Purchasing software (also known as RFQ software) plays a huge role in streamlining complex purchasing processes, especially now that businesses are selling in more places and to more customers than ever before.
Part of that process is the procurement of raw materials, professional services, and other goods needed to keep your manufacturing plants stocked up on necessary raw materials and your organization running day-to-day. The former use case is known as direct procurement, while the latter, which involves the purchasing of any products or services used to maintain and develop internal operations, is called indirect procurement.
Because indirect purchasing is much more difficult to manage effectively, purchasing approval software largely deals with improving corporate spending habits in this sector, although most solutions do offer support for both. Either way, procurement managers and finance teams should be open to using purchasing software, and to learning how so many businesses are taking advantage of its functionalities to control spending, boost revenue, and manage purchasing and approval processes more seamlessly.
What is Purchasing Software?
From strategic sourcing to supplier management, accounts payable, and spending analytics, there’s a lot of consideration going into the purchasing processes of organizations every day. Because we’re dealing with large order volumes and sometimes even recurring payments, purchasing is hardly as simple for companies as swiping your card at the grocery store.
The demand for solutions to facilitate procurement management has led to the rise of purchasing software, modern digital platforms typically sold as a service for automating several parts of the process and giving more visibility to the financial department.
Purchasing software, as its name suggests, facilitates managing the purchasing stage of the larger procurement process. Any time you’re looking to buy raw materials or business services from suppliers, you’re engaging with the purchasing phase. Software, in this instance, can help with:
- Finding suitable and trustworthy suppliers
- Comparing the offerings
- Creating purchase orders
- Managing invoices
- Balancing budgets
- Recording financial activity
Purchase requests can be easily sent by employees to the right stakeholders and managers for proper approval, and the result is better profits on each PO. Purchasing software often allows the financial department to automate most of the purchasing phase from end to end. Automation is a key ingredient because it reduces the amount of human input, cutting down on wasted employee time and decreasing the chance of human error or potential fraud from taking place. Software is also incredibly efficient at recording and tracking specific metrics, making it easier to generate actionable insights from past purchasing activity.
It’s worth noting the subtle but important distinction between purchasing and procurement software. The terms are sometimes used interchangeably, but purchasing is only a component of the full procurement cycle. Purchasing software helps you with organizing orders and filling out invoices on time, while the rest of the process might involve monitoring your inventory and handling your list of suppliers. Keep in mind that there are digital services available that cover both aspects for a fully integrated experience.
Whether you’re a large enterprise or a small business, you can boost purchasing and procurement in general through automated software. This technology drives the growth of your bottom line through controlled spending and properly managed financial activity. And every individual involved in procurement, from accountants to finance executives to approvers, benefits from automation as it allows them to focus their efforts less on menial data entry and paperwork and more on more interesting parts of running the company.
We all know why the digital transformation is well sought-after, but what exactly can software do for your purchasing phase?
- Purchase orders: Automated PO creation not only speeds up the PO process significantly, but it helps AP with 2 and 3 way matching.
- Improved visibility: Software allows you to track every purchase from the purchase request (PR), to the PO and final payment. It allows stakeholders to easily see where any bottlenecks may be occurring throughout the process. Spend data is collected in a central location to make reporting easier, and the information you gain allows you to make further improvements and better business decisions later.
- Identifying high costs: Software helps identify problematic areas of high expenditure and maverick spend, and points at where you should take corrective action to boost the efficiency of your purchasing process.
- Finding better deals: The reporting features track the prices paid for all your goods. If there’s an opportunity to negotiate a better price with a vendor or choose a better offering elsewhere next time, you’ll be able to see it early on.
- Streamlined cycles: Software allows requesters to get purchases seen and approved faster, and purchases can be fulfilled faster as well.
- Supplier management: Purchasing software sometimes even lets you track vendor metrics to see which ones are meeting your needs and which ones deserve to be dropped. Over time, you’ll have a more robust set of suppliers to choose from.
- Phone notifications: The tech that lets you know when a friend has messaged you on a social network is the same one that can help accelerate PO approval processes. Notifications ensure that stakeholders respond to emails and requests promptly.
Purchasing software overall makes your business more agile when it comes to procurement management. You have more control over your spending, more ways to increase operational efficiency, and more sources of data and analytics for more strategic business decisions in the future.
How it Fits in With the Rest of Your Business
The advantages of purchasing software aren’t just for the finance team or upper management. The benefits extend into other departments as well.
With direct procurement, supply chains and manufacturing teams need to have consistent shipments of raw materials to avoid delays in the production line. With the assistance of purchasing software, pivoting to a new, qualified supplier is quick and easy once you have the data on which vendors you can trust. Accelerated approval processes also speed up the process so that the production line is never short on needed goods.
Accounting and Finance
The value a finance department gets from purchasing software is the centralization of all the spending data. This group typically needs to balance accounts and ensure that employees are paid fully every month, and having a single place to reference all the receipts, invoices, and POs goes a long way to making the workload much easier and more accurate.
And, just like for other departments, having all that information at your fingertips lets you generate graphs, charts, and other analytical tools for making more informed financial decisions in the future.
Employees who make purchases themselves will also appreciate how easy it is to submit new purchase requests. There’s no more inputting information manually; automated systems allow for custom forms and drop down menus to make PR submission faster and easier.
One feature of many purchasing solutions is the implementation of role-based access control so that only approved users have the authority to approve purchase requests. These authorities are notified of new procurement decisions promptly and can approve POs quickly enough so that lower-level staff are never left without needed supplies and services.
Purchasing software in general is an excellent tool for the modern company, but not all solutions are created equal. Every service you find has its own set of features, use cases, and pricing models. The decision of which one to adopt depends on your business’s budget, circumstances, and preferences. What should you consider when you’re on the market for purchasing software?
Consult with potential solution providers on their business models, as many may be unique. However, you can expect most of them to sell the service on a monthly or yearly subscription basis and even vary the price based on how many users will be registered to it.
A fairly typical example would be three tiers of service:
- A basic package at less than $20 a month
- A pro package for around $50 a month
- A premium package for over $100 a month
Many businesses offer additional features when you go up a tier, such as demand forecasting, budget tracking, custom reporting options, and various others. When comparing your options, look for not only the features on offer but also which ones are available at a certain price.
The Delivery Method
Most purchasing solutions are sold “as a Service” by the vendor, resulting in a few guaranteed benefits:
- Cloud connectivity: No matter what features you have on hand, make sure they are all accessible through the cloud so that everyone in the business, regardless of geographic location, can have access to all the resources. All purchasing software worth your time should have cloud features. In fact, 94% of enterprises use cloud services.
- Scalability: Companies usually end up growing in scope, and the workload for the financial department goes up proportionally. Purchasing software sold as a service is able to scale upwards efficiently, as your business does not need to invest in additional infrastructure to do so.
- Customer support: There’s no point in having the tools if your staff can’t use them. Choose software that’s user-friendly and comes with guaranteed customer support from the vendor. You can often find helpful documentation and employee onboarding resources for this same purpose.
Comparatively, traditional solutions running locally in your business don’t have this level of accessibility and flexibility that new companies need. The adoption price is also much higher since you need to invest in the networking infrastructure and IT resources to support it yourself. There is overall no strong argument for not going with service-based purchasing software.
The Feature Set
What type of features should you be looking for in purchasing software anyway? Some to look out for are:
- Product or service selection: Purchasing software naturally makes purchasing decisions easier, as you can compare all the offerings from multiple suppliers in one place.
- Paperwork processing: Whether we’re talking about invoices or purchase orders, the creation and management of paperwork is a large part of procurement. Software ensures that everything is filled out and approved quickly without errors, from the invoice to the final payment.
- Supplier management: Working cohesively with suppliers means paying on time (and sometimes even early to take advantage of discounts) and tracking your transactions with them. Software makes both of these jobs easier, as you can create vendor profiles and negotiate future contracts based on your findings.
- Spend analysis: Business intelligence is another sought-after feature of these solutions. Spend analysis is a feature that helps you analyze market trends and study your list of potential vendors to make sure you’re getting a proper return on your investment during contract negotiations. Most solutions also track the budget to prevent overspending.
- Integrations: To keep data moving seamlessly throughout your business for ease of use, ensure that your business systems, services, and software are all integrated well. Most solutions providers are able to integrate with other enterprise tools from accounting software to IT add-ons, but also consider talking with an integration specialist if you need assistance.
- A mobile app. Business agility matters more than ever, and nobody is always tied to the workstation all day. Employees can scan receipts, interact with invoices, and generally work from their phones when the purchasing software comes with a companion app for the mobile devices everyone’s already carrying. Apps can also notify management of new PRs to review. Overall, it allows staff to respond quickly no matter where they are.
Your organization might not use every single function listed above, but remember that you’re ultimately paying for all the features advertised when you sign up with a plan. The takeaway is to look at each software solution holistically and choose one that fits your workflow well.
We’ve mentioned before that the ideal solution must fit in with your business’s specific needs. For that reason, rarely is an off-the-shelf software product ever the perfect fit. Experienced vendors know that customizability is of high importance to clients and will work with your IT team to tailor the solution to maximize its usefulness.
For instance, a purchasing tool might allow you to create custom roles and permissions for users and unique workflows. You might also integrate with plugins and APIs to extend the functionality and have a unified procurement solution across the company.
Relevant Industry Trends
Knowing what’s going on in the market of purchasing and procurement software will help you decide what’s going to be in high demand in the future. It’s worth going over some of the industry trends that might influence your decision.
Purchasing software is only one example of a digital transformation, the use of digital tools and services taking over otherwise analog processes in the business world. Global spending on digital transformations has grown year-over-year and will likely reach USD$2.8 trillion by 2025.
Such a paradigm shift can apply to anything a company performs, from communication to finances. You can join the millions of other businesses in this digital revolution by starting with your purchasing process.
AI-Driven Business Intelligence
Artificial intelligence has become a hot topic in recent years, and we’re just seeing its applications in financial planning and automation. Today’s AI tools are starting to:
- Perform spend analytics using real-time data
- Assist with purchasing decisions
- Guide users on every step of procurement, from requisition to payment
- Generate reports on key metrics and trends
Look for AI-powered tools and business intelligence features in future iterations of purchasing and procurement solutions.
Automation of Indirect Procurement
Software is getting smarter these days, and we’re starting to see machines capable of dealing with unstructured data (raw scans of invoices, email text, etc.) in addition to structured data (figures, numbers, and other empirical points).
A consequence of this trend is that new purchasing software on the market is able to handle indirect procurement more effectively than before. You aren’t always certain when you will need to invest in more professional services or maintenance work, but newer services are able to help with those predictions.
Purchasing software already helps prevent fraudulent invoicing by itself, but another aspect of security at the top of any business owner’s mind is cybersecurity. As digital transformations become more prevalent, the attack surface for cybercriminals goes up as well.
In 2020 alone, over 155.8 million people had their personal data exposed as a result of a data breach, the frequency of which has also gone up in recent years.
Staying aware of cybersecurity threats is an important step towards protecting the sensitive data you work with and retaining the trust of customers and business partners. Many providers of purchasing software luckily have cybersecurity in mind and will have features to help prevent incidents.
Remember that, as technology changes, our needs will too. The requirements you have today will almost certainly change in a few years, so keep in mind those changes the next time you are looking for professional software for your purchasing processes.
Finance and procurement teams use purchasing software to automate their processes and better manage purchase orders, suppliers, invoices, and more. The type of software solution an organization chooses depends on their size, the frequency at which they make purchases, and the complexity of those purchases.
Procurement software is used to help speed up the purchasing and approval process, including the act of sourcing and onboarding suppliers. It allows purchase requests to be easily filled out, generates purchase orders, and provides visibility into each step of the approval flow.
Procurement is a part of purchasing and there are both direct and indirect types of procurement. There are also different kinds of purchase orders (PO) that can be generated and sent to the supplier based on the type of purchase. For example, a standard PO is a for an individual purchase, whereas a blanket PO is used for a recurring, long term contract purchase.