Improving the Purchasing Process

Most companies spend too much time and too many resources managing the ordering of goods and service, particularly lower-value items. Some purchasing departments spend 80 percent of their time managing 20 percent of their total purchase dollars. Recent research on maintenance, repair, and operating purchases reported that while the average MRO invoice was $50, the total cost of processing an MRO transaction was $150.1 In another example, a U.S. government agency reported that in a single year it processed 1.1 million transactions at an estimated cost of $300 per transaction! How can organizations create value through their purchasing process when they spend more time processing orders than what the orders are worth?

A recent study by Trent and Kolchin addressed how organizations are improving the purchasing process by reducing the time and effort associated with obtaining lower-value goods and services. The following sections summarize the approaches and methods presented in Exhibit 2.9.