Setting Up a Purchasing Management System
Having a solid purchasing management system is a critical company issue. But how can it be made autonomous, responsive and reliable? Are new-generation corporate payment card technologies the answer?
Buying departments need to keep up with the times, as our internet age requires fast decision-making and agility!
What are the advantages of centralised management?
Centralised management of company purchases and expenditures is a tried and tested traditional accounting method. It is an easy way to control the price of products and services purchased by employees on behalf of an organisation or company.
Each business expense, whether it concerns a supplier or client, must be pre-approved by an administrative department. It can be overseen by a specific buying department that works in tandem with a payment department or system.
The approval procedure can be more or less stringent
A simple procedure may involve one or two decision-makers and only require basic descriptive information.
A more rigorous system may involve numerous parties and require a great deal of information, in particular, the estimated ROI and agreed budget.
In such cases, extremely strict and detailed internal purchasing processes, business expense agreements and expense reports should be in place. The use of purchasing process software is highly recommended to access all relevant information, identify cost and business expense reduction solutions and improve the overall quality of purchases for the company or its customers.
Approval may comprise the drawing up of formal documents. The slightest non-compliance with procedures (excessive price, excessive volume of orders, etc.) could lead to penalties.
In many cases, these centralised internal procedures involve provisional budgets designed to continually monitor fluctuations in professional expenditures according to financial forecasts.
A centralised procedure provides four key benefits
Greater control of employee expenses: it helps avoid impulse or emergency purchases (although there are times when these are necessary). Each order falls within a specific purchasing cycle, depending on the nature of the product or service. Depreciation of the purchase can then be calculated over several years if necessary.
Various employees from independent departments can analyse business expenses to detect anomalies or identify areas for improvement. Defining performance indicators and KPIs is particularly suitable for the management of an organisation's purchasing process.
Supplier negotiations become more rigorous, resulting in savings. Supplier relationships are more exacting as they are less personal.
Budgetary and analytical allocations can better track business expenses (particularly business expense reports) as they are systematically approved by an experienced employee. Allocation errors can be particularly onerous as they distort analyses.
At the same time, a centralised purchasing process has significant disadvantages:
- Employees spend precious time entering and managing information, which may comprise relaying basic information to employees in other departments (maximum price, product type, online purchase procedures).
- Employees can be relieved of this responsibility by requesting professional expenses without the need for them to be involved in reducing expenses or compiling expense reports.
- Essential budgetary issues that require repeated explanations will only add to the burdens of management. Over the years, market circumstances may require rapid adaptation that a centralised procedure may have difficulty managing.
- Conflicts between employees may crop up and become detrimental to the running of the business. Employees often have different prerequisites, for example, accounting staff need accuracy whilst sales departments need fast results.
- It comes as no surprise that many of the most successful American companies prefer to decentralise as much as possible when purchasing products or procuring services. This includes both business expenses and expense reports and results in fewer control measures.
Decentralised management procedure
Decentralised management is a modern approach as it involves employees in business objectives and provides them with the autonomy to achieve them. This leads to an optimisation of the purchasing process and its performance for an entire department or organisation, including its relationship with customers or a supplier. The payment of invoices is not left to chance and all of a company's businesses can contribute to cost and price reduction.
Employees can feel that they are part of a “small company", which results in management benefiting from greater employee initiative and a more resourceful approach overall.
Let's take a particular example:
An employee takes the initiative to reduce their business travel costs by purchasing a discounted 'season ticket' travel card rather than waiting for the purchasing department to recommend it.
Decentralised purchasing management works on the premise that the time spent on verifying each small expense costs more than it saves while slowing down decisions and creating internal conflicts. So, using a decentralised system over the years will result in considerable savings on each budget line and the management of numerous contracts.
The results of decentralised purchasing management can be summed up in a few key points:
- The departments and their employees have their operating budget, defined in advance, simplifying their day-to-day work at all levels
- Employees themselves are motivated to spend less than the allocated budget creating savings for which they will be rewarded
- Managers can provide feedback regarding audits, monitoring, analysis and recommendations regularly
- You can prioritise spending and identify key trends
A procurement policy or strategy is essential for an organisation to function correctly. For example, it is important to easily distinguish Class C purchases, which are a company's non-strategic and non-recurring expenses. Advanced tools or specialised software can help you identify the best solution for reducing these costs.
A system that combines the two also works!
As we have seen, it is hard to combine autonomy, accountability, supplier negotiations and precise cost management.
However, this is a subject that concerns numerous business expenses as well as expense reports.
To achieve a balance, it is important to think carefully and structure the organisation accordingly:
- Some expenses can be centralised as this works best, especially for supplier negotiations, which can be listed and must be respected
- However, branches that are far away from their head office will need a certain degree of autonomy. This should be accorded to them, even though the organisation retains overall control
- Some outgoings do not need to be monitored beforehand but would need to be formally decentralised
- Regular financial scoreboards (monthly, for example) can then be used to manage the company
Employees will feel more at ease once upstream planning, implementing formal delegation and defining the level of required information for each profession are in place.
Formalised upstreaming, informing employees across the board and enforcing procedures are necessary ingredients for effective and precise decentralisation to be implemented over several years.
Corporate payment card technologies improve accountability
New technologies and next-generation corporate payment cards make it possible to combine flexibility and precision regarding purchases.
Each employee has a secure real-time payment card that they can use autonomously.
These payment cards can be tailored to limit costs, the timing of purchases and even the nature of the expenses, all defined and managed in real-time on a screen.
A simple click is enough to activate or deactivate a card
Expenses that do not fall within the authorised criteria defined by the company's purchasing policy are immediately refused. Downstream-wise, administrative and accounting processes are fully automated. As soon as a payment is made, the employee takes a photo of the proof of purchase and fills in the required information.
The expense category is chosen from a default selection. Amounts and VAT are instantly displayed. Managers and accountants will then benefit from a complete and real-time view of expenses, including supporting documents. They can easily check essential information (analytic code, business code, etc.).
This setup has numerous advantages:
- Employees have a certain amount of control, with defined limits known to all
- Immediate and complete expenditure information
- Process automation, time-saving and the added plus of a simple system
The new payment technologies used with corporate cards represent a tangible improvement in financial management to make it more responsive and flexible.
Key points to remember:
Centralised procurement cycle management allows negotiation with a supplier. This is an important advantage, as information circuits are closely monitored.
Decentralized management of business expenses and expense reports saves time, improves responsiveness, and develops employee initiative.
New payment technologies make it possible to combine both forms of management by providing controlled flexibility and allowing stringent controls.
Next-generation corporate payment cards are increasingly popular thanks to their real-time operating functions and automated management.
With Mooncard corporate cards, you don't need to have a PhD in supply chain functions to reduce costs. You remain in control of your business expenses thanks to real-time management software. Management can monitor Mooncard payment cards directly on a dedicated interface and can deal with various criteria including:
- The type of expenditure made
- Deciding the days when payments are possible
- The daily expenditure limit for each corporate card
Receipt management for expense reports is also online. Once an expense is incurred, you take a photo of the proof of purchase and upload it via a link or send it to an email address via your account dashboard. Mooncard's solutions will save you considerable time concerning expense report management: no need to advance money to employees, no more spreadsheets to complete and, above all, no more receipt chasing!