Company purchasing process: What does this entail?
The various purchases required for a company to run smoothly may represent up to 60% of its turnover. Implementation of an in-house purchasing process is highly recommended to optimise every transaction, from initial negotiations to the delivery of an order. But what exactly does this mean? What is the purpose of a purchasing process? Here's Mooncard's comprehensive guide.
1. Company purchasing process: Definition
A "purchasing process" refers to all the actions or operations necessary for the completion of a procurement decision within companies and the acquisition of a product or service related to their activities. It is somewhat comparable to the "customer journey" experience.
Creating an efficient purchasing process is usually central to a company's purchasing strategy. It includes all the essential steps for company purchases, including the reduction of its operating costs:
- Needs assessment and drawing up particular specifications
- Selecting the most suitable supplier(s), calls for tender or direct requests (asking for quotes)
- Signature of the commercial contract
- Validation of the expenditure flow within the company
- Delivery of the goods purchased
- Receipt and payment of invoices
- On-going training of employees responsible for purchasing
The necessary information and the risks related to the purchasing criteria within a company should adhere to the "3 P" rule. The purchasing process is a combination of:
- Procedure: this involves analysing and determining a list of internal regulations to begin the search for and the purchase of a product. The more expensive or complex the purchase, the more precise the checklist
- People: which employees can validate a specification, set the desired price or source a vendor? Who can hire a service provider and sign a contract? Dividing responsibilities is essential for the sound management of company expenses
- Paperwork: what are the formalities for the receipt and preparation of invoices? What are the important criteria to be included in a supplier contract? A purchasing process inevitably involves the production of written documents
Purchasing process: what checks should need to be in place?
The validation circuit can, of course, be tailored according to the strategic importance of the purchase and its amount. For example, Class C purchases that are one-offs and not essential to the smooth running of the business may be subject to simplified procedures in your purchase plan.
2. Why put an in-house company purchasing process in place?
Many companies fail to put in place a formalised and internally validated process. However, it is essential for successful purchase management within an organisation. A viable purchasing process makes it possible to optimise and reduce fixed costs and compensate for those that cannot be reduced (property costs, taxes, legal fees, company creation costs, etc.).
"Manual" purchases made without a specific framework or strategy can lead to waste – especially where there's a dilution of responsibility during the purchasing process. A lack of effective and centralised negotiation with suppliers can, in particular, lead to an unnecessary increase in a company's purchase costs.
Inadequate assessment can also negatively affect the smooth running of businesses. Ineffective management of the purchasing process can, for example, result in:
- Delivery delays
- Delivery with items missing
- Late payment, resulting in new invoices that include late payment fees
- Low-quality products or services
- Redundant purchases across head offices and departments
Creating a modern procurement process provides decision-makers with all the information they need to develop a business strategy. Specialist purchasing software can assist the purchasing process alongside performance indicators and KPIs.
The purchasing process and business expenses
The quality and performance of a purchasing process can also have a positive impact on the level of business expenses incurred by your employees. For example, choosing the right service providers and suppliers and ensuring controlled contract negotiation: travel and transport, catering, accommodation and so on. Effective sourcing means the reimbursement of employees' expenses and purchases which can result in savings for your company.
3. What are the main steps to creating an in-house company purchasing process?
Each procurement process should follow the same logical steps, from the buyer instigating the need for a particular purchase through to the execution of the contract. Below is a step-by-step summary of actions to implement in a strategic purchase:
Defining the specifications
An initial draft of the specifications is necessary to establish the exact nature of the company's needs and how these will be sourced. Ideally, the prescriber will draw up this document, but it can be another authorised employee.
Inadequate analysis of the required criteria invariably results in irrelevant or low-quality products and services – resulting in financial loss.
Sourcing suppliers and calls for tender
Supplier sourcing entails searching for the most suitable business partners to meet the criteria laid out in the specifications. Suppliers may come from an existing panel of company contacts or be new suppliers.
Once a selection is drawn up, it is then time to send the suppliers a call for tender, usually by email, post or via an online quote request.
This supplier tender process is essential to:
- Obtain a better overview of the current market conditions of the products or services concerned
- Make the negotiation process easier and spend less on the cost of the service
- Ensure an effective purchase approach that complies with the specifications
Analysing tenders and pre-contractual negotiations
The analysis of supplier tenders must, of course, respect the criteria laid out in the initial purchase requirement brief. Beyond that, other information to be taken into account is pretty much standard stuff:
- Quality of the goods or services
- The costs involved and value for money
- Deadlines related to the execution of the service
- Meeting your needs in terms of customer satisfaction
The vendor's reputation and history with the company are also worth considering when making a decision.
It is also at this stage that negotiations take place. Contact the most competitive suppliers individually and don't hesitate to use the competition to reduce the proposed cost. Suppliers who want to win a contract will not hesitate to go that extra mile.
Negotiating is time-consuming, but essential for optimising the purchasing process.
Validating the best offer and drafting the contract
For important and strategic transactions, the company buyer may need validation from their superiors. It is essential to follow this process step by step before officially notifying the selected supplier of your decision.
The actual drafting of the contract can then begin. Be sure to mention the following:
- The supplier's General Terms and Conditions of Sale
- The specific conditions related to the execution of the contract – and in particular relevant elements in the purchase specifications
- Establishment of order delivery dates and other deadlines, not forgetting eventual penalties in case of delays
Evaluating and monitoring the service in question
If the contract concerns a service or services extended over time (for example, building maintenance of a property portfolio), make sure you have checks in place.
A monthly or quarterly audit or inspection may be required to verify that the contract is respected. Regular checks ensure breaches are quickly corrected if the planned services are not as they should be. Evaluation is therefore an integral part of the overall purchasing process.
Mooncard's payment and expense evaluation solutions give you unparalleled control over your budget and what you spend. Track all expenses incurred by your employees with the company's suppliers or as part of their business expenses through payment cards that use our dedicated software.
You can discover all the Mooncard benefits by booking a demo now.