Your business needs to work with vendors and make purchases on a regular basis, but are you doing it effectively?
If you’re spending hours chasing down approvals or getting frustrated by outdated manual processes, you’re not alone. One recent survey of small and mid-sized businesses found that the majority had haphazard purchasing processes.
The good news is that it is possible to significantly improve your purchasing process with a few best practices. As a result, you’ll prevent needless hours of labor and delays. Read on to get started!
Purchasing Process Steps
Your purchasing process may include the following steps:
Request a purchase. A staff member will create a purchase requisition to initiate a purchase. Purchase requisitions usually include descriptions about what goods or services are needed, the amount needed, and when they are needed.
Get approvals. After a purchase requisition has been created, it is routed for approval. Depending on the nature and the amount of the request, required approvals may include managers, budget holders, finance, and senior management.
Create the purchase order. Once a purchase requisition has been approved, it can be converted into a purchase order. For larger organizations, this is usually done by the purchasing department. Smaller organizations may have someone in the finance group who is responsible for this task or may allow requisitioners to do it themselves.
Place the order. After the purchase order has been created, the order can then be placed with the chosen vendor. Orders may be placed online, by phone, or by sending the purchase order to the vendor.
Common Purchasing Process Delays & Challenges
Here are a few of the more common reasons why your purchasing process may not be working effectively:
Drafting a purchase requisition or purchase order is done manually or by using outdated software
Purchase requisitions sit on an approver’s desk or get lost in their email
Meetings to approve purchase requests or other formalities are required but don’t happen often
Lack of Clarity/Visibility:
Accounting codes are confusing or lengthy for the person filling out the form
Overly complicated approval processes are poorly understood by staff
Ambiguity around the status of a purchase requisition and who needs to approve it next
Data entry errors caused by manually creating purchase requisitions
Errors slip into a purchase order when transferring details from a purchase requisition
People skip parts of the purchasing process or engage in maverick buying, causing headaches later
We’ve put together a list of best practices you can use to speed things up.
Proven Strategies to Improve Your Purchasing Process
Streamline your approval workflows. It’s important to be clear about who needs to approve what. Making an approval matrix can help your staff avoid spending time asking around. The matrix is a table that contains your approval hierarchy and limits. Also consider whether approvals are always necessary. Are there certain thresholds for small purchases that don’t require approval, or at least don’t need as many approvals? Automating your approval workflows is also a great way to avoid wasting time chasing down signatures.
Set clear benchmarks and key performance indicators (KPIs). We recommend taking a look at individual steps in your purchasing process to understand how well they are working. For example, you could analyze how long it takes for purchase requisitions to get approved. If you are using procurement software, this can be done by running reports and digging in to those that are taking the longest. Identify any easy wins and set goals and timelines for change.
Review and optimize your process periodically. Continuously improve by setting some checkpoints, like a quarterly meeting to examine how process improvements are going. You can also figure out if any sneaky inefficiencies have made their way into your process. If you have reporting capabilities, run reports to track your progress over time.
Leverage automation. One of the most comprehensive ways to streamline your purchasing process is to use the power of automation. Automating your purchasing process has numerous benefits, such as:
A one-stop shop where everyone can check on the current status of a purchase
Automatic routing and notifications to approvers and other stakeholders
Online access to your data from anywhere in the world
Fewer human errors caused by manual data entry
Reporting capabilities to quickly see where you are at with spending in real time
Automation keeps everyone organized and aligned, resulting in a more efficient process.
How Spendwise Can Help
We’ve seen our fair share of purchasing process inefficiencies, and they frustrate us too! In fact, founder and CEO Ryan Belcher started Spendwise after working as a controller and searching for a user-friendly solution that would simplify spend management.
If you’re looking to streamline your purchasing process, you’ve come to the right place. Book your free demo here to see how Spendwise can help.