Purchasing

1. A Co-ordinated Approach

1.1 Build purchasing into your business planning.

• Link purchasing plans with business goals. For example, if you aim to sell a premium product, you may need to pay more for high quality components.
• Involve buyers in budgeting and cashflow (see Managing your cashflow).
• Involve buyers in new product development and production planning.
• Use buyers' knowledge to identify new and improved products and suppliers. Buyers can often give you early warning of price fluctuations or technology changes.

1.2 Be aware of your top priority purchases. For example, insurance may be essential to ensure survival in the event of a disaster (see Insurance to protect your business).

• Identify which items you buy regularly and spend most on and negotiate favourable prices for them (see 4).

1.3 Consolidate your purchasing.

For example, many businesses pay too much for maintenance items, because small orders are placed with many different suppliers.

• Reduce the number of suppliers you work with and get discounts for larger orders with key suppliers.
• Gather information from your different purchasing departments. Check there is a consistent approach to price and quality.
• Form strategic buying alliances, by getting together with other businesses and pooling your resources.

1.4 Manage your costs (see Cost control).

• Plan in advance for major purchases.
• Avoid fixed costs, except when you are sure they will work to your advantage. For example, think carefully before committing yourself to long-term fixed rate financing, or raw materials bought under agreed fixed price contracts.
• Consider alternatives to purchasing.When considering finance deals, discuss the tax implications with your accountant (see Financing equipment and Overdrafts and bank loans).
• If you are a manufacturer, consider using standard components, to reduce design and manufacturing costs.
• Consider using a purchasing consultant to analyse and reduce your spending.

1.5 Make purchasing relationships work for you.

• Avoid over-dependence on one supplier. Have a contingency supplier in reserve.
• Get the benefits of working in partnership with key suppliers (see 6).
• Consider using a specialist agent. For example, get a print broker to help you save money on your printing bills.You can use agents when buying in services, too. For example, temporary staff or computer maintenance.

1.6 It is essential to review your purchasing performance (see 7).