Top 25 Purchasing/Procurement Job Interview Questions & Answers
The basis for determining an organization’s purchasing patterns is conducting a spend analysis and building a spend profile. A well-done spend profile will reveal things like the amount of money your organization spends on each category of goods and services it purchases, the amount of money spent with each supplier, changes in spend over time, and other valuable information. Further analyzing that spend can help you determine opportunities for implementing cost savings practices like supplier consolidation, strategic sourcing, and standardization. Spend analysis can be conducted using a variety of tools, from deploying the most cutting-edge source-to-pay software to using PivotTables in Microsoft Excel spreadsheets.
Price comparison is easy when you are buying a standard product that is offered by multiple suppliers. You have easy access to price data points for comparison. But, when you are purchasing a customized product from a single source, you do not have the luxury of multiple price data points. Therefore, you need to use other techniques. One of those other techniques is using a “should cost model.”
Raw purchasing transaction data can take up a lot of space on a screen or in a report. It can appear useless. But, modern technology can help you transform that data into information and intelligence. And you don’t need to purchase an expensive procurement technology suite to do so. Microsoft Excel offers many functions that can be very useful for analyzing raw purchasing transaction data. From simple sorting and subtotals to using PivotTables, you can conduct a very thorough spend analysis using Excel alone.
Historically, there has been a gap between what procurement professionals consider to be “cost savings” and what executive management considers to be cost savings. You see, executive management uses standard financial statements as their “scorecard” for the business. Some procurement professionals have never made an effort to understand how financial statements work. Therefore, they have a difficult time reporting cost savings in a way that people using financial statements will consider legitimate. To define cost savings in a way that will be embraced by executive management, you need to communicate cost savings in a way that can be reconciled with data on the organization’s official financial statements using the “language of accounting.”
When it comes down to it, you can look at just two aspects of spend to determine whether a category is ripe for producing cost savings in a short time frame: effort and impact. You can create a quadrant representing the four combinations of these two factors. All categories of spend identified in your spend analysis should be assigned to one of these quadrants. The categories of spend with low effort and high impact should be the first ones considered if you had to produce cost savings in a short time frame.
The Next Level Purchasing Association’s “10 Phase Approach to World-Class Sourcing” has become a globally-used best practice for conducting a sourcing initiative in the most organized, effective manner.
There may be an infinite number of reasons that two parties feel that they need a contract. However, in our online course “Supply Management Contract Writing,” we explore six in detail, including to formalize obligations and rights, to control and allocate risk, and to agree on how exceptions will be handled.
There are a great number of remedies you can use to deal with a supplier’s failure to perform. The key is to know which remedy is appropriate for each situation and to contractually apply that remedy properly. For example, two available remedies are cover damages and contract termination. Cover damages involve you collecting from your contracted supplier any premium you had to pay to another supplier to enable you to require from the contracted supplier’s failure. Termination enables you to cancel a contract completely with a supplier. If there was one small failure in the middle of a massive and important five-year contract with a great supplier, would you want to completely terminate that contract? Probably not. In that case, cover damages would be a more appropriate remedy as your organization would be able to recover any financial loss without having the entire future of a project put at risk while you switch suppliers. Cover damages and termination are only two of the many remedies we teach in our online course, “Supply Management Contract Writing.”
Poorly written contracts either don’t address or don’t clearly address what happens in situations that can be described as the fruition of risk. Well-written contracts reduce risk by specifying exactly what will happen in the event that certain disruptive events occur. For example, a well-written delivery article with a liquidated damages clause can provide a supplier with sufficient incentive to completely avoid the possibility of a late delivery. A well-written indemnity clause can provide legal protection in a case where damage, injury or death occurs and the cause is related to a supplier’s performance. And a Force Majeure clause can help your organization avoid being penalized when its failure to perform was due to an “act of God” or other factors outside of its reasonable control.
Projects should always be kept track of using tools available in modern technology. Microsoft Project is an excellent project management software program that leading procurement professionals use to track their projects.
Even when a project is expertly planned using a great tool like Microsoft Project, the realities of the business world will occasionally require you to accelerate progress on your project. In our online course “Professional Purchasing Project Management,” we teach four techniques for accelerating progress on a procurement project: increasing resource units, finding ways to reduce the projected duration of tasks, adding resources and modifying working hours. These changes are implemented in real life as well as within the project plan.
Vendor management software can be an excellent resource for supporting all of the processes that every procurement department should be doing: keeping track of vendor performance metrics, drawing attention to sub-par vendor performance, and identifying opportunities for vendor performance improvement.
A purchase requisition is an electronic or paper document that makes an internal customer’s request for a purchased product or service official. How a requisition is processed will depend on the procurement technology available in your organization as well as the characteristics of the requested purchase. For example, if the request is for a commonly purchased item from a contracted supplier, your organization’s source-to-pay system may automatically convert the requisition to a purchase order and dispatch it to the appropriate supplier without any manual intervention from the procurement department. Or, if the request is for an expensive service that has never been bought by your organization before, you may want to begin a sourcing process at Phase I of the NLPA’s “10 Phase Approach to World-Class Sourcing.”
In PurchTips edition #215, the NLPA introduced you to four of our favorite questions to ask supplier references:
- What’s your relationship with the supplier?
- How do you interact with the supplier?
- Describe a situation where the supplier disappointed you and how they responded.
- What are some things you wish the supplier would do differently?
If you operate in the United States and purchase goods from US suppliers, you should be familiar with the UCC. It is the body of law that covers the purchase and sale of goods within the US above a certain monetary threshold.
One of the worst things a procurement department can do to drive enterprise-wide change is to communicate the changes as if they were procurement-driven. Many, if not most, stakeholders will not care much about supporting procurement initiatives, especially when it involves inconvenient change to their work. Instead, procurement must work closely with senior management to help brand the operational changes as a senior-management driven initiative that will be supported by procurement helping the various departments save the money stakeholders will be held accountable for saving. When approached in this manner, stakeholders will view the changes as mandatory and strategic and will view the procurement department as a helpful partner.
Difficult suppliers must be approached carefully during a negotiation. The circumstances should be considered when deciding on negotiation techniques. The more suppliers available as alternatives allows the procurement department to use more “hardball” style negotiation tactics. The fewer alternatives available will require the procurement department to use more “selling” style persuasion techniques.
A procurement professional should have a large arsenal of negotiation skills and tactics. Suppliers and circumstances can vary tremendously from negotiation to negotiation, so today’s procurement professional should be able to choose from a large array of negotiation skills and tactics to deploy based on the situation. Win-win negotiation skills and tactics are particularly important to have in this arsenal.
There are many options available for handling a request to make a purchase that exceeds an internal customer’s budget. Refusing to place the order is only one – and possibly the least professional – approach to take. One option that can be explored with the internal customer is leasing the equipment instead of buying it.
Even in the most tactical procurement roles, a buyer should be able to visualize the purchasing process from beginning to end. Each of these nine steps of the tactical purchasing process should be known inside and out:
- Determining a need
- Communicating the need
- Reviewing the need
- Finding potential suppliers
- Conducting bidding and/or negotiation
- Selecting a supplier
- Formalizing the commitment
- Following up
- Closing out the transaction
Every organization has different goals and different situations. Therefore, the optimal procurement metrics for one organization may not be the optimal procurement metrics for another organization. That being said, there are 10 Procurement Key Performance Indicators that all procurement departments should consider including in their metrics. Of course, some of these may not apply and others that are not mention should be included. Therefore, please consider these metrics more of a starting point for ideas than a standard set of metrics:
- Cost savings
- Managed spend as a percentage of total spend
- Cost savings as a percentage of managed spend
- Procurement operating costs as a percentage of managed spend
- Return on investment
- Percent of on-time supplier deliveries
- Supplier defect rate
- Customer satisfaction
- Procurement cycle time
- Value of supplier idea implementation
Whether or not records are kept of supplies depends on a number of factors such as the cost of supplies, use of supplies (for consumption versus for use in manufacturing or billable services), the cost of poor supply record keeping versus the cost of keeping records and so forth. However, for higher value, higher volume supplies that are considered direct costs, a computerized inventory management system should be used to track supplies. This is important for a number of reasons including accounting accuracy, replenishment efficiency, and others.
Simplified, risk management is the process of identifying things that can go wrong, having a plan for handling those things if they do go wrong, and executing that plan. Procurement risk management is risk management applied to handling things that can interrupt the incoming flow of purchased goods and services and the costs thereof.
There are many factors that would compel a procurement professional to search for a new supplier. These range from getting an internal customer’s request for a product or service never before purchased by the organization before to the failure of an existing supplier.
The first step of building a sourcing strategy is creating a Savings Strategy Outline. A Savings Strategy Outline will list all tasks that you plan to accomplish during a sourcing initiative. For each of those tasks, you will list target commencement dates, actual commencement dates, target completion dates, actual completion dates, target annual savings and actual annual savings. Obviously, at the beginning of your sourcing initiative, your Savings Strategy Outline will only contain target dates. But, as you progress through your sourcing initiative, you will add actual dates.
The tasks that you will include in your Savings Strategy Outline are taught in great detail in our online course, “Savings Strategy Development.”
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Copyright 2018. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.
By Charles Dominick, SPSM, SPSM2, SPSM3