All businesses need to buy goods or services to meet their day-to-day needs. If you don’t have a formal way of buying things and services, you may be spending more than you need to. Here the purchasing process comes.
How you set up your buying process will significantly affect your business, not just in terms of managing costs and expenses but also in terms of how well it runs. Learning and using a few steps and best practices for your buying process can help reduce waste and protect your business from unnecessary risk and cost.
And you also can create workflows that make the most of every dollar spent in terms of efficiency, profits, and value recovered.
What is the purchasing process?
A business’s steps to make a purchase are called the purchasing process. Businesses usually have to go through a formal process when they buy something. Also, when they want to buy something, they may need to research, get input from different departments, negotiate, and send out payments.
It may differ depending on how a company works and what it needs, but the steps in this process usually include the following:
- Reviewing and approving requests for purchases
- Making and sending out buy orders
- Negotiating prices, contracts, or how to pay for things
- Keeping track of spending
In the purchase process, many people are involved, such as procurement, requesters, approvers, vendors/suppliers, and the purchasing and accounts payable departments.
Key steps of the purchasing process
Usually, the purchasing process is a cycle, with each phase requiring information and permissions. Every business will add its special touches. But in general, the buying process follows a well-known pattern of steps. They are given below:
- Understand business needs
Even though this isn’t exactly a step, it’s an excellent place to start if you want to manage how a business spends money, find ways to save money, cut spending that isn’t necessary, and deal with supply chain problems.
For example, if a company requires a large number of goods, such as mobiles, there may be an opportunity to negotiate discounts.
- Create a purchase requisition
The purchasing process begins when someone makes a purchase request and sends it in. You can speed up this process and improve the request process by creating a standard request form. This way, purchase requests will be the same and meet the data management needs of your team.
- Screen the requests
Screening purchase requests ensure that all of the company’s purchases are correct, don’t go over budget, and, most importantly, are actually needed.
- Search for suppliers
Once the request has been screened and approved for sourcing, the purchasing team will look for suppliers or vendors to meet the request. For this, you need to learn more about strategic sourcing and its importance for finding the best suppliers.
- Request for proposals
Once the best products have been sourced, it’s common for the purchasing team to ask for proposals to make sure the products or services are within budget, can be delivered on time, and meet your business’s policies or requirements.
- Negotiate costs and contract terms
Sometimes, all the boxes may be checked except pricing or payment terms. For example, the quality might need improvement, but the supplier might be the only one who can meet the demand by a certain date. In this case, the purchasing manager will try to negotiate a more reasonable purchase total.
- Approval
The purchase request is prepared for final approval if every step of the process, including cost, delivery, and payment terms, complies with the specifications. If it’s turned down, the purchasing team will either inform the requester or try to find another source or vendor.
A department manager’s lack of approval, duplication of the purchase, high cost, and failure to provide enough value for the company are a few reasons why it could be rejected.
- Issue a purchase order
Once all the approvals are in, the purchasing team will make a purchase order based on the details of the approved purchase request and send it to the chosen supplier or vendor to be filled for supplier evaluation.
Best practices for the purchasing process
Use the following best practices to make the purchasing process go smoothly.
- Automate the purchasing process
Whenever you can, try to automate the purchasing process. With purchase automation software, a business can shorten the time it takes to buy something, make it easier for people to do their jobs, reduce mistakes, and reduce paperwork.
Purchase automation software is helpful if your business repeatedly buys a lot from the same suppliers.
- Keep accurate records
Keep accurate records of the whole buying process. It includes records of possible suppliers, negotiations, sales, returns, and any other transactions. You might want to switch to a different supplier or have a problem with the one you already have.
Keeping accurate records of every purchase process step helps reduce problems and extra work in the future.
- Review your needs often
A company’s needs change all the time. Sometimes a business needs something completely new, and sometimes it needs a different version of something it already gets. Make it a regular part of your business to look at what you need now and whether the things you buy meet those needs.
By keeping an eye on your operations regularly, you can find problems and fix them faster. It lets your business grow while you make wise spending decisions.
Conclusion
The purchasing process is primarily transactional and systematic. But you should still use expert strategies to help your company even more. Using the steps and best practices we’ve shared, your Purchasing team will achieve savings and efficiency for years to come.
Now it’s time to create your purchasing process. You will have to analyze your market, business, and customers. If you need any help with the analysis process, QuestionPro is there for you.
QuestionPro CX is a survey software that helps you analyze your business and manage your customer feedback. Contact us right away to talk about how to do it.
