Why YOU should Invest in Purchasing (Supply Chain Management)

ZACH DE GREGORIO, CPA www.WolvesAndFinance.com We are talking about purchasing. I am going to start with a common scenario. Imagine you are running a business, and this year you make a small profit. As the leader of your company, you are going to take some of this profit and reinvest it back into your business. You are going to ask yourself, where can I put this money, to have the best return on investment? Many businesses will look at investments in sales or operations. However, my recommendation is that the first place a business should look for investment opportunities is Purchasing. The reason I am making this video, is because so few businesses do this. Purchasing is often the last place people think about putting money into. I am going to explain to you mathematically why it makes sense to invest in purchasing. The reason why nobody invests in purchasing, is because the Supply Chain Management Department does not generate revenue. When leaders are looking to make a return on investment, it is difficult to look at investments that you cannot directly tie to revenue. With sales and operations, there is a direct link to revenue. Most people look at Supply Chain Management as a cost center. It is just overhead. However, if you look a little closer, Supply Chain Management has a significant impact on company profits. You can see this impact through something called DuPont analysis. Last week, we talked about the DuPont equation. The real insight from the DuPont equation, was that you could take an accounting ratio and drill down to see what was driving that ratio. DuPont analysis continues that concept by continuing to drill down. This activity helps you understand what is truly driving your organization. Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.