues of costs containment, comparing recent purchases in value and volume with previous purchases and market prices in general.

Buyers will be able to articulate the professional role of procurement to management.

It is unfortunate that the public sector is incapacitated to attend to baseline prices that require functional information technology systems.

Monitoring baseline prices would inevitably encourage competition in the public sector.

This also calls for more effort employed in public sector suppliers’ selection to increase competition.

Savings can also be in the form of alternative quality products or substitutes that can perform the same at a reduced cost. Buyers can achieve savings from:

l Negotiating improved payment terms where savings can be related to the cost of capital.

l Obtaining more value from the same cost from negotiating extended warranties.

l Reduction in internal lead times (the time it takes to process requisitions) reduces the level of safety stock requirements.

l Reducing commercial exposure by identifying and managing all forms of risks that include environmental management matters that can attract huge costs in fines or high costs in rectifying the exposure.

l Monitoring supplier performance to ensure they deliver in total their obligations within the agreed lead time. Currently, many such reports only reflect the level of organisational commitments at the expense of information on buying operational efficiency.

Savings can be measured on a project-to-project basis or in relation to the budget periodically.

This is only achievable if is purchasing and supply professionals work closely with finance on budget preparation, savings forecasting and performance monitoring and reporting.

For this to make sense, the aspect of performance measurement must be a reflection of the board’s expectation of the purchasing and supply function.

It is the responsibility of a professional buyer to understand, manage and influence the cost drivers that impact on the total cost as this is a critical factor in maximising savings.

This is only possible if the skills and competences of the buyer are present in the individual to deliver enormous value contributing to the organisational going concern.

Nyasha Chizu is the chairman of the Harare branch of the Chartered Institute of Purchasing and Supply

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