How does the purchasing process work in your business?
In general, purchases occur very similarly in most small, medium or large businesses. This is because the procedure is quite similar, and what changes is mainly the size and volume of orders, depending on the performance of each company. Check below the steps of the purchasing cycle that are often repeated out there, and how each should work – in theory.
The purchasing process in theory
1. Purchase requisition analysis
This is the first moment of the cycle. Here, the purchasing department receives a requisition, a document that expresses the need that another department or employee has for a product. Upon receiving it, the purchasing manager must review the actual need for that purchase, as well as the specifications, quantities and delivery date required. With this information in hand, the purchasing department moves on to the next step.
2. Selection of suppliers
At this stage, an extensive search is conducted to raise possible suppliers for the required purchase. Here, the purchasing department must check all the suppliers already approved, that is, that already have active service contracts. In case of a first purchase, it is necessary to search for new suppliers and to check prices and conditions of payment, delivery and support. It is the role of the purchasing department to find the supplier that offers the best conditions, and that does not necessarily mean the lowest price. After the choice of supplier, the purchase order is issued.
3. Issue of the purchase order
The purchase order is issued, sent to the supplier and to the accounting department, in addition to the ordering department and also the one that will receive the shipment. From now on, it is necessary that the purchasing department accompany the process, ensuring that delivery is made within the given time. If any problems occur, by following the process closely the purchasing department can get around the situation more easily and quickly.
4. Delivery of the order
When receiving the goods, it is necessary to inspect and verify that the requested specifications are in order, as well as the right quantity and the conditions of delivery – if there are no defects or damages caused by transport. If everything is in order, the good is forwarded to the requesting department or to the company stock, and the purchase order and a receipt report should be forwarded for billing to the accounting department.
Purchasing process in practice
By following these steps, everything should work in order, right?
Wrong. Remember that at the beginning we said that these steps are the way things should work? Yeah. Each of these steps has its risks, and however closely the procedures are followed, the entire operation can be compromised by a slight oversight or slip. And, in the business’ daily flow, problems in the process are more common than we would like, especially in large companies dealing with many requisitions and deliveries simultaneously.
There are simpler and safer ways to perform each of these steps, to ensure that they occur correctly, and to make your purchasing process really effective. Check them out:
1. Purchase requisition analysis
By establishing protocols and properly training employees, the chances of errors in completing and submitting a purchase requisition are noticeably reduced. Requisition data are critical to the supplier search procedure and purchase decision, and mis-filed or erroneous information can undermine the entire process. It is interesting to invest in ways to automate this step of the purchasing cycle, reducing paperwork and making the activity of submitting a request more optimized and simplified.
2. Selection of suppliers and Issue of purchase order
Here’s a golden hint! A purchasing department in a large company handles hundreds of purchase requisitions per week, which ask for the most different types of goods, which will come from several different suppliers. The person responsible for the requisitions should analyze each of them individually, categorize them, search for specific suppliers for each of the reported needs, search for the best prices in the national and even international market… It is already tiring to read, isn’t it? That’s where the danger is!
To facilitate this part of the process, there are companies that specialize in the purchase of materials for maintenance and replacement parts, that go after the best suppliers around the world and find the best prices and conditions to meet your needs. So you can focus multiple orders in one place, reducing the number of different purchase orders, making the process more organized.
Closing partnerships with this type of company is very valuable to your business, since it reduces the workload of the purchasing department, streamlines the routines and allows the process to be conducted in a more coordinated manner. It’s a typical example of a win-win situation!
And by optimizing routines, purchasing managers are given more time to deal with other procedures, such as better organization of the purchasing documentation, which has a direct impact on the control of each supplier’s deliveries and deadlines.
3. Delivery of the product
With less paperwork to handle, it’s easier for the purchasing manager to track supplier deadlines and deliveries, paying more attention to this step of the process. As a result, the risk of problems going unnoticed decreases, closing the purchasing cycle with a golden key!
It’s also important to say that most of those companies we cited in the last topic manage to also take care of the transportation, making everything easier for you and your business!
How to purchase effectively
In this article we showed you how the purchase cycle should work in every company, the problems usually found in each step and how one can ensure that the process runs without many disturbance. Here, you’ve learnt that the primary concern must be to easy the parts than can be eased, by optimizing routines and getting rid of unnecessary paperwork.
Companies that participate in the purchasing process with you, searching for new suppliers worldwide and ensuring the best conditions for your business’ needs are the best way to turn the purchasing cycle into a well handled and guided process. By doing that, you leave the purchasing department free, to worry about other steps that are as essential to your company’s success as the purchases are.
How do you manage the purchases at your company? Do you think your process runs effectively? Tell us in the comments below!
Assembling a purchase order is a common part of the routine of a company’s purchasing department. Within the company, the flow of materials is a fundamental part of the business’ economy and if carried out in a non-strategic way it can result in high risks and losses.
Companies that manage purchases inefficiently tend to lose market competitiveness in the market, which could lead to bankruptcy. With this in mind, acquiring quality inputs means, in short, maintaining a high standard of quality in the services provided. And as we know, high quality service translates into staying in the market!
A good purchase order process is essential to ensure this. In addition to organizing the demands, making the purchasing process simplified and optimizing the time, a good purchase order process is critical to maintaining a healthy and lasting relationship with suppliers.
The purchase order process follows simple 8 steps:
1- Purchase Order Analysis
In general, purchase orders come from a requesting department or employee. With a certain frequency, a single department or employee does not have a clear idea of what is in the company’s best interests, such as prices and payment terms, and tend to take into account only the need they have at a given moment.
Because of this, the overwhelming majority of purchase orders need to be reviewed, and adjusted to the reality of each company. This means that there are some internal communication problems in the company, and this can be solved quite simply!
Training employees to fill out a purchase order is critical. Each detail of the document should be presented, and their respective need explained. This way, the employees will begin to better understand what they are filling out, and will do so with greater zeal.
It is common that purchase orders contain quantities, minimum and maximum deadlines for delivery, conditions of delivery (assembly of equipment, the possibility to assemble at delivery, etc.) and the costs. Feel free to include any information you find useful!
Remember: orders need to be strategically thought out to make it easier to find suppliers and close the deal!
2- Supplier selection
After identifying the need for purchases, it’s time to select suppliers. For this, a search is made to choose the best options for each demand, and price quotes are requested for evaluation.
In order to choose the most suited suppliers, factors such as company reputation, price, punctuality and compliance with deadlines and conditions, company experience in the area, negotiation criteria, and even the values that govern the company’s activity should be considered.
This task needs to be done with caution so that the choice of vendors is assertive!
Once chosen, suppliers must send quotes, containing the prices and conditions they can offer for each need. Remember to ask for full quotes, with all possible information! This is important so that you can cross check them with what you were informed in the purchase order, and decide which supplier will serve you the best.
Attention: Try to keep this process as light and fast as possible, so you do not cause delays in the next steps!
3- Choice of supplier and order shipment
After receiving the quotes, it’s time to weigh the pros and cons of each supplier. In addition to analyzing the prices and conditions that each company has proposed, you can request samples or demonstrations of the products, to help you in the final choice.
With the supplier chosen, the purchase order is submitted, and from here the process will be out of your hands, momentarily!
Here’s a note: Always set an average time to submit your order to suppliers to create a standard within your business. By always following this deadline, you develop one more credibility factor with your vendor concerning meeting deadlines!
4- Product delivery
When you receive a delivery, verify that all conditions of the purchase order have been met. Check quantities, formats and other data in the invoice, and watch out for incidents or delays not reported or justified.
Once checked, the merchandise can be sent to the requesting department, which will review all the information. The person responsible for the order must inform if everything is in agreement, and release the request for the last step!
5- Supplier Billing and Payment
After all necessary inspections, the department responsible for payment must receive the receipt and the acceptance report from the requesting area. With this information in hand, the purchase will be approved and paid for!
If everything goes smoothly, without any unforeseen circumstances or problems, this will be the basis for the next deals.
Now, some final tips:
6- Use a management software
You can make the process easier and more organized with the help of a management software. There are many options available, that allow you to insert every important information and do quick follow ups on every purchase order.
7- Keep a good control of your inventory
The best way to prevent purchasing items unnecessarily is to keep good control of inventory. You can also use a management software here, to make things simpler to keep up with, and much more organized. Learn here how to control closely your stock.
8- Stay loyal to the sales predictions
Every company makes predictions concerning the sales expectations for the next year, or semester. What some people seem to forget is that the sales predictions are fundamental to understand how the financial situation will be for the period in question.
When analyzing purchase orders, always check if the sales predictions justify the acquisition, and if it is possible to pay for it without jeopardizing the company’s budget.
Always adjust your purchase predictions to the sales predictions! Even though some of the purchases come from unplanned needs, the majority of them are predictive repairs and replacements that you can map quite easily.
We hope that you’ve learned why it is so important to assemble a good purchase order, and how to do it without complication! So, does your company manage the purchase orders in a different manner? How? Do you have any tips or other insights not mentioned here? Leave them below in the comments!
Soluparts offers the Annual Purchase Contract. With it, the client guarantees the prices quoted for one year – from the signature of the document – and only needs to send the purchase order of the desired part when it was necessary, increasing productivity, reducing costs and optimizing the time of the professional in the area.
Talk to our specialists and learn how to simplify contract management in purchasing: CHECK OUT THE ANNUAL CONTRACT
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