Why Now Is the Time to Modernize Purchasing
There’s no value in beating around the bush, so here it is: If you’re a growing, fast-moving business and you haven’t yet improved your procurement process in order to optimize your purchasing operations—you’re behind. You better get on it, and fast!
Why? Becausepurchasingis an operation that’s crucial to the health of your business. As part of the overall procurement process, a sound purchasing operation can help businesses reduce costs and increase profits and value.
As organizations grow, purchasing processes naturally become more complex. On the positive side, this indicates that the business really is growing and thriving, since growth comes hand-in-hand with a greater need for consuming more goods and services. On the less positive side, when complexities stemming from purchases being made regularly across the company aren’t addressed, the result is frustration for employees, a lack of compliance, long and inefficient processes, and off-budget spending.
2020 was a year that took the entire world by surprise, with its effects felt well into 2022 and continuing to influence 2023. Businesses aiming to compete in the long run must address and modernize their purchasing now with a more solidified procurement process in place – and avoid hurting their profits through mismanaged spending.
With a modernized yet formal process in place,requisitionsbecome easier and faster for buyers while key approving stakeholders gain the control, visibility and involvement needed to ensure purchasing happens in a way that promotes the company’s growth.
What Modernized Purchasing Looks Like
Steps of a modern procurement process:
1. Recognizing a need
2. Researching suppliers and comparing prices
3. Submitting a purchase request
4. Sending the supplier a purchase order
5. Receiving goods or services
6. Issuing payment
The goal of modernizing the purchasing process is to make iteasierandfasterfor those needing to buy, while granting morecontrolandinvolvementfor those needing to approve. As a result of this transformation, businesses gain accountability in their spending activities, compliance, and early involvement from the procurement and finance teams, while minimizing manual tasks and eliminating broken communication channels.
Outdated purchasing processes are characterized by inefficient collaboration between relevant stakeholders that takes place on siloed systems like email, Slack messages, and spreadsheets. These processes are nearly impossible to track; access to information about any specific purchase request is often limited, but it’s needed by stakeholders who have to make important decisions such as whether or not to approve a purchase.
A modernized purchasing process offers a different, more collaborative and informed reality. Much of this depends on automation; with the tools available today, businesses can painlessly achieve a purchasing process where all relevant information is centralized and accessible to anyone who needs it, equipping stakeholders to purchase wisely andspend within budget.
Before we get into the nitty-gritty of best practices of a modernized purchasing process, let’s ensure we know who thestakeholders of a purchasing processare:
- Requesters.These are the people who need to buy a product or a service. A requester can be a developer, marketing manager, HR manager, IT manager, office admin and so on. They are the ones in theprocurement process flowinitiating thepurchase requisition.
- Managerial approvers.These are the people who approve the purchase of a product or a service, usually from a budget perspective. Managerial approvers can be direct managers, budget owners, or a CXO. Once approved, a purchase order can be created based on the request.
- Professional approvers.These are the people who approve the purchase from a professional perspective. Professional approvers can come from theprocurementteam (ensuring that the right supplier is chosen and that a propersourcingprocess took place when needed); the legal team (ensuring that there’s a contract in place); the security team; IT (limiting access to PII, ensuring the right precautions are taken), orFP&A(making sure the right budget account is utilized).
- Finance.Either within or outside of the procurement department, the finance team needs to identify thepurchase invoice, thenmatch the purchase invoice against a PO, in order to achieve three way matching, keep records for bookkeeping and auditing, and assure that a central database is maintained.
- Vendors.Vendors or suppliers are the ones who supply the goods and services and fulfill the purchase order. It’s in their best interest to develop mutually beneficial working relationships with businesses, where processes (including the payment process) are fast and efficient and payment comes on time.
Why Automation is Key
We mentioned earlier that automation is a central component of a modernized purchasing process and procurement cycle. When you consider the number of steps and stakeholders, and the amount of data and money involved in purchasing processes, it becomes clear that managing even part of this operation manually is not a good idea. As organizations grow and more stakeholders need to buy more products and services from more vendors, embracing automation is paramount for ensuring that spending is properly managed.
Automatedpurchasing systemsare worth their weight in gold. Some advantages digital transformation includes:
- Eliminating hundreds of emails and spreadsheets
- Putting an end to information silos and getting your teams collaborating more efficiently
- Creating a fasterapproval processby shortening approval cycles and end-to-end purchasing processes
- Eliminating human errors
- Saving employee time by automating manual tasks
- Improving the user experience of all stakeholders
- Strengthening relationships with vendors
Best Practices for Purchasing for 2023
As you move toward modernizedpurchasing processes, consider that one of the central goals of this transition is gettingspend under control. Here are ten best practices that will help ensure your new purchasing process is successful:
- Focus on purchases where you can create value.Pay special attention to high-volume purchases in which early involvement, better sourcing, and negotiations can generate significant savings. Focusing on areas like IT, software, and services that are characterized by large POs.
- Provide requesters with visibility into the process.One of the main pain points of outdated purchasing processes is the fact that requesters need to chase down information and status updates from various people across the company. This results in frustration for every stakeholder, as well as for the vendor involved.
- Ensure approvers have easy access to their budget.There is no way to get business spend under control without equipping key stakeholders with real-time, up-to-date budget information.
- Involve legal and security early on.This helps ensure the company is getting the best value, in compliance with company policies, before any purchase is made.
- Adopt a system that removes the need for emails and spreadsheets.The idealpurchasing automationsolution should provide a centralized platform that accommodates all communication and information for every purchase request.
- Maintain a centralized, accessiblevendor database.This allows requesters to know who the company is working with and whether there’s already a registered vendor who can fulfill the need they have—beforethey request to onboard a new vendor. This has a serious impact on increasing efficiency and cutting process times.
- Manage Purchase Orders on your ERP.As discussed earlier,managing purchase orderson the ERP is the ideal approach. This should work hand-in-hand with any automated purchasing system you adopt.
- Build and maintain good relationships with your vendors.Modernizing your purchasing processes will make a world of difference in yoursupplier relationship management, giving suppliers added visibility and shortened processing times.
- Always look to automate more parts of the process.Examine any areas that are still being managed manually or on paper, and explore how you can automate those as well for the most efficient purchasing process.
- Accommodate working from home.In light of the global pandemic, it’s more than likely that some of your key stakeholders will be working from home. Ensure that these stakeholders have access to the tools they need to keep purchasing processes moving forward quickly in a manner that complies with company policy.
As procurement and purchasing evolve from a centralized function to a company-wide responsibility, they involve more stakeholders than ever before. For fast-moving businesses, this leaves no room for siloed and broken processes that rely on paper, email, and spreadsheets.
To keep up with changing needs and ensure that business spend is under control, procurement processes should be amended and modern purchasing tools must be utilized. Modern purchasing processes help ensure that the business gets what it needs, at the best price, under good terms, within budget and without any misconduct—fast. These benefits and others are a must for companies aiming to continue growing through 2023 and beyond.
FAQs
What are the steps in the purchasing process?
1. Recognizing a need
2. Researching suppliers and comparing prices
3. Submitting a purchase request
4. Sending the supplier a purchase order
5. Receiving goods or services
6. Issuing payment
How effective is the purchasing process?
When conducted with transparency, the purchasing process is effective as it allows all stakeholders involved to have the visibility needed to avoid bottlenecks, keep track of operational spend, and have the accountability needed for auditing purposes.
Why is it important to have a formal purchasing process?
A formal purchasing process is important for all organizations including companies looking to scale. It makes purchasing faster and more efficient, provides transparency for all stakeholders involved, and helps businesses better manage their operational spend.
Approve.com is a modernspend management toolthat helps companies take control of business spend by simplifying purchase requests, streamlining approvals, and providing data-driven insights.
Schedule a demoand see what modern purchasing looks like.
