Question

The Purchasing Department of an international airways company is responsible for companywide purchasing. Its total costs are assigned to each division (one division in every country the company is operating in) based on the number of purchase orders the Purchasing Department processes for each division. The Purchasing Department's fixed costs are € 425,000 per year and the department is expected to process 17,000 purchase orders at a variable cost of € 65 per purchase order. Purchasing costs do not include the cost of the items purchased. The Purchasing Department actually processed 19,500 purchasing orders during the year and incurred total costs (excluding the cost of the items purchased) of € 1,600,000. Required: 1. Design a performance evaluation report for the Purchasing Department. 2. Describe what each item in the report measures. 3. Evaluate the performance of the Purchasing Department. 4. What other performance measures would you want to collect and report for the Purchasing Department?

Answer 1

Question 1. Design a Performance Evaluation Report (PER) for the Purchasing Department.

Ans.:PER may differ from company to company and department to department. PER may be designed as under:

a. Emplyee wise Informations: Each Employee's report card may be obtained with regards to his inovolvment in purchase action. His overall efficiency may be measured with his Superisers notes on his report card. His overall activity chart, timing given for job, presence and absentism may also be in report card. Besides these statistical datas, report on his behaviour can be also part of his report card.

b. Review Process by the Management can be decided based on Employees report card.

c. We can prepare a checklist also to assess the performance of each employee at a glance.

d. Self-Evaluation may also be a part of Report Card of each employee.

e. Based on report card, efficiency of employee when observed, he may be further devleoped for next posts.

f. Employee can be given future goals based on his present performances

g. Employees feed back can be taken before assigning new roles or future goals.

Question 2: Describe what each item in the report measures:

Ans. Budgeted Expenditure VS. Actual Expenditure are the main measurements. Additionally the overall budgted expected orders VS Actual Number of orders executed are key points to be reported. Overall efficiency of the Staff & less deficient staffs are to be highlighted.

Question 3. Evaluated the perofrmance of purchase department?

Ans.:In the aforesaid case, the Company Purchase Department employees have worked with high efficiency as per the data given. Based on Actual Processed Order ie 19500 order, per order cost budgted cost were Pound 65 per order , ie total budgted cost should be Pund 1267500. While the actual cost has come just Pound 160000 (Besides Fixed cost- Pound 425000).

Question 4: What other performance measure would you want to collect and report for the purchase department?

Ans.: Looking to the wide difference in Budgted figures & actual figures of expenses, it seems that Budgeted figures were exaggerated , hence proper budgeting should be measured & revised. Additionally we would like to collect the data regarding the overall order which were given in excess in comparison to budgeted one. So the reasons of differences are to be checked seriously for future course or future goals.