The objective of every company, whatever its size and organisation, is to generate profits and run a profitable business. Calculating the profitability of a company and its departments is often determined by a management controller, who monitors budgets and, above all, performance indicators (operating costs, purchasing families, overall expenditure). It is therefore important toevaluate the purchasing function in order to determine the company’s efficiency. How do you know if your purchasing organisation is performing well? Find out in this article how to evaluate it effectively.
The importance of evaluating performance
Purchasing management is an important step in a company’s development. It provides the opportunity to make the right strategic decisions, with the aim of establishing the right purchase price and determining the quality of the products and services on offer. It is therefore necessary to measure performance.
Evaluating this performance is essential to finding out whether all the purchasing function’s processes are effective or need to be improved. Measuring purchasing performance is also a means of defining the priorities of each department and determining the necessary and appropriate budget for each of the company’s purchasing categories. In short, purchasing performance measurement is an indispensable method for making the best decisions for the company (guaranteeing its success). To facilitate its evaluation, it is important to pay particular attention to quality, price and lead time.
In order to properly assess the company’s performance, the purchasing department must also determine the objectives of the purchasing function in line with the company’s challenges. The purchasing policy enables suppliers to know the goals to be achieved, and plays a direct part inimproving their services. By defining the company’s needs and deliverables in advance, the right procurement strategies can be put in place. The purchasing team is required to draw up a performance plan for suppliers, such as an SLA or Service Level Agreement. This programme must include the cost of goods, delivery times, the contracts binding the parties involved, the procedure for resolving any difficulties and all the information necessary for a good relationship between the two parties.
Measuring the performance of all the company’s processes depends essentially on a number of indicators, such as:
- The cost of purchasing and expenditure,
- Levels of social responsibility requirements for responsible purchasing,
- Supplier evaluation,
- Risk mapping.
If your partners do not meet these requirements, communicating areas for improvement is part of good practice and ensures effective and responsible supplier relations.
When is a company classified as efficient?
A company is said to be efficient when it is capable of generating profits and managing its activities profitably. It should be noted that profitability or return is the ratio between the revenues received by the company and the costs associated with the expenditure required to generate these revenues. If your company manages to generate more income than it spends, then it can be said that your business is efficient and profitable. On the other hand, if your business is generating lower revenues than expenses, your company is not profitable, so you will need to review your business strategy and manage your invoices. Sales are a good indicator, but you need tolook at the total costs that went into making them (human resources, operating costs, acquisition costs, etc.)
Measuring company objectives
There are several parameters to take into account when assessing whether a company has achieved its objectives. It is important to be familiar with the systems and methods used to determine the company’s efficiency in order to ensure that it complies with the defined strategy. To do this, it is important to:
Carry out a stakeholder approach
There are a number of factors involved in determining your company’s performance and evaluating your purchasing function. In fact, analysing purchasing performance requires statistics from the company’s various departments. It is therefore important to extract the right information from this data. To avoid getting lost in the analysis of this data, it is essential to find and adopt a tool that can bring together and classify all this information in a single place. You can therefore opt for a single data platform or for purchasing management software.
Carry out benchmarks
Benchmarking is a method of comparing a company’s performance with that of its competitors. It essentially depends on a number of parameters. Accessing this information can be difficult, but not impossible. Today there are solutions dedicated to collecting this data. However, make sure you have reliable information to avoid a distorted analysis. This practice provides an opportunity to compare your company’s strengths and weaknesses, and to identify good and bad operations.
Evaluating customer satisfaction
Customer satisfaction is important, if not essential. Evaluating this parameter also helps to determine your company’s performance and efficiency. It is the responsibility of the purchasing function to ensure that this objective is achieved. It is important toensure that orders are processed quickly, that products and services are of a high quality, that people are willing to listen, that disputes are resolved and that the company is professional..
For better purchasing management, you need to be able to carry out a proper assessment of your purchasing organisation. This will ensure that your company is as efficient as possible, making it easier to achieve your objectives, such as implementing a sustainable and responsible purchasing policy. Weproc gives you the opportunity to gather the data you need to evaluate your purchasing function and your company’s overall performance. This management software is an effective and indispensable tool for situating the strategies adopted in your company and determining its effectiveness.
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Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.