News & Updates

Glossary of Terminology

Most people involved in Purchasing are used to words that are not common in everyday conversation such as “Absorption Costing”. However, sometimes the true meaning of a word is not what you have been taught and you should consider that many of the jokes at the expense of the Irish are an abomination. This short extract from the Irish Medical Dictionary proves beyond doubt they are a much higher form of life:

  • Artery – the study of Paintings and Sculptures
  • Caesarean Section – Italian quarter acre building site
  • Cauterise – Make eye contact with female
  • Dilate – Live a long and useful life
  • Fibula – A small falsehood
  • Labour Pain – Work related injury
  • Nitrates – Cheaper than phoning during the day
  • Rectum – Nearly killed him
  • Terminal Illness – Feeling really sick at an airport

Definition of Purchasing

To procure externally those goods and services not available internally at the lowest possible price taking into account quality and service as well as form, fit and function. To perform this function many companies employ the services of Purchasing personnel, unfortunately this is a broad description which usually covers all levels of buying, from the Purchasing Manager down to the Order Writers. Too often pressure of work can result in most of the day to day buying being performed by the latter while the Senior Purchasing staff are struggling with the so-called major commodities. The lower echelons therefore usually do not have the authority, or in some cases, the skills to seek cost savings. Any they do attain are usually those promoted by professional sales people offering specials and quantity discounts etc. But, not all sales staff are this way inclined, many are the other side of the order writer coin and are merely order takers unable to offer any benefit to the user. Now over the years we have seen many changes in the Purchasing field with faster and better systems, more advanced (not always better) software and a gradual movement towards EDI.

This is all very well but some things do not change, for example, it is still a useful statistic that the cost of goods and services in a production company can be as high as 60% of total expenditure most of which is administered by the purchasing function. In the same way a high percentage of this portion is handled by those without the authority to make a difference. Another useful snippet for purchasing staff to be aware of is that it can take as much as $5 in additional sales revenue to match a $1 saving made at the buying level. So it follows that all your purchases have the potential for savings if a pro-active policy is adopted by all the rowers in the boat. Are you maximising your cost saving opportunities? Investigate every possible avenue of saving by trying alternate sources and methods, particularly in those areas not subject to annual tenders such as machinery spares not normally held in your stock, or high technology equipment, spares and consumables, most of which are imported and sold at fixed prices due to little or no domestic competition. The moral of the story is “You Can’t Catch A Fish Without First Casting Your Line”.

Economists

Ever noticed that economists will say something inane on one hand and then proffer a diametrically opposite opinion on the other? Mostly they dribble on about GDP and the underlying inflation rate being related to the TWI. They talk in Millions and Billions and Macro-economic influences. Most of us do not possess a GDP or a TWI and if we did we would probably rush off to the doctor to get it removed. Few of us would know what a million dollar looks like and that includes economists. It follows then that they know little more that the rest of us regardless of which hand they use! The real scary part is that they all have at least three hands anyway and are certainly two faced so we should at best ignore them and perhaps pity them for their ugliness and stupidity.

Backorder … What does it really mean?

If you are party to a Supply Agreement or Contract you may feel you have adequate protection against stock outages through various clauses in the agreement. In reality though all too often you will experience those frustrating stock problems that are too readily labelled “Backorder”. Now what this usually means is that your supplier expects loyalty from you in order placement but is unable or is unwilling to maintain sufficient stocks to meet your ongoing needs. The supplier may hide behind his JIT aims and plead total innocence and blame the rest of the world for stock problems arising from trying to walk the supply/demand tightrope! In fact, he would rather you lifted your reorder point and provided him with longer lead times, but from the users point of view this goes against the reasons for the contract being set up in many cases. So, what can you do to protect your supply or at least minimise problems?

  1. Insist on a clause where the supplier must compensate for any additional costs you may incur through his inability to meet your order. If this is unacceptable the alarm bells should start ringing!
  2. Reserve the right to source ten percent of your envisaged annual usage from alternate vendors. This can help in an emergency but will also permit trialing new products and technology you may otherwise miss out on.
  3. Include the requirement for the Contract to be re-negotiated if your usage increases by a substantial amount. In the same way watch for usage related penalty clauses such as “Take or Pay”.

Finally, always remember that many suppliers are genuine in their aims but incompetent in practice. If you find a supplier that values your loyalty and lives up to the promises made, reward the effort with return business and be bold enough to ignore the lure of a small saving in product cost that ultimately may prove troublesome to the degree all savings are lost. Especially if your goods are “On Backorder”.

Institute of Purchasing

CIPS Australia (CIPSA) is the not-for-profit peak body for procurement professionals and is wholly owned by The Chartered Institute of Purchasing & Supply, an international organisation based in the UK, with 42,000 members in 120 countries. CIPSA is mandated to act in the public interest and for the benefit of the procurement profession as a whole. It seeks to do this by: acting as a voice for the profession; helping individuals to be better professionals; helping organisations in Australia and New Zealand improve their procurement practices; and building the global body of knowledge for procurement. Visit www.cipsa.com.au for more information on the CIPSA training courses being run this year.

Managing Director: Jonathan Dutton
Contact phone: 1300 765 142
Int Phone: 61 3 9614 2333
Email: info@cipsa.com.au
Membership email: membership@cipsa.com.au
Web: www.cipsa.com.au

CIPS Australia Head Office
10/520 Collins St
Melbourne VIC 3000
Australia

Ten reasons to join CIPS Australia:

  1. Recognition from your peers
  2. Access quality accredited and non-accredited training programs
  3. Established links to universities – with recognition of MCIPS standard
  4. Discounts to professional conferences around Australia and New Zealand
  5. Bi-monthly journal keeping you up to date and in touch
  6. Be a part of an ethical organisation adhering to codes of practice
  7. Seven levels of grading – the highest being Fellow
  8. Networking – through site visits, regional events, newsletters and the internet
  9. Access to the global body of knowledge through the Chartered Institute of Purchasing and Supply
  10. World class standards and education for procurement best practice