Remove looks like a stray/typo character process that businesses undergo in order to obtain goods or services. Although it might appear simple, it can be mistakenly used with the wider procurement role. The specific process may vary depending on the company, however, the majority of purchasing cycles follow such a course:
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• Reviewing and approving purchase requisitions
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• Generating and issuing request for proposals (RFPs) or request for quote (RFQ)
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• Negotiating prices, contracts, and payment terms
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• Monitoring spending
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Due to this, it’s a long and time-consuming process. This is especially true for SaaS procurement as 30% of companies spend close to two months procuring them. 

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In this article, we will explore the following:

• Importance of the purchasing process
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• Steps to improve the purchasing process
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• Challenges in the purchasing process.
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What is purchasing process ?

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Purchasing process optimization involves streamlining and improving procurement stages to enhance efficiency, reduce costs, and achieve better results. It focuses on automating tasks, refining workflows, and aligning purchasing strategies with business goals. This ensures faster, more cost-effective procurement processes.

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Are the purchasing process and procurement process the same?

Many companies use “purchasing” and “procurement” interchangeably, but they are not the same. Understanding the difference helps you design the right workflows, reduce costs, and improve compliance.

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Key Difference: Procurement vs. Purchasing

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When to Use Procurement vs. Purchasing

• Procurement is ideal when you have to exercise strategic vendor relationships, negotiate price and spend optimization throughout the business. Example: screening SaaS vendors for long-term contracts.‍
• Purchasing is best applied to recurring, low-value, or one-time purchases where speed matters more than negotiation. Example: the ordering of laptops or office supplies.

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Procure-to-Pay (P2P) vs. Order-to-Cash (O2C)

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These two processes are often confused, but they address opposite sides of a transaction.

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Strategic vs. Non-Strategic Purchasing

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Not every purchase has the same impact. Classifying them helps prioritize time and resources.

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Importance of a purchasing process

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.

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Here are a few benefits of having a streamlined purchasing process:

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1. Reduced procurement risk

Deciding to purchase a new tool is a risk. Companies can be exposed to financial risks or reputational risks. 

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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. 

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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. 

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Related Read: From risk to resilience: Mitigating procurement risk challenges

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2. Greater spend visibility

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. 

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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.

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Related Read: SaaS-Visibility - A Complete Guide

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3. Improved compliance with buying policies

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.

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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. 

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4. Fewer overlapping software licenses

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. 

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Optimizing your purchasing process to boost your deals

A strong purchasing process ensures cost savings, compliance, and smoother vendor relationships. Below are the 9 key steps to optimize your purchasing process:

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1. Identification of the Needs / Define the Need.

The first step is to identify exactly what your business needs: SaaS, equipment, or services. An identified need prevents spending on things that are not necessary and budget conformity.

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2. Purchasing Requisition Preparation.

When a need is realized, the employees place a purchase requisition. To automate this process using guided intake forms will help eliminate human error, and requests will reach the appropriate stakeholders in a timely manner.

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3. Purchase Order Approval and Review.

The problem with approvals is that they Slow down procurement when it is not handled effectively. Automated processes can be used to direct the purchase orders to the appropriate decision-makers, reducing decision making time by 40 percent.

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4. Request for Proposals (RFP) / Request for Quotation (RFQ).

In case of purchase that is large, organizations request the vendors to write a proposal or quotation. A centralized procurement tool is useful in comparing the options against each other to save time and provide transparency.

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5. Contract Negotiation and Finalization.

Discussions on contracts are usually dragged out. With vendor intelligence software such as Spendflo, you can access benchmark data to negotiate smarter deals and finalize them faster to use when negotiating a deal and getting it finalized: customers have saved up to 30 percent at this point.

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6. Vendor Evaluation and Selections.

Due diligence is important in evaluating vendors. With a vendor database that includes their performance history, you can ensure that you select good partners and will minimize risks based on quality or compliance.

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7. Three-Way Matching

Finance teams match the purchase order, invoice, and receiving report before payment.This is an area to automate the check which eliminates errors and fraud while reducing disputes with vendors.

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8. Invoice Approval and Payments.

Workflow invoice approval automation ensures timely payments to the vendors and full compliance with the payment process. Supplier relationships are also enhanced.

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9. Performance Review and Accounting Records Update.

Lastly, accounting systems are to record all transactions and then do periodic performance reviews. These reviews enhance the relationship with vendors, emphasize the areas of savings, and make sure that the process is constantly being optimized.

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Challenges in procurement

The challenges in procurement largely depend on the business, but here are the most common Procurement teams face a wide range of obstacles that impact cost, compliance, and efficiency. Below are some of the most common challenges and how to solve them:

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1. Risk Management and Mitigation.

Problem: Firms have a problem in finding stable suppliers hence poor quality deliverables and contract breach.

 Solution: Develop a list of vetted vendors and deploy procurement software that has vendor intelligence. This will enable you to review vendors prior to onboarding and minimize the risk exposure.

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2. Lack of Visibility

Problem: The procurement units that lack centralized data on vendors are less visible and therefore cannot manage costs or bring improved deals.

 Resolution: Implement a procurement solution whereby you unify the spend and vendor data. Live dashboards can provide you with the visibility of the flow of money and where you can save money.

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3. Manual Processes are prone to human error.

Solution: Spreadsheets and manual entry increase the risk of errors such as missed renewals, duplicate payments, or compliance issues.

 Solution: The automation of intake, approvals and purchase orders will do away with human error, hence accuracy and compliance.

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4. Approval Workflow Delays

Problem: Multi-level approvals tend to slow down the process of purchase and slows down the whole procedure of procurement.

 Remedy: Automated approval processes and rule-based processes. This forwards requests to the appropriate stakeholders at a high speed, accelerating the decisions and minimizing bottlenecks.

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5. Isolated Teams and Ineffective Cooperation.

Problem: The procurement, finance, and IT departments tend to operate in silos and thus there is a friction and slow decision-making.

 Resolution: Procurement tools are centralized to form a single source of truth. The cross-functional teams are kept in check with the use of shared dashboards and automated notifications.

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6. Limited Process Visibility

Challenge: In the absence of a clear view of every purchase step, managers do not have a way to monitor the progress or locate the bottlenecks.

 Solution: Stage-by-stage tracking of workflow engines is a perfect visibility of the workflow that allows managers to intervene at early stages in case of delays or risk.

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7. Communication Breakdowns

Issue: This is a problem where stakeholders and vendors have a misunderstanding that results in failure to meet deadlines or inappropriate requirements.

 Solution: The use of collaborative procurement systems with in-app messaging and notifications along with vendor portals can make everybody updated in real time.

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8. Gathering Right Data and Insights.

Problem: Procurement data is inconsistent or old and this makes it problematic to predict needs or prevent extravagance.

 Solution: adopt cloud-based intelligence solutions that automatically record spend, consumption, and vendor information. Good data translates to superior decision making and no wastage.

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9. Digital Technology implementation.

Problem: The use of spreadsheets that are prone to errors and cannot be scaled continues to be used by many teams.

 Solution: Invest in digital procurement solutions, which automate the processes, minimize risks and enable the business to adjust fast to the market changes.

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10. Stakeholder Alignment

Issue: Procurement leaders are not usually included in the strategic discussions, and this results in goal misalignment.

 Solution: Incorporate heads of procurement in planning. Their contribution assists in regulating the prices of purchases and streamlining the effective processes.

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11. Ensuring Compliance

Obstacle: Purchases may not be properly gone through company policies or place the firm at risk of litigation unless spending is well checked.

 Solution: To make sure that internal policies and external regulations are adhered to at each stage automated compliance controls and audit trails should be used.

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12. Contract Management

Problem: Poor contract management will result in conflicts, unfulfilled commitments and legal liability.

 Solution: Digital repository of contracts that remind and alert teams to their obligations can be used to manage this and ensure renewals and remain legally insured.

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13. Choosing the Right Vendors

Problem: Hasty vendor selection usually leads to bad partnerships.

 Resolution: Unify due diligence and background checks, reference checks and collective vendor information portals among the team.

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‍Best Practices for the Purchasing Process

Strong purchasing practices reduce costs, improve compliance, and strengthen vendor relationships. Below are proven strategies you can implement:

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1. Strategy for Automation Implementation.

Manual operations such as data input, purchase request and invoice approvals are susceptible to error. Automation of these workflows reduces cycle time, eliminates delays in the approval process, and liberates teams to make strategic decisions. The companies that automate claim to save 4+ hours per week per user of finance.

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2. There are three-way matching protocols.

One of the main ways of deterring fraud and multiple payments is three-way matching i.e. comparing purchase orders, invoices and receiving reports. This process should be automated in order to make sure it is accurate and minimize conflicts with vendors.

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3. Vendor Collaboration Improvement.

Procurement is better done when the vendors are not only considered suppliers but as also partners. The transparency can be enhanced and the long-term trust can be established through the usage of centralized platforms sharing their dashboards, performance monitoring, and effective communication channels.

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4. Total Cost of Ownership (TCO) Focus.

It is shortsighted to look at purchase price. Best-in-class teams determine the total cost of ownership including maintenance, upgrades and vendor support. This assists in discovering costs that had been concealed and making more wiser and long-term decisions.

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5. Social responsibility integration: This is where the company's management evaluates its social and environmental performance through the integration of social and environmental management strategies.<|human|>Social Responsibility Integration: This is where the management of the company considers its performance in social and environmental matters by integrating its social and environmental management strategies.

The modern procurement is not just about cost. Sustainability, diversity, and ethical sourcing have become more considerate to buyers. Making social responsibility part of purchasing decisions enhances brand image and aligns with corporate ESG objectives.

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6. Standardization Procedures

Inconsistent buying practices cause confusion and risk. Setting universal policies to govern requisitions, approvals and vendor appraisals will guarantee adherence, reduce errors and aid smooth scaling of operations.

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KPIs and Performance Measurement.

Monitoring the appropriate measure allows the procurement teams to identify bottlenecks, enhance effectiveness, and prove ROI. The following are the most significant KPIs to be measured:

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1. Procurement Cycle Time Measures.

Cycle time is the duration required to take between requisition to purchase order approval. Shorter cycle time implies a faster fulfillment and less operational delays. Workflows can cause a reduction in cycle times of 30-40%.

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2. Cost Savings Measurements

Savings in costs are more than the negotiated discounts. Track evaded expenditures, decreased licensing prices and consolidations. According to Spendflo customers, optimized contracts and renewals can save up to 30% in software and spend on vendors.

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3. Vendor performance indicators

Assess suppliers based on quality, delivery time, compliance and service level. An obvious vendor scorecard enhances accountability and amplifies supplier relationships.

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4. Approval Time Tracking

Determine the time required at every step of approval. There are long delays which are usually an indicator of manual bottlenecks. The process of routing rule automation would enable teams to save on time per request thus enhancing its productivity.

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5. Process Efficiency Ratios

The efficiency of operations can be emphasized by such ratios as the number of requisitions approved per employee or invoices processed per FTE. They also demonstrate that automation enhances throughput with no need to increase headcount.

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6. ROI Calculation Methods

The combination of hard savings (cost reduction), as well as soft savings (time savings, compliance savings, reduction of vendor risk) is the true ROI. The average ROI is 2-3x in the first year of use by the companies using Spendflo.

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Streamline purchasing with Spendflo

The purchasing process can often be lengthy, cumbersome, and error-prone.Spendflo is a company that puts all vendor management, purchase order generation, and expense tracking in a central place.

According to the customers who use Spendflo, they will save up to 30 percent on software and vendor spend and achieve 2-3 times ROI in the first year. Indicatively, one finance department saved $500K per year by consolidating its vendors and automating renewals by shortening procurement cycle times by 40 percent.

‍Book a free savings analysis today to learn more.

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Faq

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How long does the purchasing process typically take?

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Depending on the complexity of the vendors and approval processes, negotiations on the contracts, the purchasing process may require a few days to a few weeks. Automation also enables you to reduce the manual back and forth and final purchases in a matter of days.

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Can small businesses benefit from purchasing process automation?

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Yes. Small companies usually have limited resources and therefore, automation of the buying process saves on time and enables fewer errors. It also enables teams to have a better visibility in terms of spend without the necessity of having a large procurement department.

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How do you prevent maverick purchasing?

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You stop maverick spending by establishing the approval processes, vendor data centralization and policies. Compliance is also facilitated through automation tools which direct all purchases through the appropriate channels prior to spending money.

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How do you ensure purchasing process compliance?

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Policy plus technology are two elements that result in compliance. Instant purchase systems provide audit trail record, approval rule enforcement, and exception notifications in real-time, so you will be able to remain in compliance with both internal and external regulations.