Wednesday, July 31, 2013

One Manufacturing Cost You Can Control: In Two Easy Steps!

The purchasing process in your manufacturing company is one of the few cost drivers that can be directly
controlled. You can elect or not to spend “x” amount of money for a given product, machine or service.

However, if it is not controlled, well, all bets are off and profits will suffer. Period.

Step #1 Get firm quotes
One of the most important steps in purchasing is to obtain firm quotes on goods and services before that purchase orders are written. Seems simple, but I’ve seen many companies just send in blank P.Os to their vendors and hoping for a “fair” price. Right!!

Obviously, it may not be possible to adhere to this quotation before purchasing rule but it will go a long way to avoid surprises. If this policy is not followed and is coupled with a weak or non-existent cost/quote system, the results can and will be disastrous.

Step #2 Match the invoice to the P.O.
Another important point is that there must be a positive sign-off on pricing before a purchase order invoice is paid. You must confirm that the invoice price matches the quoted price and that the quantity billed is the quantity that was received. Seems simple but again, if this practice is not followed invoice and therefore inventory variances will occur causing possible production shortages or even overages.

Primary $Profit Power$ Point (you can use today!)

"Go to your accounts payable invoicing and pick up one invoice that you have received the purchased goods or services already. Audit whether or not your purchasing department has confirmed the price, quantity and that the items are acceptable quality wise. If so, great!! If not, you must find out why and modify your procedures." 

Check out our "Exhaust Notes" videos. Explore my website and see how we can help you improve your efficiency and get you on the road to higher profits and greater success!

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