Best Approaches in Today’s Purchasing Process

Purchasing is crucial to the health of your business. As part of the overall procurement process, strategic sourcing and a sound purchasing operation can help businesses reduce costs and increase profits.  

As organizations grow, purchasing processes naturally become more complex. On the positive side, this indicates that the business is really thriving since growth comes hand-in-hand with a greater need to consume more goods and services.

On the less positive side, when complexities stemming from regular purchases made across the company aren’t addressed, employees experience frustration, a lack of compliance, long and inefficient processes, more discrepancies, and off-budget spending.

The pandemic took the entire world by surprise. 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, requisitions become easier and faster for buyers. At the same time, key approving stakeholders gain the control, visibility, and involvement needed to ensure purchasing happens in a way that promotes growth.

What Modernized Purchasing Looks Like

Steps of a Modern Procurement Process

When it comes to procurement activities, no matter what industry or company sie, there are some standard procurement practices in every workflow. Common steps that lead up to purchasing decisions include:

1. Recognizing a need
2. Researching potential 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 it easier and faster for those needing to buy, while granting more control and involvement for those needing to approve.

This procurement strategy results in businesses gaining accountability for their spending activities, compliance, and early involvement from the procurement and finance teams. It leads to cost savings, streamlines purchase order creation, minimizes manual tasks, and eliminates broken communication channels. 

Traditional vs. Modern Purchasing

Traditional purchasing processes are characterized by inefficient collaboration between relevant stakeholders on siloed systems like email, Slack messages, and spreadsheets. These processes are nearly impossible to track, and access to information about any specific purchase request is often limited. However, stakeholders need it 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. This enables stakeholders to purchase wisely, spend within budget, and meet procurement needs.

Key Stakeholders in the Procurement Process

Before we get into the nitty-gritty of best practices of a modernized purchasing process, let’s ensure we know who the stakeholders are: 

• 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 initiate the purchase requisition (request for proposal (RFP) or request for quote (RFQ)) in the procurement process flow.
• Managerial approvers. These are the people who approve the purchase of a product or a service, usually from a budget and business needs 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 the procurement team (ensuring that the right supplier is chosen and that a proper sourcing process took place); 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), or FP&A (making sure the right budget account is utilized).
• Finance. Either within or outside of the procurement department, the finance team needs to identify the purchase invoice and match it against a PO. The PO matching is used to achieve three-way matching, keep records for bookkeeping and auditing, and ensure that a central database is maintained.
• Vendors. Vendors and new suppliers are the ones who supply the goods and services and fulfill the purchase order form. It’s in their best interest to develop mutually beneficial working relationships, where business processes (including the e-procurement and payment process) are fast, and payment comes on time.

Why Automation is Key

We mentioned earlier that automation is a central component of modern procurement management and the 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, so will company needs and KPIs. As more stakeholders need to buy more products and services from vendors, embracing automation software is paramount for ensuring proper spend management. 

Automated procure-to-pay systems are worth their weight in gold. Advantages of a procurement platform include:

• Eliminating hundreds of emails and spreadsheets
• Putting an end to data silos and getting your teams to collaborate more efficiently
• Creating a faster approval process by shortening approval cycles and end-to-end purchasing processes
• Eliminating time-consuming human errors
• Improving the user experience of all stakeholders

Best Practices for Modern Purchasing

As you move toward modernized purchasing processes, consider that one of the central goals of this transition is getting spend under control. Here are ten best practices that will help ensure your new purchasing process is successful: 

1. Focus on purchases where you can create value. Pay special attention to high-volume purchases in which early involvement, better sourcing of raw materials, and contract negotiations can generate significant savings. Focusing on areas like IT, software, and services that are characterized by large POs with favorable payment terms.
2. Provide requesters with visibility into the process. One of the main pain points of outdated purchasing processes is that requesters need to chase down information and status updates from various people across the company. This results in frustration for stakeholders, partnerships, providers, and vendors involved.
3. 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. They must have visibility into the purchasing lifecycle.
4. 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.
5. Adopt a system that removes the need for emails and spreadsheets. The ideal procurement software solution should provide a centralized platform that accommodates all communication and information for every purchase request.
6. Maintain a centralized, accessible vendor 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—before they request to onboard a new vendor. This has a serious impact on increasing efficiency and cutting times throughout the entire process.
7. Manage Purchase Orders on your ERP. As discussed earlier, managing purchase orders on the ERP is the ideal approach. This should work hand-in-hand with any automated purchasing system you adopt.
8. Build and maintain good relationships with your vendors. Modernizing your purchasing processes will make a world of difference in your supplier relationship management, giving suppliers added visibility and shortened processing times.
9. Always look to automate more parts of the process. Examine any areas that are still being managed manually or on paper. Can the purchasing team create initiatives to shorten these timelines?
10. Accommodate working from home. In light of the global pandemic, some of your key stakeholders will likely work from home. Ensure that these stakeholders have access to the tools they need to keep purchasing processes moving forward quickly and in accordance 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. 

Procurement processes should be amended, and modern purchasing tools must be utilized to keep up with changing needs and ensure that business spending is under control.

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 focused on sustained growth.

FAQs

Tipalti is a modern spend management tool that helps companies take control of business spend by simplifying purchase requests, streamlining approvals, and providing data-driven insights. 

Ready to see what modern purchasing looks like? Try Tipalti Procurement today.