Purchase price variance

The purchasing managers were the individuals who interacted with the suppliers, and they contacted the sales representatives or the order desks. This was the only point of contact between the compatty and suppliers. Requests for new or replacement materials and parts depended on the purchasing department to locate a supplier and place orders. Purchasing managers drove their operations under a system known as purchase price variance. 

For years upper management would tell the purchasing department to reduce raw material costs by getting suppliers to reduce prices. One of the ways this was accomplished was by basing the bonus paid to the purchasing people on the purchase price variance. The larger the difference (lower), the bigger the bonus paid. 

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