Purchasing Goals: The Good, The Bad, & The Ugly
PurchTips - Edition # 23
By Charles Dominick
We'll go from worst-to-best in our discussion of the objectives that purchasing departments set for themselves?
The Ugly - No Goals. Purchasing departments who have no documented goals are not moving in any direction whatsoever. Their value is not measured nor communicated to management. These purchasing departments are likely to find themselves being downsized or outsourced.
The Bad - Vague Goals. Having goals that fail to state exactly what needs to be accomplished is almost as futile as having no goals. These types of goals make a subjective process out of distinguishing good performance from bad. An example would be "Improve control of spending." What does that mean? Does that mean that requiring 25 signatures to make a purchase will be doing a "good job?" Could a purchasing agent think control was sufficiently improved yet an executive disagree?
The Good - Specific & Measurable Goals. Simply being specific and using numbers makes goals infinitely more effective. Let's modify our last example: "Improve control over spending by increasing expenses under contract by 25% over the previous year." Now that's better. You know what is meant by "improve control over spending." The numbers enable you to determine whether you exceeded, met, or failed to meet your goal. If you increased the expenses under contract by only 20%, you came up short. If you achieved a 30% increase, you've done very well. A goal like this gives you a clear target to shoot at.
The Great - Money-Based Goals. Great goals are not only specific and measurable, but they are expressed in the language of business - money! The reason you reduce inventory, increase contract coverage, or reduce lead time is to put your organization in a better financial position. So, translate other statistics into money. Continuing with our example?"Improve control over spending by increasing expenses under contract by $3 million."
The Best - Organizational Strategy-Based Goals. The best goals go a step beyond great goals. They are tied to the strategy and goals of the overall organization. "Improve control over spending by increasing expenses under contract by $3 million" is a great goal and may be the best goal if the organization's goal is to maintain or increase profitability. But what if the organization's #1 goal was to be the first to market a new widget? There is a fatal disconnect between executive management and purchasing management. Speed, rather than expense control, should be the priority. The best goals facilitate the accomplishment of organizational goals.
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