A common concern amongst cost managers today is that they have too many products, services, and technologies to analyze and too little time to do so. This is really a two-prong challenge, since supply chain managers must not only value justify existing products, services, and technologies they are buying today, but must also find time to evaluate new purchases. How can supply chain managers devise strategies and tactics to effectively manage and control these critical purchasing decisions? Here are some ideas to assist you in this area of your purchasing responsibilities:

1. All Purchases Must Have Line Item Budget Approval Prior to Purchase

One of the most powerful tactics to hold back unnecessary purchases is for your organization to link all new purchases to their annual budget process. Meaning, if a product, service, or technology hasn’t been submitted and approved (by line item, not hidden as a miscellaneous item) in any given budget year, then it won’t be evaluated or purchased until it is budgeted and approved. No longer will department heads and managers order anything they want, any time they want without line item budget approval. This tactic will reduce your new purchase requests by 50% or more.

2. Sales Representatives Are Required To Value Justify and Guarantee Savings or Quality Gains on All New Purchases

It has been estimated that organizations purchase 14% more new products, services, and technologies annually because sales representatives have recommended them. Therefore, another best practice is to have all new purchases recommended by sales representatives value justified by them in writing and to have them guarantee these purchases to either save your corporation a minimum of 5% or improve quality by 5%. This should be the first step in your new product, service, or technology’s approval process, prior to budget approval.

3. Attack the Few Value Purchases for Value Justification Annually, as Opposed to a Scattered Approach

Most organizations spend 80% of their time value justifying purchases that only represent 20% of their purchasing dollars. A much better strategy is to value justify the 20% of the purchases that represent 80% of your purchasing dollars annually. This way you will be able to target the few value purchases that impact your bottom line, as opposed to focusing your energies on the many products, services, and technologies that have little or no consequence on your corporation’s finances.

When you link these three strategies and/or tactics together into a series of processes you will find that you have dramatically reduced the number of products, services, and technologies you need to have on your radar screen. You will be enabled to have the quality time to value justify the value few purchases that influence the economic health of your organization.