THE PURCHASING PROCESS

THE PURCHASING PROCESS

The Purchasing Process is an interacting structure of people, equipment, methods and controls that is designed to accomplish the following primary functions. Besides, to handle the recurring work routines of the purchasing department and the receiving department. Support the decision needs of those who manage the purchasing and receiving departments.     

The high degree of change in the business environment has created a new challenge for industrial and service enterprises. That challenge is to determine an organizational structure that minimizes administrative costs while maximizing service to its customers.

There are many reasons why a formal process must be followed including the prevention of fraud, cost saving, compliance with regulations, management of risk and control. To understand or to explain why a formal process should be followed it can be useful to think in terms of the 5 As.

·         Approved Suppliers

·         Approval Process and Segregation of Responsibilities

·         Audit Trail

·         Accounting
·         Automation

There is sometimes a significant amount of effort required to ensure that a supplier is appropriate for a particular category of goods or services. They should be able to supply goods and services that meet requirements of quality and fit for purpose. They should be reliable financially sound and not present a commercial or reputation risk and their prices should be competitive. It makes no sense to perform the relevant research on a supplier each time goods or services are required. By developing preferred suppliers, longer term sustainable relationships can be developed that deliver a better value for money.

The another ways to be a good purchasing management:

1.  Determine how & where spending has occurred by vendor or vendor type to gain a better understanding where savings opportunities exist. Use the information to aggregate spend across the organization, leveraging volume for improved pricing & increased efficiency.

2. Know your vendors & optimize supplier relationships. Develop vendor expectations &selection criteria based on historical vendor performance metrics. Develop a vendor scorecard with key metrics such as lowest cost paid, on-time deliveries & lead time required, and monitor the scorecard regularly.

3.   Establish a preferred vendor list based on historical performance and on-time deliveries.

4.  Gain spends management & budget control. Research historical total cost of ownership, not just costs.

5. Establish control & compliance with policies. Stop unauthorized purchases through systematic controls.

6.  Improve risk management. Mitigate risk by on-order and overdue shipment monitoring.

7.  Streamline purchasing processes by establishing systematic processes for requisitions, requests for quotes, purchase orders, and receiving.

8.  Lower inventory investment by conducting trend analysis to better predict future buying and production needs & overstock analysis to reduce existing, non-performing inventory.

9.  Measure purchasing performance. Consistently review statistics and use decision support tools to constantly improve purchasing and procurement activities.

10. Leverage technology. Quality purchasing, inventory & business management      software will manage the details for these activities, enabling you to use the information to increase efficiency and grow your business.