We are recruiting experienced candidates for the post of Purchase Executive. We would like to offer them a salary package as a combination of fixed and variable, where the variable factor shall be linked with their performance. The criteria for evaluation would include new vendor developments, savings in purchases, and obtaining more credit from vendors, etc.
Please let us know if this policy works well for the post of Purchase Executives. If so, please provide us with a suitable format.
From United Kingdom,
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Please let us know if this policy works well for the post of Purchase Executives. If so, please provide us with a suitable format.
From United Kingdom,
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Since I provide consulting and training on [link outdated-removed], let me give you my take on your post. The comments are as below:
Incentive for New Vendor Developments
It is not just a question of developing new vendors; the reduction in procurement spend because of the introduction of new vendors matters.
Risks involved: In a zeal to get incentives, procurement professionals may select a new vendor who can provide the material at a low price. Nevertheless, what if quality issues come up in the course of production? Will the cost of rework or the cost of rejection go up? Will there be a delay in meeting the customer's requirements? What about the cost of switching suppliers? Will you be able to measure that? Please ponder over these questions as well.
Savings in Purchase
Yes, the procurement department should constantly strive to reduce procurement spend.
Risks involved: Excess pressure on procurement professionals to reduce the price leads to the concentration of their activities that give immediate results. This happens at the expense of strategic procurement activities, which reduce spend in the long term. What matters is whether the purchase department has a Strategic Procurement Plan (SPP) well in place.
Getting More Credit from the Vendors
This is the number one temptation of the management or finance department. Procurement professionals pat themselves on the back when they negotiate for more credit from the vendors.
Risks involved: While running any business, taking excess credit from vendors is not a healthy practice. You must freeze some number when you measure the Account Payable Turnover Ratio (APTR) and the Account Receivable Turnover Ratio (ARTR). The business should be within the limits of these ratios. By taking excess credit from vendors, you may fulfill the immediate needs of the business; nevertheless, should the economy turn bad, what cushion do you have to bargain with the vendors? You must reserve some credit period for emergency purposes or industrial decline rather than grabbing everything today!
Final Comments
Well, gentlemen, the success of the business depends on how we can foster a collaborative relationship with the vendors. Gone are the days when purchasers treated vendors as adversaries. Your company's growth depends on your vendor's growth as well. Do not expect to grow at the expense of your vendors. Just focusing on customer satisfaction is not sufficient. In today's competitive world, vendor satisfaction has its importance. Have you conducted a Vendor Satisfaction Survey (VSS) anytime?
Thanks,
Dinesh Divekar
From India, Bangalore
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8072Incentive for New Vendor Developments
It is not just a question of developing new vendors; the reduction in procurement spend because of the introduction of new vendors matters.
Risks involved: In a zeal to get incentives, procurement professionals may select a new vendor who can provide the material at a low price. Nevertheless, what if quality issues come up in the course of production? Will the cost of rework or the cost of rejection go up? Will there be a delay in meeting the customer's requirements? What about the cost of switching suppliers? Will you be able to measure that? Please ponder over these questions as well.
Savings in Purchase
Yes, the procurement department should constantly strive to reduce procurement spend.
Risks involved: Excess pressure on procurement professionals to reduce the price leads to the concentration of their activities that give immediate results. This happens at the expense of strategic procurement activities, which reduce spend in the long term. What matters is whether the purchase department has a Strategic Procurement Plan (SPP) well in place.
Getting More Credit from the Vendors
This is the number one temptation of the management or finance department. Procurement professionals pat themselves on the back when they negotiate for more credit from the vendors.
Risks involved: While running any business, taking excess credit from vendors is not a healthy practice. You must freeze some number when you measure the Account Payable Turnover Ratio (APTR) and the Account Receivable Turnover Ratio (ARTR). The business should be within the limits of these ratios. By taking excess credit from vendors, you may fulfill the immediate needs of the business; nevertheless, should the economy turn bad, what cushion do you have to bargain with the vendors? You must reserve some credit period for emergency purposes or industrial decline rather than grabbing everything today!
Final Comments
Well, gentlemen, the success of the business depends on how we can foster a collaborative relationship with the vendors. Gone are the days when purchasers treated vendors as adversaries. Your company's growth depends on your vendor's growth as well. Do not expect to grow at the expense of your vendors. Just focusing on customer satisfaction is not sufficient. In today's competitive world, vendor satisfaction has its importance. Have you conducted a Vendor Satisfaction Survey (VSS) anytime?
Thanks,
Dinesh Divekar
From India, Bangalore
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PERFORMANCE EVALUATION FORM.doc
Performance Evaluation Guidelines.ppt