Purchasing function: how the process works
Before buying, a purchasing organisation first goes through a succession of operational tasks. Each phase must be implemented rigorously and methodologically. The teams must listen to the stakeholders and all the protagonists in order to synchronise their work with that of the various departments. In the majority of small and medium-sized enterprises (SMEs), the purchasing function is based on the versatility of employees. Some, however, like large companies, have a purchasing department and understand the rigour required to implement a good purchasing process. So where do you start? How does a typical purchasing procedure work? Here’s an example of a purchasing process that outlines the basics for your company.
Defining the need
The first thing to do in a purchasing process is to determine the needs of the company and its internal customers. The company’s purchasing department, which in SMEs is usually the responsibility of general management, needs to know what products or services are to be purchased. This is why it is so important to draw up specifications. It enablespurchasing to be aligned with the company’s needs. The specifications must be detailed, but they must not remain an archive document. It must be communicated to suppliers so that they can respond to the company’s request and find an alternative in the event of a problem.
The specifications contain a multitude of headings. They can be several pages long or very concise. The main thing is to formalise the requirement as exhaustively as possible. It gives suppliers an overview of the demand and the characteristics of the product or service. It also contains all the conditions such as the cost, the objective, the method of payment, the desired delivery time, the payment period, etc. It should also mention the criteria expected of the supplier, particularly if you have a responsible purchasing policy. The more precise the specifications, the easier it is to manage your purchasing.
Supplier search
When looking for suppliers, the purchasing department can turn first to its panel of suppliers. Management already knows them. They have already been evaluated and the risks they represent are already known. However, it is entirely possible and even advisable tostart looking for new suppliers. In this case, it must use sourcing methods.
This method is based on a multi-criteria analysis, in line with your company’s operational objectives. It involves identifying the geographical area, customer references, standards and accreditations obtained, and the quality of product or service required, based on production objectives. The next step is to collect this information. It must then contact them and clearly request the information it is missing. It may sound cumbersome, but your main objective is to find the best suppliers for your business. Whether it’s a question of purchasing services, non-production purchases or production purchases, the attention paid must be equivalent.
Once potential suppliers have been defined, the company’s management must carry out supplier audits. This is an important task, as it contributes to better management of financial and technical risks , as well as determining their logistical capabilities. This task is all the more strategic as it helps to steer the future supplier relationship in the right direction.
Launching and analysing tenders
Once the study of potential suppliers has been carried out, it’s time to launch the call for tenders. Ideally, you should appoint a member of staff to be responsible for this project. If you don’t have a purchasing team in your company, general management can take care of it, but the task can also be delegated to a responsible and trusted person. In this case, management prepares the various documents required for a call for tenders. To make contract management easier, it is a good idea to send out the invitation to tender or call for competition electronically. This saves a considerable amount of time, especially when it comes to analysing them. What’s more, this digitisation of purchasing encourages traceability.
Once the suppliers’ responses have been received, the management teamanalyses the bids on the basis of precise criteria. First of all, it carries out a pre-selection based on eliminatory criteria. These may include technical expertise, equipment used, location or reputation. The second stage consists of analysing the various characteristics of the remaining bids. The multi-criteria analysis of these bids is more precise and goes into greater detail.
- It takes into account the quality of the product and service. This analysis is based mainly on the specifications, which list the technical specifications (hence its importance!).
- The purchasing department takes into account the overall cost of acquisition.
- Deadlines are an important point in synchronising the company’s needs with the supplier’s service.
- But there are other criteria too, such as the supplier’s technical reliability, financial stability and sustainability, use of new technologies, etc.
Contract negotiation
Before any expenditure is committed, it may be necessary to negotiate. This stage is part of the purchasing function and, in the absence of special skills, requires a certain amount of preparation. Before negotiating, the purchasing department gathers information about the chosen suppliers. It needs to know about the quality of their customer relations, their accreditations, their track record, their position in relation to the competition, their commercial terms and conditions, etc. But the work doesn’t stop there: it also needs to be aware of the supplier’s strengths. Indicators based on the company’s purchasing history are essential! For example, your average cost per order per product or per purchasing family. The technical specifications imposed by your internal customers. In fact, strategic decisions must be taken in the light of your company’s challenges and the needs of your internal specifiers.
Once all this information has been examined with a fine-tooth comb, the management team will proceed to put the project together. This is when they define the clauses to be negotiated, the objectives to be achieved and the terms of payment. Each argument must be illustrated by real facts and data.
Once the files are in place, she creates a strategy to push suppliers to give in. It can approach negotiation in a general way or from sequence to sequence. However, it’s worth pointing out that approaching the negotiation in a sequential manner makes for an easier approach.
If you are unsure about the maturity of your purchasing function and the performance of your purchasing process, it is surely time toopt for a digital transformation. Weproc is purchasing management software designed to meet the needs of SMEs. Like many businesses looking to go digital, this solution automates processes to make purchasing management more secure. In return, it gives your staff more time to concentrate on their tasks and, ultimately, on your purchasing strategy.
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Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.