siliconindia | | January 20198or any business which is engaged in the manufacturing or trading of goods and/or services, there is a continuous interaction with its suppliers and with its customers. We are sure, that like all successful businesses, you too keep an effective track of purchase orders which you place with your suppliers, as well as sales orders which you receive from your customers. In this article, we will focus on the process from where it all starts ­ your procurement process ­ and how you can become more efficient in it. As always, the logical way to start is by examining your current procurement process and understanding whether there are any issues you want to solve.How is your Procurement Process performing?To begin with, measuring the following factors can give you a good idea of how your purchase cycle is performing:· Procurement Costs: As a business, your continuous effort is to reduce your procurement costs. Your procurement costs may go down for number of reasons ­ cost of your raw materials is reduced, a new supplier is found with better rates, a less expensive substitute item is used, a cheaper transportation method is found or simply better negotiation. A lower cost will mean that, you will be able to free-up your cash, be more competitive in the market, and win better business compared to your rival businesses.· Administrative Costs: These costs are not related to the items being purchased, but rather related to the activities related to procurement or purchase of those items. In a way, it is a good measure of efficiency. If your purchasing costs are within the budget, then you are operating at a high frequency; if your purchasing costs are exceeding the budget, then you have a problem.· Inventory Turnover Ratio: Sometimes, we tend to think that the price at which an item is purchased is a good measurement of procurement performance. How-ever, price may fluctuate because of multiple factors ­ market conditions, availability of the item, demand for the item and so on. Thus, a more logical way to look at purchase efficiency is to look at your inventory turnover ratio ­ which basically measures the number of times your company managed to liquidate your entire inventory in a given period.· Supplier Stability: How stable are your suppliers? Are they consistently supplying material of the expected quality and within the expected timelines? Are they extending a HOW TO MAKE YOUR PROCUREMENT PROCESS MORE EFFICIENT?By Tejas Goenka, Executive Director, Tally SolutionsTally Solutions is one of India's leading business management software solutions company which delivers business software for businesses, existing customers, developers, and small & medium businesses.IN MY OPINIONFTejas Goenka
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