Purchasing Department Checklist

  The Challenge:

One of the most challenging aspects of running an eCommerce business is managing the Purchasing Department. Buying right means that you have to buy merchandise at the right cost, the right time, the right selection, having the right quantity on hand to meet your customers needs, as well as having a wide variety of  the hottest sellers of new products, so that your old customers will purchase from you again. All this and also having the right amount of cash flow to be able to pay your suppliers.  (yikes)

The Solution:

Your purchasing manager is always walking on a tight rope in terms of balancing the many aspects cited above.  The following tips are crucial to ensuring that you run an efficient and effective purchasing department that will meet your customer demands.

  • Negotiate Cost – Find out the pricing structure that your vendors offer. If they don’t have one, see if you can work something out with them. Many vendors will offer free shipping as incentive for getting the order. As you know shipping can be expensive and, therefore, may be like getting 10- 20% off of your overall order. Ask for better pricing, but don’t grind your vendors. If you become an unprofitable client, you will be looking for new suppliers.
  • Rebate Program – If you’re just starting out and don’t have historical data, another way to increase your profit margin is work out a rebate program with your vendor.  The amount can be calculated at the end of the year and a certain percentage can be a rebated back to your account to be applied to future purchases, this is a win-win arrangement for both you and your vendor.
  • Review Inventory Levels – Ensure that you review your inventory levels, at minimum, every other day. Employ technology such as an order and inventory management software to help you track what your best and slow sellers are. Keep minimum and maximum quantity for each item. As your sales for these items grow or decline, adjust these levels accordingly. Do not blindly issue purchase orders without reviewing these metrics. Mis-management of purchasing hugely impacts your company’s cash flow and balance sheet.
  • Negotiate Exclusivity – As your business grows, work out exclusive designs with your vendors. They can always tweak the products just a little bit geared to your customer base. This will ensure that you can be more competitive in the marketplace, and attain more margins, while providing unique goods to your customers.
  • Pre-Buys/Commitments – If your season is around the corner, you can work out an arrangement where your vendor holds your goods for you. You can pre-buy these goods at discounted price without taking possession of the goods.  By doing this, you will have a guaranteed allotment of your best sellers  while reducing the availability for your competitor. This is an especially great tactic for drop shippers. As a side benefit, you can also ship the smaller units from your warehouse and have your vendor drop ship the larger orders, thus saving you inbound freight and holding cost.
  • Pay with Credit Card – Ask for terms with your vendor. Then, when the invoice is due, pay by credit card. This will give you the added bonus of earning mileage, or points, with your credit card, which you can use for your personal benefits, such as gift cards to your favorite retailer. A word of caution, only do this if you know that you will be able to pay off the monthly statement in full.
  • Take Advantage of Term Payments – Some vendors offer 3% net 10 days types of discounts if you pay the invoice in 10 days and you have money in the bank –  Take it! In this example, if you take 3% off $1000.00 and you do this 12x a year, it’s a savings of $360.00. That is like getting a 3% return on your money, which is whole lot better than what the banks are paying in interest these days.

In the long run:

 Working closely with your suppliers will not only help your purchasing manager do her job effectively, but it will also result in closer relationships with your vendors. Your vendors will likely let their favorite customers know in advance about upcoming promotions and, perhaps, even give you a couple months head start on new products before they are launched into the marketplace.  Remember that your purchasing department can make or break your annual profitability. So, pay very close attention to your purchasing processes.    

By: Shirley Tan


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