In the process of budget preparation, sales and production plans are transformed into units of income and expenses. In order for each of the departments to be able to realize the goals, it is necessary to purchase materials, keeping within the cost plan. For this purpose, a procurement budget is formed.
Purchase Organization Model No. 1
The first step is to determine the purpose of creating a purchasing department. Based on the specifics of the product and the number of suppliers, it forms a department of 2-5 people (maximum 7 suppliers per manager). Each of them is responsible for the delivery time, stock status, payment, performance of contracts. The work of the department cannot be carried out only on the instructions of the head. The unit is created to implement the sales plan, which is drawn up for the month, quarter and year. For its implementation of the plan provides a bonus:
- main income: 40% for the manager, 60% - for the head;
- bonuses: 50% - for the manager, 30% - for the head;
- premium - 10%.
Bonuses to managers are awarded according to labor indicators:
- delivery on time;
- volume of illiquid goods;
- average stock turnover.
For bonuses, you can use quality indicators, for example, the service coefficient, that is, the number of goods in the application, which can be satisfied immediately.
Procurement Management Model No. 2
This scheme differs from the previous one in that, based on the sales plan, the department head calculates the procurement budget. That is, a separate financial control center is being created within the unit. A more effective selection of managers is carried out, since the costs of logistics and delivery conditions are taken into account. All employees are interested in fulfilling the procurement plan, and, therefore, the development of the company. In turn, management will be able to reduce the scheme with kickbacks to a minimum.
It will take 1.5-2 months to build the first model of work. The director’s task is to select staff with work experience. In the second case, the construction of the department will take 6-18 months. The main problem is psychological work. The director needs to turn employees into individual businessmen. Not everyone can cope with such a role.
Operational planning
The operational budget reflects planned operations for the year for a segment or a specific function of the enterprise. It is developed in all centers of responsibility, and then combined into one consolidated budget. Drawing up a document can be considered as an accounting and management process. The difference is that the report reflects the activities of the enterprise in the future, and not the fixation of previous events. It consists of the budgets of procurement, sales, administrative, production costs. Consider each of these elements.
Sales
Sales volume and its structure determine the nature of the enterprise. Therefore, one of the first is a sales plan. When preparing it, it is necessary to take into account not only sales for previous periods, but also analyze factors that may affect them (seasonality, stocks, etc.).
The sales budget is compiled taking into account the level of demand, sales geography, customers. It includes the planned level of revenue, which can be reflected in the cash budget. But the calculation of this indicator causes difficulties, since the enterprise cannot manage the actions of clients. The planned amount of expenses is calculated based on the activities of the organization. It is easiest to calculate. Sales as a business process are of great importance. For organizations that sell products, the calculation error sets the sales plan exactly. If it is not compiled correctly, then this will affect all other areas of activity.
Production and stocks
The production plan is based on sales. It also takes into account production capacities, changes in stocks and the procurement budget. The calculation is carried out according to the following formula:
Output = stock at the end of the period + sales - stock at the beginning of the period.
The volume of production is calculated based on the characteristics of the manufacture of products.
Overhead costs are those associated with the manufacture of products. In this case, a separate line takes into account the cost of labor in two parts: fixed and piece-rate (employee bonuses, based on the implementation of the production plan).
Budget for sales, administrative expenses
Selling expenses - this is all the costs associated with the sale, promotion of goods. Their volume depends on management decisions. The decision to change the area of the premises will affect the costs associated with the storage of goods. The amount of variable costs is formed by the commission, costs for packaging, processing, transportation. All other fixed costs are administrative.
Procurement budget
A procurement plan by type of goods or by supplier shows how much products an enterprise should purchase from external and internal suppliers. The formation of the procurement budget is carried out on the basis of the sales plan, inventory levels, workload, terms and procedure for paying off payables.
Purchasing = planned volume of use + inventory level at the end of the period - inventory at the beginning of the period.
Production stocks
The need for permanent production materials is determined by the costs of equipment repair, the construction plan and the preparation of new products. Often economists make the mistake of ignoring these costs in budgeting.
The planned amount of expenses depends on the type of resources and methods of their consumption. The budget is formed on the basis of the norms of consumption of resources in production, in economic centers and the need for fixed assets. The first article is calculated by multiplying the planned production volume by the norms. This need is adjusted for stock balances and inventory standards. This forms the procurement budget in kind. To bring it into value terms, you need to multiply by the planned price.
Example
The metallurgical plant plans to produce 3,000 tons of products next year. This will require copper and oleic acid. Consumption rate per 1 t: copper - 0.06 kg, acid - 0.0058 l. The balance of copper at the beginning of the year is 100 kg, and at the end - 50 kg. The price of raw materials is 4,500 rubles. / t copper and 10,000 rubles. / liter of acid.
Yearly need:
- 3000 * 0.006 = 180 kg of copper
- 3000 * 0.0058 = 17.4 liters of acid
Planned purchase volume:
- (180 kg / (100 - 50)) * 4500 = 1,035,000 rubles. - on copper.
- (17.4 * 10,000) = 174,000 rubles. - on acid.
Stocks at ADH
The planning of the procurement budget in administrative activities (AHD) is carried out differently. The product range is very wide (from office supplies to office repair materials), and there are no consumption rates. There are three ways to determine the need for stocks:
- Use applications of structural units. The supply service collects applications, processes, evaluates balances, updates prices and calculates the budget.
- Establish inventory standards for the most popular products, such as office supplies and detergents. Budget to calculate based on available stocks.
- Set a limit on inventory purchases for AHD as a percentage of the cost of basic materials.
Particular attention should be paid to compiling stocks to identify excess resources. When forming the procurement budget, such materials should be adjusted downward. Especially if delivery is not carried out with restrictions.
Procurement Budget Functions
- A budget is a planning tool that identifies opportunities for using resources. It is also a means of monitoring and evaluating performance by comparing planned and actual performance.
- According to the structure and degree of implementation of the procurement budget, you can evaluate the work of managers. Organizations use them to evaluate the performance of management units.
- The budget of the procurement department can fulfill a motivational function if it contains activities for the purpose. For example, the department was tasked to purchase raw materials for half a million rubles on a postpaid basis. If the goal is achieved, then the head and his deputies will be awarded a bonus that will increase the expenditure side of the budget in the next period.
- The employee must understand what tasks are set for him. If the development goals of the organization are kept secret, then they will not be achieved. In this sense, the budget forms the communication environment in the team, as well as between employees and subordinates.
Work with tenders
In order to formulate a budget for the procurement of materials, tenders can be held to find the best suppliers of goods of a certain category. According to regulatory documents, a strategy is developed for distributing materials by groups, quality indicators and contractors are classified. A tender sheet is formed with proposals from suppliers. According to the given evaluation criteria, the "winner" is automatically determined. Next, work is underway to conclude a contract and formulate a procurement budget.
Purchasing Options:
- In one batch. The process of preparing documents is simplified, but the organization will need large storage facilities for storing stocks. The risk of losses caused by spoilage increases.
- In small batches. Fast capital turnover and reduction of storage space.
- As needed. The goods are delivered to the accounts (without concluding an agreement) in small batches on the basis of full prepayment.
Procurement control
In order to control the implementation of the budget, purchases can be calculated at financial responsibility centers. Moreover, planning is carried out at two levels:
- Prospective management - the formation of the need for materials for the year, disaggregated by quarter / month. After the formation of the annual plan, suppliers are selected and long-term contracts are concluded.
- Calendar management - the formation of monthly and ten-day / weekly procurement plans with the aim of uninterrupted supply of concrete raw materials to the enterprise. This is a detail of the annual plan.
In order to calculate the procurement budget for a month, you should adhere to the following algorithm:
- Calculation of the needs of materials for production, taking into account current balances, expected revenues and insurance reserves.
- The need is adjusted for orders, products and permitted replacements.
- In case of changes in production plans, the procurement budget is adjusted.
- A schedule for the delivery of raw materials and a payment plan for suppliers is being formed.
- If it is not possible to deliver, a step back is made and a new supplier is selected. If it is not possible to change the supplier, a change in the procurement or material grade is initiated.
Here's how to set up a procurement budget.