Although the volume of purchases within a company organised by project is not the first cost centre, unlike trading companies, it is still necessary to have an accurate picture of costs where the repercussions would have a direct impact on the company's margins.
In this context, the purchasing module in a management by project ERP system has proven to be indispensable, in the same way as project monitoring.
Purchases for specific projects
In the context of management by project, there is an initial purchasing category, purchases made specifically for a project, e.g. use of external providers, acquisition of equipment, models, software licences... Claims for expenses must also be attached to each project (internal or external) with row by row detail. This will greatly assist you in determining a first level gross margin.
Beyond project monitoring and management by project, a purchasing module worthy of the name will also manage overheads. The latter have the particularity of not being directly charged to a client project, nevertheless they pay for the running costs of the business, such as rent, energy bills or marketing costs...
The challenge is to spread them skilfully so you can measure their indirect impact on the margin of each project. The aim is to get close to a net margin before tax - The Holy Grail, if you like!
There are currently two main ways of doing this
Allocate your general purchases to cost centres and then distribute them to profit centres via the distribution keys to which only you know the secret (by m2, turnover, number of employees, total payroll, etc.). Then repeat this step within each profit centre to spread them over each project.
The other method (which is the clear winner) is easier and immediate and involves integrating these costs in the calculation of the cost of each employee. These costs will be mechanically charged to projects and without any effort on your part, because everything will be done via time recording.
The contributions of integrated management tools or a management platform
The benefits of the integrated approach of ERP (Enterprise Resource Planning) in the fields of purchasing and project monitoring, are many. When is purchasing and cost management managed via ERP?
Imagine that you could directly place orders with your suppliers from your customer orders and that the system could examine all of the orders and, if necessary, suggest grouping them by supplier.
The margins for the company are thus automatically improved and productivity is boosted.
If you use subcontractors who enter their times into your ERP system, you can even control the amount that your supplier is entitled to invoice you for. And it all comes with a full analytical breakdown by project.
The logical, and nothing but the logical...
Focus on multi-company groups where subcontracting is rife
We wouldn't be giving the full picture if we didn't cover the case of project monitoring and purchasing in the context of a multi-company group, where subsidiaries, pilot projects, sub-contracting or co-contracting, inter-company projects, compensation, etc are all involved. Given the complexity of the work to be handled, the use of an ERP system will be your only salvation, unless you swear by your Excel files alone (even though torture was declared illegal by the UN in 1948).
If the ERP system is used as a management platform shared by all the entities in the group (and thus their projects), the in-house billing processes will be made reliable and it will be possible to operate automatic compensation between the different structures. There will be a direct effect on the group's profitability and productivity, in accordance with the project margins.