Controlling Purchasing Price Performance

Abstract

In manufacturing, effective purchasing is crucial. The operations of the firm require an uninterrupted flow of parts and materials. Moreover, since purchasing on the average redirects well over half of each dollar of sales revenue for these required materials, cost-effectiveness is important. The advent of real-time computer-based management information systems has stimulated the introduction of improved techniques for controlling the operations of manufacturing and institutional enterprises alike. This article provides a case illustration of a useful computerized reporting system that facilitates measurement and control of purchasing performance. It focuses on comparisons of current material prices with historical prices and standard costs, allowing management to set cost targets and then track progress toward their achievement. Additionally, the system provides both an incentive and a basis for evaluating the performance of individual buyers.