Conducting an Effective Procurement Process Audit

Many clients bring me in to audit their expenses and identify inefficiencies in their procurement and Accounts Payable processes. Generally, a procurement process involves the following factors:

  • Current business need to purchase raw materials and supplies
  • Vendor research and price comparison, including the development of a quality plan
  • Approving the vendor and authorizing the purchase
  • Purchasing the needed items
  • Receiving an invoice
  • Delivery of goods
  • Inspection of goods before using (random sampling)
  • Paying the supplier after quality, delivery and contract agreements have been met

From my experience, errors and waste start to creep up during the Sourcing stage as many Procurement Managers are focused on price per unit instead of the total cost. This is never the best course of action because these vendors will have to recover their costs by lowering quality, not delivering on time, et cetera. It is imperative that when conducting a procurement process audit you use random sampling to analyze purchase orders, invoices and contract agreements to ensure quantity, item description, prices, discounts and any other relative information matches. Sometimes a third party may be liable for the payment of the purchase and it was paid by the company instead which results in an unnecessary expense.

In addition, the company may have entered into a contract agreement with a freight carrier that states a guaranteed delivery, if this is not being met then the company is not liable to remit any payment.

In regards to vendors, it is also imperative that you familiarize yourself with the company’s internal controls for approved vendors. You should audit their vendor profile database in their accounting software to ensure they are legitimate and compare addresses with employee addresses to detect fraud. You should also ensure early pay discounts are being taken advantage of and that the correct discount is being applied.

It is also important to actually view the process in action and write notes about what you see. You should also speak with the employees who actually performing the activities in the process to truly understand bottlenecks and pains. After you gather this information, you should collaborate with them to create a process map to further detect inefficiencies and improve the process.

Further reading on reducing procurement costs:

How to stop freight charges from eating away at profits

Price Focused Sourcing is bad for Business

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Successfully Integrating Value Stream Mapping into Product Development

Whenever there is a new product or service being offered to customers, there is a new process and value stream. Value Streams include both non-value-added and value-added activities and are the actions required to create a product or service from raw material until it reaches the customer. Value Stream Maps are more detailed than process maps as they include details, such as, cycle time, changeover time, uptime, process activities, operator self-inspection notes and customer specifications.

To successfully integrate value stream mapping into product development you must first accurately gather, understand, and specify the value desired by the customer. Collect real time data of the actual pathways of material and information flow. You may have to conduct several walkthroughs, first to assess the entire value stream and then to gather more detailed information. The best course of action is to work backwards as this reduces the probability of missing an activity because it takes place more slowly, without jumps to conclusions of assuming you know what happens next.

It is wise to utilize a pencil, paper and stopwatch when creating a process map. Once you have completed the map, remove the waste. Let the requirements of the customer guide you in making value flow from the beginning to the end of the process. The three most critical KPIs in a value stream map are: cycle time, value creation time, and lead time.

Cycle time refers to the time it takes to complete the overall process. Value creation time is rarely equal to cycle time. It is the time it takes to complete those work activities that actually transform the product into what the customer wants. Lead time is the time it takes to move one piece, part, product or service all the way through the process. All this information should be captured on the value stream map. When the value stream is complete, it will help you identify wasteful activities and realize opportunities for improvement. After you have identified the areas that need improvement, create an improvement plan that clearly states what needs to be done and when, has clear and visual measurable goals and objectives, complete with checkpoints, deadlines, and clear responsibilities.

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E.O.W (End of the Week) Notable Tip: Unprofitable Factors in the industry

Happy Friday!

I hope you’ve had a great week.

Today, I want to discuss unprofitable activities/factors that your company may be utilizing a great deal of resources on.

“By understanding your customer’s priorities you are able to shift resources to activities that drive value and profitability, in turn, eliminating those factors that yield no profits and realizing opportunities to create new factors that have not been offered before. It is critical that your accounting team is aware of the activities and customers that offer the most profit by creating and maintaining a Customer P&L sheet. “

 

As always, “Success is continuous improvement!”

Lean Wednesday Tip: Product Development Costs

“During the design and planning phase of your product is the best time to identify and deal with problems. Being able to understand the many ways your product can fail before costly investments are made in equipment or customer will keep costs down and client satisfaction high.”

Notable Bookkeeping: SQL Work Portfolio Showcase

Happy Friday!

I hope you’ve had a great week!

Notable Bookkeeping can code! We are proficient in SQL, Python and HTML. See our work samples here.

We’re also proficient in Excel including data manipulation methods, such as,  vlookup, formulas, pivot tables, graphs and conditional formatting.

How are we different? We align customer priorities with strategic goals to reduce data costs and glean valuable profitable insights.

Contact us now!

E.O.W (End of the Week) Notable Tip: Numbers Vs People

Happy Friday!

I hope you’ve had a great week! Read below for the EOW for today, Friday, October 6, 2017.

“When it comes to safeguarding the bottom-line, hitting the numbers is the only focus. This narrow thought process causes leaders to lose sight of what truly drives those numbers and that is their employees and customers. When employees and client satisfaction is made top priority revenue/profit  follows.”

 

I hope you’ve enjoyed this tip!

As always, “Success is continuous improvement.”

Maintaining Integrity during rapid growth

What is integrity? According to dictionary.com, integrity is “adherence to moral and ethical principles; soundness of moral character; honesty.” Why is it important in business? Integrity in business is important because it builds internal and external trust amongst all the people that have dealings with the company.

Effective leaders “walk the talk”; in other words they do what they say. It is imperative that during the early stages of a startup that codes of conduct be established that convey how business will be done and how employees, clients and suppliers will be treated. Companies that have great cultures are avid believers of collaboration. They encourage employees to share ideas and work together to solve problems.

“Two heads are better than one but 7 heads are even better”

When your company is impacted by rapid growth it is often found that you lose touch with your employees, reaching targets takes priority instead of optimizing client satisfaction, and company values may become diluted as employees may start to do anything necessary to keep their jobs. Effective leaders implement department headcount caps of 170 or less, discuss company values, mission and strategy daily, and have employee-centric cultures.

For example, an automotive air bag manufacturer, Takata, wanted to cut costs so they opted for a cheaper material which resulted in a mass recall. Evidently, they increased their losses by not maintaining integrity in their product. There are many other ways to cut cost but keep quality and this showed their lack of consideration for their customers. They were more concerned about their bottom line. It is going to take a long time for them to build trust with those customers that they lost because of their poor judgment and poor ethics.

Nevertheless, it is important that leaders ensure that their employees understand and never stray from the company’s core values by discussing this matter daily. Customer satisfaction, internal and external respect amongst employees, clients and suppliers, and collaboration are the key factors that make for an enduring company. When employees trust their coworkers and leaders they work together as a team and protect the company from harm.

E.O.W(End of the Week) Notable Tip: Alternatives to Layoffs during business financial hardships

Happy Friday!

I hope you’ve had a great week.

Today, I would like to discuss some alternatives to reducing costs during business financial hardships instead of mass layoffs. Strong and effective leaders build trust in their companies and see their employees as their second family sometimes even as an extension of their family. When employees become aware of financial troubles in the company their stress levels go higher than usual, their health may become impaired, and productivity is also affected. Laying off a plethora of people causes employees to lose trust and loyalty to a company. When employees trust their leaders they are less likely to move on to greener pastures because security, trust, and opportunity is integrated into the culture offering a peace of mind.

“When faced with financial troubles in your business try to see ways to cut costs, require/offer unpaid vacations to employees (4-8 weeks), and integrate an evergreen employment policy that stipulates employees will not lose their jobs if the company is facing financial troubles (hire the right people through rigorous hiring practices to ensure they are worth keeping). “

Through an expenses analysis you can identify expenses that your company can live without and requiring employees to take 4-8 weeks of unpaid vacations during hard times can also free up cash as well. However, the unpaid vacation should not be forced and only those employees that can afford to take time off should take advantage of this. You can also offer employees the opportunity to work from home as this will reduce your electricity bill.

I hope you’ve enjoyed this E.O.W!

As always, “Success is continuous improvement.”

 

 

Lean Wednesday Tip: Inventory Management

“An effective inventory management process includes the sharing of inventory data between buyers and suppliers. Procurement Managers use the total cost method when purchasing and inventory analysts anticipate and understand demand trends (collaborate with Marketing to understand customer purchasing behavior and trends) and share this information with suppliers.”

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