Case Study: Purchasing

How a waste management company reduced administration costs and improved operational availability with devolved purchasing

Purchasing procedures in this major UK waste management company fitted the 'traditional' model, with paper purchase requisition forms being created and authorised at each operational site before being sent to a central purchasing department for action. Purchase invoicing involved a similar long-winded paper chase. The processes were slow, clunky and heavy on administrative effort.

When plant at a site required urgent attention or failed, telephone orders would be raised because of delays in the puchasing process, leading to a complete lack of transparency of costs and commitments.

Realising that the current processes were unsustainable, the Finance Director initiated an urgent review of purchasing procedures, with three objectives:

1. To provide accurate, timely information on commitments and expenditure.
2. To devolve purchasing decisions to each site, while maintaining central control of approved suppliers
3. To minimise administrative overhead on site and centrally

Following a period of analysis and development, the Purchase Order Tracking System (POTS) was implemented. Based around a repository of approved suppliers, controlled by central Purchasing, POTS allowed Site Managers to delegate responsibility to pertinent staff within the company's authorisation limits. This meant that for many regular purchases, orders would be authorised on creation. Where higher authority was required to proceed, authorisation was handled electronically, with the purchase order issued to the supplier being the only paper document in the ordering process.

Processing of purchase invoices was predicated on the site recording receipt of the goods and services. To avoid costly and time consuming procedures when the value of a purchase invoice did not exactly match the purchase order, the company decided to accept small variances without requiring authorisation from the budget holder (up to £50 worth of additional charges, such as delivery, and up to 10% variation on purchase order line costs). This simple innovation cut out huge swathes of previous administrative activities, where site managers would be required to authorise the smallest difference between purchase order and purchase invoice values.

The Finance Director commented: "POTS has been a great success. As well as giving control to the people who have responsibility for the profitability of our sites - the Site Managers - it gives us visibility of commitments and expenditure. And removing the old paper trail has allowed us to trim our administrative costs.".

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