Table of Contents
Identifying and Planning Small-Dollar Purchases
A fundamental objective for the purchasing/supply management function is to show cost savings to the organization and enhance its profitability. A challenge to achieving this goal lies in the small-dollar purchases — the ones that represent the 80 percent of transactions that take up 20 percent of the dollars purchasing spends. These are necessary items, yet they constitute a big portion of the paper chase, increasing transactional cost and infringing on productivity. Streamlining and automating these low-value purchases is therefore vital to obtaining greater efficiencies and the continuous improvement of the function. Every dollar that is saved in small-dollar purchases allows more profit at the bottomline.
Methods for Streamlining Small-Dollar Purchases
The methods available to deal with small-dollar purchases all have one common objective — to control the purchasing process. There are a number of methods to manage these high-volume, low-value orders. Some are new, such as purchasing cards, and some are established, such as stockless purchasing. In formulating business plans and strategies for managing small-dollar purchases, choosing an appropriate method depends on a variety of factors, which include:
A Computer-Based Approach — The Asset Management Model
Increasingly, computer technology is being used to manage small-dollar purchasing. Not only are EDI operations being expanded, but use of computer software for purchasing/supply management applications is also growing. Becoming knowledgeable about such software (see NAPM InfoEdge, September 1995, "How to Buy Purchasing Software") will help you find suitable programs to manage small-dollar purchases. This section of NAPM InfoEdge discusses how asset management computer programs can be applied to these items.
David Griffiths performs strategic analysis of computerized asset and maintenance management systems (CAMMS) trends and technological development strategies for SQL Systems B.V., Eden Prairie, Minnesota. Mr. Griffiths has extensive international experience in manufacturing, including operations, marketing, product development, systems implementation, cost management, and CAMMS. He has authored many articles and papers on CAMMS and has taught programs on maintenance engineering for Shell Oil Company of the Netherlands and the (U.S.) Society of Manufacturing Engineers.
Additional material was furnished by Lisa Ellram, Ph.D., C.P.M., CPA, CMA, assistant professor, Arizona State University, Department of Purchasing and Logistics Management, College of Business, Tempe, Arizona.
- Burt, David N., C.P.M., Dobler, Donald W., C.P.M., and Lee, Lamar Jr. Purchasing and Materials Management, Text and Cases, Fifth Edition. McGraw-Hill 1990
- Dobler, Donald W., C.P.M., Fearon, Harold E., C.P.M., and Killen, Kenneth H., C.P.M. The Purchasing Handbook, Fifth Edition. McGraw-Hill, 1993
- Fortune Magazine, April 1995
- Griffiths, David and Ore, Norbert, C.P.M. Proceedings: NAPM 80th International Purchasing Conference, "You Are Buying MRO You Don't Need"
- NAPM Insights, May 1994, "Express Buying Made Simple"
- NAPM Insights, August 1994, "Efficient Processes For Low-Value Purchases and Payables"
- NAPM Insights, March 1995, "The Time-Managment Checklist"
- NAPM Insights, July 1995, "Outsourcing Purchasing Responsibilities"
FOR FURTHER READING
- Emmelhainz, M.A. Electronic Data Interchange: A Total Management Guide. Van Nostrand Reinhold, 1990
- Green, J.H., Ed. Production and Inventory Control Handbook, Second Edition. McGraw-Hill, 1987
- Janson, Robert. Handbook of Inventory Management. Prentice-Hall, Inc., 1987
- Monks, Joseph G. Operations Management. McGraw-Hill, 1988
- MRO Stores Seminar, 1984 Proceedings. American Production and Inventory Control Society
- Vollman, T.E., Berry, W. L., and Whybark, D.C. Manufacturing Planning and Control Systems. Irwin 1988
- Wipfler, Arlene. Distributed Processing in the CICS Environment: A Guide to MRO/ISC. McGraw-Hill, 1989
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