All businesses need to purchase goods to meet their day-to-day needs. If you do not have a formal purchasing process in place, you may be spending more than you need to procure items and services. How you develop your purchasing process will significantly affect your business; not just when managing costs and expenses but also your overall efficiency. By creating procurement policies and automating your Purchase-to-Pay (P2P) process
you keep your business from unwanted costs, maverick spending, and limited spend visibility.
What is the Purchasing Process?
Spend can become unwieldy when employees purchase high-volume products or high-cost purchases at will or with a vendor that doesn't have a negotiated contract in place. To gain control over employee spending, improve efficiency with how your team purchases, and from who, a procurement policy and process can make a valuable contribution to profitability.
Having a set process in place can also remove costs from potential fraud, theft or a number of related issues your business may encounter. Implementing P2P automation improves internal controls, meets regulatory compliances, and mitigates risk.
Every business will have its unique approach when considering a purchasing process. But most of the time an effective purchasing process will follow a well-established format.
Your eight-step guide to a purchasing process:
Identify your needs (goods or services)
First, identify what your organization needs or what you typically buy to define the business requirements. Once you understand what each department purchases or needs, you can work towards understanding costs, and where you'll be able to save, based on consolidating purchasing and choosing one supplier. For example, employees from different departments might be buying the same products from different suppliers, so you can consolidate this buying function with one supplier and negotiate a discounted rate.
Create your purchase requisition
A purchase requisition is an "application" for when anyone in your organization wants to make a purchase. A requisition can be created automatically or manually depending on your company. However, an online P2P system can automatically generate a purchasing request from a supplier catalog in your system, route to the appropriate approvers(s), and create a purchase order from the approved purchase requisition. eProcurement
streamlines the entire process, saving you time and money right from the start.
Below are six tips for creating a purchase requisition when a supplier is not under contract:
Create your purchase order
- Create a list of suppliers.
- Perform a full analysis of each supplier and weigh them by the importance of your needs.
- Qualify and choose the best fitting supplier.
- Negotiate price.
- Determine if you need a contract.
- Measure supplier performance.
Once the requisition is approved, you can create your purchase order. The PO outlines specifications, such as order description, quantity of items, and agreed price and payment terms. You will also want to generate a PO number, which is vital to the entire process. Verified and approved purchase orders are then sent to the appropriate vendor. With a P2P system,
this is done automatically without emailing a staff member. This notification to the vendors lets them know you are looking to procure either a product or service from them.
Receive goods receipt
Keeping track of what has been shipped or received is extremely important. This allows you to review the delivered goods and services for quantity and quality assurance. And remember that PO number? Match the PO number to the packing slip, so you ensure the correct order is received. You can automatically do this with systems such as Proactis
Receive invoice and three-way matching
One of the most important things when managing your purchase order process is receiving the invoice from the supplier - and ensuring the supplier included the PO number. Since you've already matched the PO number to the goods receipt, you can now match the number to the invoice. When matching all three, Accounts Payable is protected and prevents duplicate payments, overpaying or underpaying, and potential fraud...
Invoice approval and payment
Invoice approval begins once Accounts Payable receives an email or PDF invoice from a supplier and three-way matching is accurate. Your cash flow forecast may suffer if you don't have a timely invoice approval process. If done manually, payment delays and frustration for both the buyer and supplier occur.
How to set up a policy for managing your Purchase Orders
First, you need to examine your current policies (if you have them) and identify whether they are effective. This guides the purchasing team to ensure steps aren't missed, aids to streamlining the process, avoiding delays, and structures PO and invoice approvals. Having a purchasing policy in place removes inefficiencies, allows for a simpler process, and lets you buy from trusted suppliers, thus improving on-contract spend. Establishing a purchasing policy will enable you to control and manage employee spend with authorization workflows that speed up the process.
Benefits of a Policy
Policies are also useful day-to-day guides for deciding on important tasks within your company, and can be handled manually or by automation. An automation policy will save you a lot of time and eliminate endless hours of data entry, as well as transforming large amounts of paperwork into easily trackable forms. Automating tasks allows you to focus your energy on high-value tasks and helps you to:
- Focus more of your time on your business and financial analysis.
- Obtain comprehensive and detailed reporting.
- Remove any roadblocks or barriers to questions and workarounds.
- Revise and update the policy at a moment's notice, giving you the agility you need to meet business priorities.
- Evaluate staff and supplier performance.
It is important to put a good policy in place for every company to clarify its objectives. When combining your purchasing process and policies with automation, you streamline the entire process. Organizing your company's purchasing process and introducing better procurement practices can greatly impact your company's efficiency, output, and bottom line.
Speak to an expert today
about how to improve your purchasing process.