4Thought Blog

4_thought_blog_graphic-red_border_-_sides_only.jpg

Manufacturers: Does Your Purchasing System Need Improvement?

Posted by Concannon Miller on Thu, Apr 18, 2019

Find me on:

Man in printing house showing client printed documentsDo 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 manufacturers 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 manufacturer 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.

Lehigh Valley Manufacturers' Guide for GrowthHere is a purchasing quiz to see how your manufacturing company is doing:

  1. Does your company have written policies and procedures about expenses that the accounting department uses when reviewing submitted invoices?
  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?
  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?
  4. Does the accounts payable department have a list of what "spending without approval" limits have been set for each appropriate employee?
  5. Have you hired a purchasing agent in your company whose sole job is making purchasing decisions?
  6. Does your company have a formalized purchase order system?
  7. Does everyone in your company understand how to use this purchase order system, and are they using it routinely?
  8. For expenses that require a manager's approval, do employees' requests ever get turned down?
  9. Do the CEO and top accounting executive review policies and procedures on expenses annually and make adjustments as needed?


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. We can help you institute a new, more efficient process. Contact us for more information.

Sign up for more Timely Tips for Businesses

© 2019

Topics: Manufacturing

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

Subscribe for more Timely Tips for Businesses

Recent Posts