For larger businesses, purchasing and inventory control falls under the auspices of a procurement officer or department. A good procurement specialist can optimize financial outlay while controlling inventory levels to ensure that production and business operation is not delayed or held up due to the non-availability of necessary goods.
The small business operator may not enjoy the benefit of a dedicated specialist when it comes to the purchasing and inventory control function. In many small-scale operations, a general manager or proprietor has to wear many hats, and often the procurement function is one of them.
There are some commonsense fundamentals to effective procurement, and taking some time to understand them can pay off big.
Build a preferred supplier list
Establishing a list of preferred suppliers is essential. Developing a base of suppliers will take a little time upfront, but the longer-term gains far outweigh that time expenditure.
Consider the following when choosing suppliers:
- Is product pricing reasonable and competitive?
- Can the supplier consistently provide the desired products in the quantity required?
- Is the supplier able to consistently deliver on time?
- Are there extra delivery charges?
- What level of product support is offered by the supplier?
- Are greater discounts available for regular custom?
Many suppliers offer a broad range of products, and opportunities exist to negotiate better prices when switching purchasing to such a supplier. The time spent by the business manager in making multiple smaller purchases from a number of separate suppliers is further reduced.
For example, consolidating purchases of workshop tooling, safety, and consumables from Tradefix can streamline the procurement process and potentially pave the way for a longer-term reduction in expenditure.
Watch out for ‘minimum order quantities’
For the novice procurement officer, pay close attention to the ordering quantities for a desired product. Many items come in fixed quantities, and the stated ‘unit of measure’ should be assessed carefully. For smaller items and consumables, expect a standard or minimum order quantity. For example, roofing nails may be available in bags of 20, 50, or 100.
As a general rule, the smaller the order quantity, the higher the item’s unit cost. When purchasing, carefully consider future needs as well as current job needs. It may be more economical to purchase a larger quantity at a lower unit price and store the surplus on the shelf for use in future jobs.
Manage inventory levels
In the same way that a home kitchen is stocked with regularly eaten food items like bread and milk, draw out a list of ‘mandatory items’ which must always be held in stock. Dependent on the business process, this can be hardware items, tins of paint, or office stationery like pens and pencils.
Once the list of mandatory items is derived, set a ‘minimum/maximum’ level for each one. Using the roofing nail example, it might be decided to keep at least 100 in stock at all times, and perhaps a maximum of 300.
When levels drop below the minimum order quantity, commence the re-order process with the preferred supplier.
Over time, this stock control list can be expanded upon to include min/max levels for less frequently used items. Follow the same logic with level setting.
Run regular audits
With a basic procurement in place, it becomes easier to build on the operation. Do maintain regular checks of supplier performance. This might be simply picking up invoicing and checking that costs are remaining constant. Also, check inventory levels routinely and consider regular stock takes to check actual quantity levels against expected levels.
Following some basic procedures may mean spending a little more time in the set-up process, but they can yield big results in the longer-term – saving both time and financial outlay.