Save Money by Improving Your Purchasing System

Posted on Monday, August 20, 2018

Do you ever get an uneasy feeling that your purchasing system is out of whack?  Are you concerned that expenditures are being made on your company's behalf that would never meet with your approval?

Finding an agreeable balance within a purchasing system can be a hard-won victory. Some companies react by over-controlling expenditures without regard for how much money is lost when an executive invests an hour reviewing purchases of $100 supplies that are fairly routine.

The benefit of coming up with a workable purchasing system can usually be measured in savings. For instance, one business had several different locations -- each with its own approach to buying paper, pens and other materials at various local office supply stores. By consolidating purchases, the company saved 15 percent in expenditures.

 

Here is a purchasing quiz to see how your company is doing:

1. Does your company have written policies and procedures about expenses that the accounting department uses when reviewing submitted invoices?

 Yes   No

2. Does the accounting staff understand (either by written policy or by verbal agreement) when it's not necessary for an employee to seek his or her supervisor's approval for an expense?

 Yes   No

3. Have you established expense limits for each department head, so that he or she can make expenditures without prior approval up to a certain level?

 Yes   No

4. Does the accounts payable department have a list of what "spending without approval" limits have been set for each appropriate employee?

 Yes   No

5. Have you hired a purchasing agent in your company whose sole job is making purchasing decisions?

 Yes   No

6. Does your company have a formalized purchase order system?

 Yes   No

7. Does everyone in your company understand how to use this purchase order system, and are they using it routinely?

 Yes   No

8. For expenses that require a manager's approval, do employees' requests ever get turned down?

 Yes   No

9. Do the CEO and top accounting executive review policies and procedures on expenses annually and make adjustments as needed?

 Yes   No

Scoring:

Give yourself 1 point for every "Yes" answer.

If you scored 9 – Congratulations! Your expense/purchasing activities are highly efficient and productive.

If you scored 7 or 8 – Most of your expense authorization and purchasing efforts are on target. With a little tweaking, you can improve your performance in this area.

If you scored 5 or 6 – By making this a high priority, you can have a dramatic impact on the efficiency and effectiveness of your expense/purchasing process. Failure to do so may have negative consequences soon.

If you scored below 5 – It's time to go back to the drawing board. You might consider discarding all your expense/purchasing practices and starting anew. Your accountant can help you institute a new, more efficient process.

Posted in Manufacturing/Distribution

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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