Does your company have a purchasing requisitions system that is simple, convenient, and easy to use, yet allows procurement to get the job done quickly?
Sales and Operations Growth
As organizations grow, the workload to support the operation also increases. A company with an indirect spend of $6 million annually may need to process thousands of purchasing requisitions in support of operations. A recent study, for an oil and gas exploration equipment company, showed the following purchasing data for their indirect purchases.
Processing Purchasing Requisitions
It takes approximately 20 minutes or more for an employee to complete a manual requisition and take it to the purchasing department for processing. This time frame does not consider any research or follow-up by the requestor. If there are any errors on the requisition, the entire timeline easily doubles.
Using the number of purchase orders above, let’s use the figure of 3,402 requisitions manually processed. This processing means that it took requestors 68,000 minutes, or 1,134 man-hours, to request a product or service. At an overhead rate of $100.00 per hour, this work cost the company $ 113,400.
Improving the Process
The ‘EZ Purchasing Requisitions System’ significantly reduces the time it takes a requestor to complete and submit a requisition. The requisition template is a soft copy and the submission and receipt of it is accomplished electronically. With this process, you eliminate a minimum of 10 minutes in the process referred to above saving more than 500 man-hours of requestors time alone. See the recap below.
The ‘EZ Purchasing Requisitions System’ was created to reduce the time needed to prepare and submit purchasing requisitions. The benefits received when using this process include:
- Control –Closed-Loop System
- Simplicity and Ease of Use
- Purchasing Records
- Spend Optimization
Let’s briefly review these issues and discuss how they help and what each accomplishes.
The first step is communicating the company’s agency doctrine to the company’s internal customers and its suppliers. This step allows the company to review purchases internally. Likewise, it allows the company to manage suppliers and decide what it will pay for products and services.
Control – Closed-Loop Process.
It is necessary to control the entire procurement process. To do this properly, there must be a ‘closed-loop’ purchasing requisitions system. This enables Purchasing to manage all aspects of the purchasing process and ensure it properly completes the required tasks in a timely manner.
Historical records indicate that there is a productivity increase of 10% in Procurement when organizing and controlling the purchasing requisitions process. For a department budget of $700,000, this means an operational (productivity) gain of approximately $70,000.
Simplicity and Ease of Use.
It is a certainty that standard business practices and transactions must take place. However, if the company can make these transactions more efficient, then the company saves money. Therefore, it is necessary that the requisition process be quick and easy to use.
It is necessary to capture purchasing data for future use. Many companies do not have a system for recording and organizing the indirect purchases. However, when using a formal requisition system, like the ‘EZ Purchasing Requisitions System,’ the company will have the data it needs to negotiate future purchases.
The company must make purchases in support of its operations. Using the process outlined here, including accurately documenting purchased items and volumes, helps achieve ‘spend optimization.’
MRO cost reductions are a result of working these purchases, that is, competitively bidding and leveraging the company’s position in the supply chain. But, I know what you may be thinking. “What kind of cost reductions are possible when making MRO purchases?”
Logically, the ability to achieve cost reductions is a function of the company’s manufacturing operations, end products, and total spend. A company with a raw material spend of $100 million may have an indirect or overhead spend of $12 million. This company could save approximately $120,000 with just a one (1)% reduction of these indirect costs.
It is necessary to capture purchasing data for future use. Many companies do not have a system for recording and organizing the indirect purchases. However, when using a purchasing requisition system, the company will have the data it needs to review, analyze, and negotiate purchases with suppliers in the future.
A Competitive Advantage
A purchasing requisition system can provide a significant competitive advantage by saving the company time and money. But in order for this to happen, the purchasing requisitions systems must be organized, controlled, and easy to use. Furthermore, it must provide specifics on prior purchases so that there can be the opportunity for ‘spend optimization.’
The Bottom Line
As companies grow in size, it becomes important if not imperative, to streamline the purchasing requisition process. Formal purchasing requisitions systems, such as the ‘EZ Purchasing Requisitions System,’ saves a company money in a few ways. First, there is an efficiency gain by all ‘requestors’ reducing the amount of time needed to complete and submit these documents. Second, there is an approximate gain of 10% in productivity improvement by procurement. Finally, the company saves money by centralizing and competing these purchases. This purchasing savings can range from one (1) to five (5)% of the total annual overhead expenditures.
Maintenance, Repair and Operations (MRO) Items: Organization, Control & Spend Optimization. Organizing, controlling and optimizing your indirect spend process can be very valuable as it increases efficiencies and reduces the actual purchase costs of products and services for the company. For more on this topic, please follow this link.
Understanding the Category Management Process. The category management process is the careful and deliberate segmentation of products and services into different categories. The segmentation makes it easier to understand, source, and manage the products and services with suppliers. For more on this topic, please follow this link.
Transforming Procurement Operations. Today, procurement is expected to bring value to the entire business enterprise. Some organizations have difficulty migrating their legacy processes to more advanced procurement models. For more on this topic, please follow this link.
Manufacturing and Supply Chain Services
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