AP Class: Purchasing Manager Management
We measure salespeople based on sales and margins, but how do we measure a purchasing manager’s performance? You can review the purchasing manager based on how your company compares to other lumber dealers on GMROI, turns, shrink, and margins. The 2010 Building Material Operations Comparison, based on information provided by more than 150 dealers nationwide, listed average GMROI of 186.18, turns of 7.11, shrink of 1.02% and margins of 27.46%. To those benchmarks I would add a fulfillment rate of 97%.
You may think those numbers don’t relate to you because you’re in a super-competitive market, have a different product mix, or 100 other excuses. Well, let me turn the light on for you. All dealers are in competitive markets and you have to have a baseline to measuring the purchasing manager’s performance. Once you measure that staffer’s performance for one year, you can use it for comparison purposes in future years.
Consider an annual review with your purchasing manager. Examine the staffer’s performance as well as that manager’s review of vendor preformance. If your purchasing manager or vendors are not hitting the numbers, it might be time to hitch your horse to another vendor. You can’t squeeze cash out of a turnip, but you can squeeze it out of inventory.
–Chris Rader is a consultant based in Lafayette, La. He writes the “Rader’s Edge” column for ProSales. Contact him at crader@radersolutions.com.
Extra-credit Exercises
Regardless of your inventory education level, these tips can help you get to the head of the class.
Employ single-person input. One of the major issues in practicing good data hygiene is that you must have only one person inputting inventory. This person is like the librarian in that he or she is ensuring each product has the right SKU, description, cost, and selling price, as well as whether the product is placed in the correct department and class. Many mis-shipments due to invalid data can be avoided.
Double-check receiving. Double-check receiving documents and the input of data into the computer. It is not enough to order accurately and have the vendor ship correctly only to find that the data entry clerk is fumbling the numbers.
Digital cameras tell no lies. Keep a digital camera on the receiving dock. When you have a discrepancy with a vendor because a product is mis-shipped or comes in damaged, the load shifts, or the driver hits the dock, take a picture and settle it right away.
Account for damages immediately. Write off damages at the time the damage occurs. I visited a big-box retailer on a Sunday morning looking for some last-minute prefinished shelving. Every piece in the rack that I was looking at was damaged on the ends and thus was not usable. At the same time, because it was still officially in stock, the store didn’t know it needed to move out the merchandise and put in goods that were sellable. That big box lost an opportunity to get a sale from me.
Account for substitutions immediately. Make substitutions on a “cut sheet” or via pick tickets the same day of the substitute. If you have to substitute product, account for it at the time of substitution.
Process credit memos immediately. Why should you wait? Why should a customer wait for a credit if the materials are in good shape and you are going to give credit? (Special Orders are an exception. In that case,you should follow your company policy.)
Do cycle counts and adjust inventory at that time. If you are not cycle counting, get started and do it now. Start with one item then slowly move to a reasonable number that you can count in an hour or less on a daily basis. It is like an exercise program. One you get started, it is hard to stop. But you must get started.
Ship vendor returns ASAP. Take credit right away. Think of your warehouse as the deck of an aircraft carrier. The product on the deck must move or you will have a catastrophe. Just send it back on the next vendor truck and move it out of your warehouse.
Check each outgoing load. Lots of dealers that do not check loads tell me that they do not have the time to spare. I ask, “How much is your shrink in dollars on an annual basis vs. the cost to slow down and check loads?” Would you believe you might be able to do this without hiring an additional person?
Prune the tree. Consolidate vendors where it makes sense. Confusion is having too many vendors. How many is too many? That is a question you must ask your employees. But, if you have a healthy and profitable relationship with a vendor, I suggest that you seek to work more closely with that vendor, support its programs, and look for ways for both of you to make a profit.
Walk the yard. Too often we manage by computer. Many times, a simple walk through your facility will uncover inventory anomalies that you can’t see on a computer screen.
