Looking to Purchasing to Manage Costs at PPL

1. Even if an item has so many potential suppliers, it would be costly if a research and price comparison is done because of the low value of the good or service. That is why some companies use the low dollar purchasing systems. Low dollar purchasing system is a process that allows ay authorized departmental buyers within the organization to purchase not-purchases-regularly, low dollar supplies and services for values that do not exceed a set price by the organization’s headquarters. For the case of PLL, a low dollar purchase is one that s less than $50,000 for services, and less than $3,000 for material purchases.

There are some advantages from using this type of systems such as; (1) reduced cost per transaction, (2) increased attention required by more important items, (3) reduced cycle time to satisfy internal customers. System or tools that can support the low dollar purchasing system can include; (1) user negotiated and issued services contracts where users are granted the authority to negotiate and issue orders (2) purchase orders where it is used for items that are not covered by a contract. (3) blanket purchase orders which allows users to directly issue orders to the supplier.

2. A company enters into a contract with a bank card company (usually a bank in the case of Visa/MasterCard) and authorizes certain company managers to make defined low dollar purchases using a purchasing card. The company defines what types of purchases are to be made with the card, which may be modified from time to time. From an overall business perspective and especially from an Accounts Payable and Purchasing perspective, P-card system offers many valuable benefits including greater efficiency and lower overall costs.

One obvious advantage of using this system is cut down transaction costs through cutting the cost of requisition, place, receive and inspect the item purchased. According to the article, implementing this system cut down the cost of purchasing from $150 to only $50, saving the company $100 in costs. Another advantage would be the simplification of this system. The purchasing process is greatly streamlined with little or no involvement by Purchasing and Accounts Payable personnel, resulting in more satisfied users. Fast process and the ease of use made it more favorable to users.

The system has some obvious concern with the streamlined approach offered by P-card system on the other hand. One would be that the limitation on the card can cause some trouble to the high-volume orders by users. Another is that, by definition, there is less detail documentation available to the Tax Department to defend against tax auditors. In addition, the corporation (usually the Accounts Payable or Tax Department) has less information to make an informed decision regarding the proper monthly accrual and reporting of use tax on non-taxed purchases.

The purchasing department role with these P-card systems is to administrate the use of them. Training card holders, setting limits, auditing compliances, and negotiating banks are all examples of how purchasing administrates P-cards 3. PPL’s wanted to improve the information system technology to save efforts and manage user-defined service contracts. Therefore, PPL developed Passport which is a system that generates user-defined contracts for low value purchases. Developing this system passed by three phase system, phase I managed service contracts by introducing an informal, forms-driven process.

Later, in phase II the company replaced these forms with standardized contracts. Users learned how to use the new systems and processes since PPL hired a training consultant to ensure the completion of this mission. Also, the company planned to gain system buy-in by involving high-powered users throughout development. Phase III whereas most of the development process happened in the late 1990s, involved the development passport to manage user-defined service contracts. After deregulation the company needed to reduce costs company-wide.

Developing the system was the responsibility of a sub-team chartered during the reengineering effort. Information, services, procurement, major users and a consultant are all in each sub-team membership. Evaluating and selecting outside systems suppliers were the primary tasks. Also, each leader of a sub-team worked closely with the leaders of the other reengineering sub-teams. 4. Purchasing should conducts regular reviews of purchases to identify which item or group of items should be part of a blanket purchase agreement.

Buyer/planners play a key role in establishing and managing blanket purchase order inventory. This affects the effort and transactions required to process low value purchases because a single individual manages the flow and maintenance of inventory, which helps avoid costly transferring of work or transactions between systems and personnel. 5. The increasing pressure to reduce costs requires PPL to use some unique operating systems. Such system may include the implementation of Receiving Advance-Shipping notice systems (ASNs) from suppliers.

This would reduce the cost of handling inventory. The company, also, increase the use of EDI system. Furthermore, PPL has to have a powerful IT team than can easily solve any addressed problem from users that occurs in the system’s network. 6. Continues research and effective problem solving would greatly make PPL’s system run smoothly and work efficiently and effectively. Also, suggesting their system to their suppliers can make it easier for both to work together.