Everything has to start from the beginning, the company has carried out actuarial calculation when establishing the procurement department, and the actuarial object is the "procurement cost" that we often mention. It is composed of "order cost", "material or service cost", "inventory or service idle cost", and "out-of-stock and merchant replacement cost".
Let's take a look at these costs one by one, mark the influence of procurement in the actual landing work, ( is positive, (0) is neutral, (- is negative, and finally summarizes the reasons.
Order cost
The wages of the purchasing personnel, the depreciation of the purchased equipment and the premises, the consumption of the purchased office supplies, the travel expenses, the fax fee, etc., all belong to this part of the cost.
The actual landing (-) some of the procurement department is really not small, more than a dozen or even dozens of people at every turn, a few times a year to visit the first business, or go to the headquarters to have a few meetings, the cost is not small, not to mention that you have to raise wages and increase labor every year!Of course, you will retort to me, "If you don't work, there will be no expenses?"The CFO will immediately reply, "Yes, if you don't work, you don't need to keep the procurement department."
The cost of the material or service
Quantity * Unit price.
Actual landing (0): This can be said to be the line of procurement, procurement is to engage in list price experts, with the best analysis tools or cost analysis tools, the establishment of bidding process, forced unit price to fall. But unfortunately, most of the purchasing departments or **chain departments have no say in the required quantity. However, the CFO does not only look at the unit price, but also the total cost of materials or services. The unit price has been negotiated, but it does not mean that the total cost of materials or services has decreased, and there is also the problem of the demand quantity of the user department. Unit price drops by 5%, demand rises by 5%, isn't this nothing changed?The results of the purchasing department were drowned out in the manoeuvres of the demand department.
Cost of inventory
Costs required to maintain inventory or services, including:
a.The interest accrued on the capital used to buy materials or services (in fact, it is the opportunity cost).
The actual landing ( ) This part of the procurement contribution is still quite large, because it can really negotiate a particularly long account period. Of course, to be honest, sometimes it's not fair to the best businessmen.
b.The cost of storage of materials, when purchasing physical goods, is the sum of warehouse storage costs, depreciation costs, wages of warehouse personnel, losses from deterioration and scrapping of materials and materials inventory, and insurance costs of materials.
Actual landing (0): Most smart enterprises have changed this part of the cost to the outsourcing operating costs, and they are buried at the bottom when making the asset income statement, and the cost contribution rate is very low, which does not affect the statement. There are more advanced people who even use e-commerce to achieve zero inventory, since they can't see the negative cost benefits, what is the CFO anxious about?
When a service is purchased, it becomes the part of the service provider that has to be paid to retain personnel or equipment during the "peak demand period", or the labor compensation fee for overtime during the "peak demand period".
Actual landing (0): There is a very sensitive issue hidden here, that is, the minimum inventory of raw materials or the trough demand for services. The lower the volume, the higher the controllability of the cost and the lower the dependence on the purchasing department. Sales declined, the best raw materials and services were in zero inventory, and the contribution of procurement was suddenly gone.
Out-of-stock costs
Expenses incurred due to out-of-stock or service outages, including downtime costs, overtime costs, depreciation of equipment on premises, penalties paid for delays in delivery to customers, etc.
Do you understand the actual landing (-), who is this board hit?
Are there any more doubts?If the procurement does not change the mind, it is not far from the broken wall of laid-off. Trembling and praying that this article will not be seen by more CFOs. So how do we pull ourselves back from the edge of the cliff?
change
Transformation one, improve productivity, establish a first-class benchmarking system, shorten the procurement process, and let procurement handle more projects in the shortest time.
The second change is to intervene in the demand department and put forward demand management suggestions, not only to manage the unit price, but also to establish a reasonable control and expectation mechanism for demand. Strive to reduce the total cost of materials or services.
Transformation 3: Involve in the management of materials or services before and after the purchase and delivery, supervise the delivery quality of the supplier in daily work, and control the waste of the supplier in production and service. This requires procurement to better understand the best suppliers and optimize the internal processes on the supply side.
Fourth, regularly sort out the demand data report, analyze the possible changes in demand, and achieve 100% operation, no downtime, and continuous service.
Okay, you know what you're going to do in 2024, right?Write it into your action plan and don't let the CFO regenerate dissent!So, it's a smooth road!FYI!