The purchasing process is the series of well-thought-out steps taken by companies to acquire new products or services. While this definition is simple, purchasing gets confused with other areas of procurement. The exact steps involved vary from business to business, but, in general, they include the following:
In this article, we will explore the following:
Companies often use the terms purchasing process and procurement process interchangeably. But they are not the same.
Procurement refers to the entire process from sourcing through accounts payable, whereas purchasing refers solely to the activities wherein needs are met through purchasing goods and services.
The greater procurement process is referred to as procure-to-pay (P2P). It involves sourcing and vetting vendors, negotiating contracts, and ensuring vendors are paid on time.
Purchasing focuses on the requisitioning of acquiring goods and services.
Purchasing is an ongoing activity in organizations. As business grows, the need for different products, tools, or software also increases. Therefore, it’s essential that companies set a purchasing process.
Here are a few benefits of having a streamlined purchasing process:
Deciding to purchase a new tool is a risk. Companies can be exposed to financial risks or reputational risks.
For example, a marketing team starts using a new SaaS email automation tool. After a few months, they realize their privacy has been breached, and customers’ personal data has leaked online.
This security risk tarnishes their reputation in the market, and customers will have a tough time trusting them again.
The best way companies can mitigate this risk is by including a no-compromise, vendor security analysis step in their purchasing process.
Assisted buying is another way out of this. This involves working with a set of procurement experts with immense knowledge and experience. They help with due diligence of the vendor and keep the entire workflow secure.
40% of organizations spend more than a million dollars on SaaS tools. However, without a documented purchasing process, there is a lack of visibility on spending. Therefore, it is challenging to calculate the ROI.
Setting up a purchasing process solves both challenges. Every team member follows a centralized purchasing process using a single procurement management platform, which means it’s easier to track spending, especially SaaS spending. Consequently, the company gets more clarity and visibility to calculate the ROI.
Buying policy is a set of guidelines that regulates the purchasing process. It contains standards employees follow while purchasing a good or service.
For example, the buying policy mentions an approval workflow for getting the necessary permission from the designated authorities.
Making buying policy part of the purchasing process improves the chances of employees adhering to the standards. This also means the buying policy and purchasing process work as a team and not in isolation.
Often, two different teams buy licenses for the same software independently due to a lack of communication and absence of a centralized process. By setting up a purchasing process, companies can maintain a record of software the teams already have.
If you already have a purchasing process and are implementing purchasing strategies, this is the perfect time to optimize the process with these ideas.
A digital adoption platform (DAP) is a program that helps users navigate through their digital tools. Users get the autonomy to use the tools with the help of guides or self-service portals.
Procurement teams can take help from such platforms to onboard new vendors and track the progress of work in a centralized way.
It’s also easy for the team to train new vendors and customize the content based on the nature of the work.
As the company grows, it’s common that the list of vendors also grows. And so do the security risks.
Formalizing the due diligence process like training vendors while onboarding and standardizing the process to vet the best vendors can give the ideal push towards improving the purchasing process.
It’s essential that companies develop consistent communication with their internal employees, especially those who are part of the procurement team.
This gets things done faster, avoids confusions, and builds a strong relationship between teams. This becomes a huge asset for companies, especially at the time of crisis or unexpected business situations.
How much your money is invested in inventory is connected with profitability. Having too much inventory or too less puts you in an uncertain state of meeting the market demands.
Using inventory management software and following inventory control techniques will help maintain an optimal level of inventory at all times. It also reduces the room for error as automation takes over the basic human tasks like data entry.
Procurement tools save time and help your team be more productive. All purchasing activities can be tracked at one place, and the entire team can access information without switching between multiple tools.
Standardizing process is about setting guidelines and benchmarks. This step helps evaluate outputs and empowers your team to stick to the standard procedure.
This avoids confusion and minimizes human error to a large extent.
Your procurement team will be far more efficient if the complex tasks can be automated using software. Automating certain parts of the process helps the team to focus on more important tasks that involve decision-making.
For example, collecting vendor information is a time-consuming process. Using vendor intelligence tools like Spendflo, companies can work with experts to get all the integral information before working with them.
Training new vendors takes time. Using a digital adoption platform to upload training material will help them learn at their own pace. This platform will also be useful for upgrading the knowledge of vendors by constantly adding more relevant training content.
The challenges in procurement largely depend on the business, but here are the most common ones:
Finding the right vendors is challenging for companies. Procurement managers often end up with vendors that produce low-quality work and do not adhere to other norms of the contract.
To mitigate this risk, companies need to build a list of vendors and use a procurement management system that helps assess vendor intelligence before onboarding vendors.
Lack of vendor data fogs the visibility of the procurement team. As a result, the team is not in a strong position to optimize its spending.
The cost keeps increasing and there is low scope for negotiation.
Accurate data is like a compass for procurement managers. When they have access to high quality data, they can analyze situations confidently and avert risks.
This is more applicable for SaaS purchasing activities. As it is a continuous process, procurement managers need to keep an eye on the inventory to ensure a certain level is maintained and liaise with the right vendor.
Using spreadsheets to manage information is undoubtedly one of the biggest risks for procurement. Investing in software costs money but empowers companies with procurement automation.
Digital technologies help companies work on their pitfalls and strategize according to the shifting tides of the industry. Therefore, the company stays ahead and is well-prepared.
The head of the procurement department is a key stakeholder in all procurement activities. They should be kept in the loop for every procurement demands and requirements. These leaders are strategic leaders for companies to formalize the process and keep the purchase cost under check.
Without compliance, purchasing activities can go out of hand.
Compliance should be applicable for both internal teams and external vendors. This helps in creating a wall of security to protect the companies from unwanted risks.
Contract management is necessary to avoid litigation issues with vendors in the long term. A contract legally binds the company and the vendor as per the norms mentioned.
This means there is a mutual understanding between both parties about the expectation and what role each of them has to play to fulfill the duties.
It’s always worth it if the procurement team spends extra time evaluating vendors. Before onboarding new vendors, it should be mandatory to check their references and verify their background information.
Procurement managers should collaborate to update vendor information to a common portal and allow everyone to contribute.
The purchasing process is long, tedious, and risky. Spendflo offers tools for vendor management, automated purchase order generation, and expense tracking at one place. This means more efficient purchasing, improved cost control, and reduced errors.
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