May 25, 2020  
 
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Operating Your Startup Business

 

Forming a Purchasing Department

Forming a purchasing department is a smart move if your business actively purchases goods and services. By approaching purchasing systematically, you can reduce your expenses and greatly improve your bottomline profits.

In many small businesses, the sales department gets all the attention while the purchasing department slaves away in relative obscurity.
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That's unfortunate because your business' purchasing activities can impact your company's bottom line just as much as an all-star sales force. With the right purchasing equation, you can even turn a sagging profit margin into a profit powerhouse.

If you don't have a purchasing department yet, it's not difficult to get one started. When forming a purchasing department, the key is to make sure that your business' purchasing is done in a systemized manner that leverages the power of multiple bids without sacrificing the quality of the items purchased. At a minimum, an effective purchasing department should regularly utilize the following five tools:

Spec Sheets

Specification sheets, or spec sheets, detail the parameters of the items that need to be purchased.

Each item needs to have its own spec sheet, which should include a product description, required capabilities and options, and price range. Spec sheets typically do not list a brand or model, since the purchaser's job is to find the brand and model that meets the required specifications for the least price.

However, it is important for the spec sheet to also describe some of the less obvious requirements as well, including delivery time, warranty, and service plan requirements.

Vendor Lists

A lot of purchasers expedite the purchasing process by pre-approving certain vendors.

To be added to the approved vendor list, the vendor must meet certain criteria which the purchasing department gleans from client testimonials, product reviews, and direct meetings with the vendor.

Price Quotes

The next step in the purchasing process is to solicit price quotes from a number of vendors. The general rule of thumb is that if a product costs more than $100, at least two price quotes are needed.

If the product costs significantly more than $100, the purchasing department should solicit three of more quotes before making a purchasing decision.

The best way to solicit quotes from potential vendors is to contact them directly and arrange a meeting. If the product requires a significant investment, you may even want to form a purchasing committee with representatives from various departments within the business.

Purchase Orders

Purchase orders are your insurance that you actually receive the product(s) you ordered.

Detail is critical, so make sure your P.O.s include the product quantity, price, and other pertinent information such as color, model number, etc.

It's also a good idea to create the purchase order on company letterhead so there can be no confusion about who you are and what you have ordered.

Invoices

After you have received your order, at some point you should also receive an order invoice. The invoice lists the products purchased as well as the amount you owe.

When you receive an invoice, make sure it matches the items that you actually received. If there are any hidden costs included in the invoice, make sure you understand what they are before you send the invoice to the accounting department for payment.

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