📣 Approve.com is now part of Tipalti

Feb 14, 2021

How the Purchasing Procurement Process Works: What You Need to Know

by Arielle Kushner

purchasing procurement process

Buying goods and services is usually an easy process for an individual. But for a business—purchasing those same goods and services can be a lot more complicated. 

Finance departments have to deal with large quantities of cash and supplies. They have to manage multiple vendors and make serious budgetary decisions every day. And these decisions can directly impact a company’s bottom line.

Completing all of these essential tasks with paper and spreadsheets is nothing short of an organizational nightmare, which is why procurement automation and digitization are a modern must-have when it comes to the purchasing procurement process. 

That’s why companies today are hyper-focused on finance automation as a tool to boost productivity and unlock new levels of cost-savings across the organization.

But before we do a deep dive into procurement automation—let’s first talk about the procurement and purchasing processes of a typical business. How do they differ? And how can automation streamline them?

What is the procurement process?

Every business’s procurement process is unique and depends on context and needs. Procurement in general refers to the strategic process of sourcing the materials and services a business needs to create its own products and handle internal operations. Steps include:

  • Need recognition. The department heads get together and decide what needs to be purchased for the company. Can the need be fulfilled through a current supplier, or will a new vendor be necessary? Does the budget allow it?
  • Researching vendors. Compare different suppliers and their product offerings. Which one works best for the current need?
  • Generating RFQs. RFQs are “requests for quotations.” Once a budget is approved, the procurement team gets in contact with potential suppliers to compare bids.
  • Negotiating contracts. Is it possible to negotiate cost or delivery timeframes? Negotiating contracts works well for building relationships with your vendors.
  • Analyzing KPIs. How successful was your procurement process? Part of the job is analyzing key performance indicators like cost savings, return on investment, and profit margin. Excellent bookkeeping facilitates this step, especially if all related documents are stored in the same location and easily accessible.

There are a few different types of procurement:

  • Direct procurement refers to obtaining raw materials and equipment intended to manufacture the products and services you sell. This type generates profits directly.
  • Indirect procurement involves the goods you use for internal use, such as management or supporting employees. The products you receive here impact your daily operations.
  • Services procurement includes things like software subscription fees. It includes what you need to keep your employees working together and processes flowing.

You can think of procurement as finding the most efficient way to obtain the tools your business needs while building positive relationships with suppliers. 

All stakeholders involved must work together to carry out each step of the process, which becomes more complicated the more important or expensive the goods are. 

Adding automation to the mix helps lessen the load of paperwork and data analysis, and also facilitates communication among the stakeholders.

What is the purchasing process?

A somewhat related but vitally different process is the purchasing phase. It focuses on the transactional process of making purchase orders and completing the payment. Many professionals consider it a sub-process of procurement, as it includes the short-term tasks of deciding on costs and completing transactions. Steps involved are:

  • Receiving purchase requisitions. Internal staff members issue purchase requests to the procurement team for help fulfilling a need. If the need is verified and the budget is approved, the requisition becomes a purchase order.
  • Creating purchase orders and distributing them to the proper vendors. This step also includes processing and evaluating RFQs and sending the payments.
  • Receiving the products themselves and performing quality assurance. Warehouse management may be part of the process as well.

Main steps to ensure a functioning purchasing procurement process

Automation is the most important improvement you can make to purchasing procurement. Because most businesses deal with a large number of stakeholders for every purchase, the process can become complicated and a hassle to work with. A large stack of paperwork, and even back and forth email communication, introduces the almost certain possibility of human error and delays.

You can be more efficient and more confident with automated procurement software that can help with supplier management. Automation streamlines approvals, generates instant reports, and eliminates the need for repetitive data entry. You will enjoy more visibility into your processes and receive more data and actionable insights to empower future decision-making.

Your team will especially appreciate the extra time they will have to focus on more important tasks like building new procurement strategies and communicating with business partners and suppliers. Some of the tasks that automation can assist with are:

  • Discovering when to order additional supplies
  • Creation of purchase orders
  • Sending confirmation emails
  • Integrating procurement with other software like Enterprise Resource Planning platforms
  • Getting notifications through SMS or email regarding procurement statuses

Automation shortens the procurement and purchasing cycles overall by digitizing most of the process. As a result, you can still keep your business’s current procurement process when you make the switch.

Making the switch is easier than ever now thanks to third-party platforms like Approve.com. Whether you’re looking for a few tweaks to your current procurement process or need a complete overhaul, you’ll be able to eliminate friction with a simple and customizable solution. Get started on purchasing procurement automation today and see the benefits as soon as possible.

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Check out Approve.com and request a free demo today!

Related Posts

group 204

See what modern
purchasing looks like.