Six Red Flags to look for in your Purchasing Department

It's hard being a purchasing buyer because everyone is always yelling at you either because you don't have enough material or you have too much.  It's also challenging from the standpoint that purchasing operates at the lowest rung of the bills of material which is where scheduling volatility tends to be the most pronounced and where the greatest uncertainty exists as to what the true purchasing requirements really are.  As a result, there's an awful lot of CYA that happens in purchasing departments.

It's up to management to determine whether buyers have all of the management information they need – the systems and the processes – to best determine what needs to be bought, when, and how much.

There are six questions you can ask yourself and your purchasing department to determine what the true health of the purchasing organization really is.

Question 1:  Fixing BOMs Much?

Do purchasing or manufacturing often find themselves fixing bills of materials?  If they do, then that points to a real failure in engineering change management and it's having its effects downstream.  That’s a red flag immediately.

Question 2:  Do Your Buyers Rely on Excel Instead of ERP?

Do your buyers routinely export data from ERP into excel so they can massage it to determine what it is they need to buy?  If so, then that's a huge red flag because you have a system that provides a way of determining what needs to be bought.

Question 3:  What’s a Stock Item and What Isn’t?

Ask your purchasing management how they decide what is a stock item and what's not a stock item.  The answer should be really crisp and it should make sense.

Question 4:  How do you Set Target Inventory Levels?

Ask purchasing management what methodology they employ for determining the target inventory levels for stock items.  If it's based on having a certain number of days on hand based on average demand, then that's a problem because that's not the right way to do it.  Everyone does it that way but it's wrong.

Question 5:  How do you Set Kanban Quantities?

If you're a lean organization that practices pull-based material management using kanbans, then similarly ask purchasing management how they determine Kanban quantities and how often are those updated.

Question 6:  How Are Purchasing Lead Times Managed?

What does purchasing do to maintain purchasing lead times in ERP?  If it's a simple matter of calling the vendor and asking them “hey, what's your lead time”, then maybe initially that's fine but on a sustaining basis, you can't rely on this approach.  Most suppliers don't know their own lead times and they can't adhere to them anyway.  You have to employ other methods for maintaining your lead times.