Purchasing Performance in the Right Context

As a PURCHASING MANAGER, its important to understand how CEOs and CFOsevaluate the performance of purchasing departments. If this type of discussion is takingplace in a formal setting, a common approach is to reconcile your savings claims withchanges in financial statements. PURCHASING MANAGERS across a wide range ofindustries have found that approach works well for building credibility.

While its helpful to have a general rule of thumb to follow during formal situations, whathappens if the subject of PURCHASING PERFORMANCE comes up in a less formalsetting? Since this type of scenario does arise, the good news is theres a simple buteffective way to put procurement performance in the right context.

Direct and Indirect Spend

The best way to properly frame this discussion is to compare changes in spend and revenueover a period of time. In order to maximize the impact of this context, spending should besegmented into two categories. Those categories are direct and indirect. The first categoryfalls under the accounting label of cost of sales. Any purchase that is put directly into whatyour company sells should be labeled as direct spend.

Transactions that fall into the indirect spend category are labeled by accounting asoperating expenses. While purchases in this category arent incorporated directly intowhats being sold, they do play a supporting role in enabling the company to sell.

Once spending is broken into these two categories, the percentage change for each categorycan be calculated. Then those calculations can be compared to the percentage change ofrevenue during the same period. If revenue is increasing at a faster rate than either categoryof spending, it sends a clear message that the PURCHASING PROCESS is having apositive impact on the companys performance. The procurement portion of direct andindirect spending can also be compared with other non-procurement metrics like directlabor or salaries.

How to Further Optimize Purchasing Performance

While any purchasing manager should feel proud if they have solid numbers to bring to thetable, the best managers are always looking for ways to drive even better performance. Ifyoure currently in this situation, purchasing software can help. BELLWETHERPURCHASING SOFTWARE was specifically designed for purchasing managers just likeyou, it can give you all the customized work flows and other features you need to fullyoptimize performance.

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