Evaluation of the purchasing department is essential for the economic health of the organization. At the same time, a good proportion of the efforts in purchasing activities are not immediately visible and so the evaluation becomes rather difficult. In any case, a consistent effort towards this aspect must be kept on with the following objectives of evaluation:
- Performance improvement of the department
- Aid to Organization
- Easy coordination amongst departments
Establishing evaluation criteria is also very difficult. Following criteria can be combined for an overall picture of purchasing performance:
- Cost-Purchase Comparison (annual cost of purchasing department divided by the total value of purchases).
- Cost per Order (total purchasing department cost divided by the number of orders).
- Return on Investment (net savings per rupee. spent on purchasing).
- Quality Criteria (measured by number of rejects)
- Quantity Criteria (measured by downtime)
- Price Criteria (comparison with other organization or standard price indexes).
The evaluation standards can be based on past performance, budgeted performance, or performance of departments in other organization to judge what is being done as compared to what should have been done.
