“I can see clearly now the rain has gone. I can see all obstacles in my way”. The lyrics from the 1972 song by Johnny Nash titled “I can see clearly now” should be the mantra for enlightened e-procurement professionals.
Here’s and old post that continues to have merit with a link to another resource from FitSmallBusiness.com
Very often this author gets the question as to where to start in the e-procurement process. Too often I read that one needs to do a detailed discovery. The question is of what and how to get to the right place the quickest. So here is some Lasik for you that will help you see a little more clearly.
Using another idiom, and with renewed focus we hope to make it possible to see the forest for the trees by not focusing on excessive detail that is not needed yet.
There are four areas where you should begin your search for an e-procurement starting point and they are pretty simple.
1. Gross Sales
2. Cost of Goods Sold
3. Gross Margin
This is really to say that if you take a look at your top line or Gross Sales and your bottom line or EBITDA and they are out of whack relative to your plan or industry averages you need to look at the above the gross margin line or Cost of Goods Sold or below the gross margin line which is expense related items for as an e-procurement focal point..
As such a couple of terms whose definitions you should be aware of are as follows.
According to two separate sources, Wikipedia and FitSmallBusiness.com Cost of Goods Sold or COGS is a financial accounting term which includes the direct costs attributable to the production or procurement of the goods sold by a company. This amount can include the materials cost used in creating the goods along with the direct labor costs used to produce the m. It excludes indirect expenses such as distribution costs and sales force costs. COGS appear on the income statement and can be deducted from revenue to calculate a company’s gross margin.
Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA which is an approximate measure of a company’s operating cash flow based on data from the company’s income statement. EBITDA is calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization.
Based on the above a lot is determined by who built you annual plan and how realistic it was to begin with.
Tomorrow we will review what underperforming these measure means and how it should point you in the direction as to where to begin your e-procurement focus.
We look forward to and appreciate you comments.