What's the connection of the supply (purchasing/procurement) management department budget to the company's strategic plan? is the starting topic in this section (1-B-1) that catapults the CPSM exam to the C-Suite of the company. For all the other sections are from the CPM exam viz. steps in budgeting, purposes for a budget and types of budget.Not to say that you should not know the mechanics of budgeting - but it's really important to understand how and why the supply management department budget is connected to the company's strategic and operational goals. In fact, the company strategic goals should guide and dictate the supply management department's budget plan because it is in the budget that you put the money where your mouth is and the rubber hits the road!
As I explained in the context of qualitative goals in the product innovation charter, every strategy document,intent and implementation should consciously try to align to the organizational mission... if the overall organization is to move forward. So too with the Supply Management department budget. If say, your company's mission includes continually educating and developing it's employees with leading edge knowledge then what does it tell you to include in your budget? It tells you that you should budget for funds for supply department employee training and education. Also, you need to think carefully how many hours of time off for training you will provide. Doing so will explicitly mean that there is a bunch of money budgeted to allow for the training and education of supply management personnel that includes the time off.
In other words, if you read this section and look at your department budget and your company's mission you will find that there are several mismatched items. You are budgeting stuff just because it was included last year although it has a poor mission fit - or you are eliminating mission critical budget items just because of a slow economy.All this because you never really sat down and thought carefully about the following questions:
- Is this activity of the supply department contributing to the company mission?
- Are the funding and expected results appropriate?
- Are gaps between funding and expected results clear and well articulated?
The budget is a huge mechanism to keep track of spending and earning (like sales, sale of assets etc.). More importantly budgets are the easiest way of reviewing progress towards the goals of the organization and its units including the supply department. Thus if you have a monthly review meeting, and had budgeted for 40 total hours of employee training a month, and find that you have arranged only 10 hours- you have a problem. Upon review though, this can be fixed for the next month where you consciously arrange for 40+ 30 (the previous month shortfall) training hours.
To conclude, try to find the higher "purpose" of the supply department budget , i.e. achieve the company goals. On an exam note do read the more tactical stuff around the other standard topics viz. steps in budgeting, purposes for a budget and types of budget in the study guide.