What is a good purchasing process?
As a purchaser, you may be used to managing the stock with a min/max strategy and based on ‘gut feel’. You work with Excel as the most important tool to store data about your stock and sales figures. However, with this approach it is unlikely that you will have all the information and metrics available to make accurate and efficient purchasing decisions. A good purchasing process collects all relevant data in the company, takes into account the constraints of the supply chain and is aligned with the strategic goals of your business. Below we discuss the steps and layers within the process and we name three criteria of a ‘good’ process.
6 steps of the purchasing process
1. Specifying the purchasing requirement
2. Selecting a supplier
3. Contracting a supplier
4. Placing an order
5. Monitoring the correct delivery
6. Evaluating the order and delivery
3 layers within the purchasing process
The tasks can be divided into three layers:
- Strategic – this role monitors the purchasing strategy, sets up the process and oversees the tactical and operational levels.
- Tactical – this role covers the first three steps of the process: identifying market demand and dealing with suppliers.
- Operational – this role performs the last three steps of the process: effectively ordering products, checking shipments and after-sales service.
3 criteria of a good purchasing process
The definition of a ‘good’ purchasing process differs per company. The type of products you sell, the scale you sell products and how complex – and long – your supply chain is are things that influence the process. Below we list three criteria that play an important role in almost every purchasing method.
- Robust – the purchasing plan is supported by a clearly documented purchasing process that is communicated to all teams. Maintain the process through purchasing controls and prevent each department from creating its own, potentially conflicting, orders.
- Flexible – ensure an agile purchasing process that allows you to withstand changes in the supply chain, such as production and transport problems and/or sanctions between countries.
- Proactive – encourage your purchasers to collaborate with your sales and marketing teams and put purchasing at the centre of your organisation. Keep tactical and operational execution separate, so your approach is more proactive than reactive and not falling into the trap of interpreting data at too much of a micro level (‘getting lost in the weeds’). You need human input to give meaning to the data.
What does a good purchasing process yield??
By using automation, such as inventory optimisation software, you can save time on the operational purchasing side. Let your purchasers focus on the things where human action makes the difference – negotiating with your suppliers, key administration tasks and analysing essential stock KPIs. A good purchasing process allows you to purchase more efficiently. This pays off in the form of a balanced stock, lower purchasing costs and – ultimately – increasing revenue.
5 tips to optimise your purchasing process
With an optimised purchasing process you can say goodbye to purchasing by ‘gut feel’, you have time to select suppliers and accurately plan your order schedule. Find below five tips to optimise your process.
Master your historic data
Analyse the trends within your stock. Rank the products using an ABC analysis. By gaining insight into your stock, you can focus on the popular products and prevent obsolete stock. This keeps inventory holding costs low.
Use historical data and the input of your salespeople and/or marketing team to make a forecast. Data-driven forecasting enables you to make better purchasing decisions and have detailed conversations with your suppliers. Internally, as a purchaser, it enables you to place the purchasing process centrally within the organisation.
Work with various suppliers
Be flexible and make sure you are not dependent on one supplier. In this way, you can absorb market and/or supply chain changes. Select reliable suppliers and maintain a good relationship with them. Analyse the performance of your suppliers and negotiate orders, delivery times and prices when necessary.
Track your stock KPIs
Key Performance Indicators make data concrete and measurable. Stock KPIs give you insight into the performance of your stock. By frequently ‘tracking’ these indicators, you keep the tactical part of the purchasing process in balance.
Automate your purchases
Add scalability to your purchasing process through automation. Let purchasers focus on the tactical side of the process while purchasing optimisation software updates your purchasing schedule and order advice with real-time data.
Optimising the purchasing process through automation
Give purchasing a central position within your company and make multiple departments part of the process. Make sure the process is flexible and that your purchasing team are proactive. By having purchasing optimisation software – such as that offered by Optiply – partially perform the operational purchasing tasks, purchasers can focus on the strategic and tactical side of the process. Smart software brings everything together in one system and ensures scalability. By optimising the purchasing process, you save time, reduce inventory holding costs and balance your company stock.