Professional Development: Unplanned Purchasing Behaviors
By Laura Brown
Published in the June 2006 issue of Today’s Facility Manager
Within facilities maintenance procurement, understanding purchasing behaviors can help to manage costs across the supply chain. Specifically, a heightened awareness of planned and unplanned purchasing occasions can prepare companies to make better business decisions within their materials management strategies. Successful outcomes of this approach include improved productivity, optimized inventory, and service improvements.
Productivity improvements can be realized across various departmental groups. These include end user, management, purchasing associates, and accounts payable.
Optimizing inventory relates to having the right inventory and the right quantities of inventory in stock. Companies often have MRO inventories that contain the wrong products and quantities of those products within their stockrooms. Service level improvements are typically a result of improving the purchasing process and maintaining the right MRO inventories to support the different purchasing behaviors.
Facilities maintenance purchasing behaviors can be categorized into two primary categories: the planned and the unplanned. Planned purchases are typically classified as being predictable, repeatable, and routine. These types of purchases will typically account for 60% of a facilities maintenance budget.
Unplanned purchases are the opposite of planned purchases; these purchases are unpredictable, non-repetitive, and non-routine. Unplanned purchases will typically account for the remaining 40% of the budget.
Categorizing purchases into planned and unplanned is not always as simple as looking at the purchased products. Lighting is a great example of how a product may fall into both categories dependent on the time of the need. A lamp purchased to replace a lamp broken due to an accident would be considered an unplanned purchase. However, the same lamp purchased as part of a routine maintenance program would be considered a planned purchase.
In most cases, the categorization of planned and unplanned is more obvious and much simpler. Because planned purchases are defined by an anticipated need, it is usually possible to identify and isolate those purchases quickly. The unplanned purchases are simply the facilities maintenance purchases not defined as planned.
Exploring deeper into the unplanned purchase, it is important for facility professionals to look at the behaviors associated with this type of transaction. What impact do they have on formalizing effective MRO supply chain strategies?
A good strategic model will incorporate a balanced approach that will consider all aspects of the procurement process. The model should evaluate the internal processes and technologies associated with the procurement of the product and determine how these processes integrate with the selected supplier. The model must also consider the product’s impact on inventory. A good strategic framework will give balanced consideration to processes, inventory, products, suppliers, and technologies associated with unplanned purchases.
Processes related to unplanned purchases typically can be categorized into the following categories: shopping, requisitioning, approving, ordering, receiving, and paying. These processes represent the bookends to measure the overall costs associated with purchasing unplanned MRO supplies and equipment.
Understanding these processes in the context of a balanced strategic model will help companies fully understand the total cost of unplanned purchases. For example, in the shopping process, how many people does it take to buy a replacement lamp? How are people identifying a need, searching for the right lamp, accepting delivery? What technologies are being used to accomplish these tasks?
The key to understanding the process is getting the process documented; that means examining every step from the moment the need arises to the point when the invoice is paid. With a solid, documented understanding of the steps, people, organizations, and policies related to unplanned purchases, companies can build a benchmark of where they are today and anticipate a roadmap for future improvements.
Until the process is documented, it is nearly impossible to understand where the real costs of unplanned purchases are. Though apparently simple, the processes related to unplanned purchases are typically very complicated—and very expensive.
The good news is that oftentimes valuable process improvements are simple and obvious. Does a plant manager really need to re-approve the purchase of a 50¢ fastener? Should a maintenance person be searching through paper catalogs when a product can quickly be found online? Simple policy and technology changes can have an enormous impact on process cost. Complex improvements like complete process redesigns or e-procurement solutions may be identified as valuable long-term goals.
While unplanned purchases are unpredictable, non-repetitive, and non-routine, there are ways to reduce the inherent waste that can be associated with this type of transaction. To develop effective strategies, it is important to understand some trends associated with the unplanned purchase. First, about 90% of the items purchased will be bought only one to five times during the year. Next, 70% to 75% of these items will not be purchased in the following year. Finally, most orders placed for these items will only contain one or two items. These are all behaviors that make it difficult to make the unplanned purchase cost effective.
By understanding the trends and behaviors of the unplanned purchase, companies can effectively work towards building a strategy that can improve productivity, increase service levels, and optimize on hand inventories. While the unplanned purchase will never be as efficient as the planned purchase, managing unplanned purchases like a commodity will allow facility professionals to achieve overall total cost savings. These cost savings will come from improved productivity, optimized inventory, and service improvements.
Brown is vice president of marketing for Lake Forest, IL-based W.W. Grainger, Inc. For more on her company’s services, visit the Web at www.grainger.com.