The vast majority of companies are focused on their sales, and therefore on sales growth, which is essential to sustaining a business. However, a company becomes truly efficient when it manages to control its spending. That’s why purchasing is a strategic function capable of stabilizing management processes. On average, 60% of a European company’s sales are spent on purchasing. The purchasing process is therefore central to an organization, involving human resources, significant administrative management and direct impact on the production chain. Implementing good purchasing management is therefore a real lever for growth and profitability. And this is true for all business sectors. How to optimize purchasing management? How to implement an effective purchasing policy? What is thestrategic importance of the purchasing function? How to improve procurement management? Find out everything you need to know about corporate purchasing.
- 1 The purchasing function: how is it defined and who are the players involved?
- 2 About supply management
- 3 Purchasing management tools
- 4 Optimize purchasing management with a precise policy and effective strategies
The purchasing function: how is it defined and who are the players involved?
The purchasing function has become a strategic focus for all companies seeking to control costs. Purchasing has become a strategic focus for all companies wishing to control costs, and is particularly sensitive to the needs of senior management when it begins to take on greater importance, in the interests of structuring activities. There are different types of purchasing involved: direct purchasing, which feeds a production process (raw materials, parts, etc.), and indirect or non-production purchasing (overheads, intellectual services, etc.), which keeps the company running. So, depending on the purchasing organization, different solutions are more appropriate than others. The purchasing function incorporates administrative management, which is why it is increasingly digitized. In fact, the purchasing process can be partly automated.
In the age of digitization and the emergence of new technologies, companies are therefore increasingly turning to the ultimate guide to digitization to keep abreast of the issues at stake, and to keep pace with developments and innovations.
Understanding what makes the purchasing department essential to a company
In order to promote its activities, a company needs raw materials and other essential components to get off the ground. To ensure the smooth running of these activities, it must also equip itself with products and services. It’s important to remember that a company can’t produce everything itself. This is where the purchasing function comes in. It is responsible for procuring the materials, products and services needed for the company’s production. Purchasing is essential on several levels.
- Financial: a good command of the purchasing function improves the company’s profitability.
- Commercial: develop an optimal sourcing strategy with sufficient stock levels for your customers, improve your after-sales services.
- Strategic: risk management, ISO standards, CSR policy, etc.
The different purchasing missions
The purchasing department implements an organization designed toimprove businessperformance and control financial results. To achieve this, the purchasing team has to carry out a range of complex, strategic tasks: maintaining supplier relations, sourcing, drawing up specifications, negotiating, implementing contracts, purchasing policy… It is based on the needs of internal customers as well as those of customers in its field of activity. The market is constantly evolving, with fluctuating prices for raw materials and components.
Who are the people in charge of the purchasing department?
The purchasing department is essentially made up of purchasing managers and buyers. They are responsible for setting and achieving various qualitative and quantitative purchasing objectives. Buyers manage the purchasing process within the company. They are responsible for choosing the right products and the best suppliers. Quality managers, management controllers and administrative and financial managers are also involved in planning management methods.
The main objectives of the purchasing function
The purchasing function is more than just a logistical element. Its main objective is to act as a growth lever for the company. It provides high-performance solutions designed to optimize the productivity of the organization’s departments. Purchasing department staff must also develop negotiation skills. Their work is no longer limited to simple administrative controls.
Purchasing management is essentially about controlling the purchasing portfolio with performance indicators that present clear and precise data. Purchases are often grouped into purchasing families or categories in order to gain an overview. This can lead to a better purchasing strategy that directly defines the company’s inventory management, or to ingenious ways of reducing expenditure.
About supply management
The concept of spend management or spend analysis translates into various processes designed to collect, classify and clean up spend data with the aim of reducing costs. This facilitates controls and improves the conformity of management processes, not to mention the performance acquired
Spend analysisis mainly deployed in procurement management. It comprises 3 areas: visibility, analysis and process. By harnessing these three elements effectively, companies can respond more efficiently to spend-related issues.
There are many reasons why a company should adopt supply management. Most often, it is used for organizational purposes, tooptimize process productivity and thus profitability. It also ensures the availability of the supply function, thereby reducing the risk of disruptions or uncontrolled supply delays. Risk management is indeed an essential component, as these situations can tarnish a company’s image, depending on the stakes involved.
In short, the aim of spend management is toconsiderably improve the profitability of the entire purchasing organization within the company. And this, in the long term. Its effects will be beneficial, spending will be brought under control, and the prospect of savings will be significant.
Purchasing management tools
There are a number of different tools available for managing corporate purchasing. These are e-procurement or e-Purchasing solutions, with several specific features depending on the desired objectives: Procurement Planning, P2P(Purchase-to-Pay), S2P(Source-to-Pay)… These digital tools are designed to anticipate and manage all purchasing department activities as effectively as possible. Their main advantage? In addition to productivity gains, they enable you to take a step back and anticipate future flows. These solutions make it possible to manage and monitor KPIs (Key Performance Indicators) and OKRs (Objectives and Key Results) more effectively. In this way, savings targets and structural improvements will be more attainable.
Purchasing management software
Purchasing management software is one of the most interesting types of software. These are essentially SaaS (Software as a Service, i.e. software without installation) and high-performance IT solutions that enable various tasks to be carried out automatically. Their advantages include time savings in identifying the best suppliers, drawing up invitations to tender, placing orders and so on. Indeed, one of the software’s strengths is that it automates administrative tasks that are often the most time-consuming. You can also optimize your order tracking. With a single click, you have access to a list of your products, your supplier panel and your contracts and framework agreements. You can easily view stock levels, order history, expected actions to optimize processing…
More and more companies are deploying software solutions to optimize their purchasing management. By freeing up certain tasks, employees can concentrate on their core missions. In small companies, the purchasing function is often based on the versatility of employees. Purchasing management software helps employees to concentrate on value-added activities, and thus benefit from positive externalities such as increased margins, opportunities and higher profits.
Other digital solutions
As for other solutions, there are several types of project management tools for organizing and scheduling tasks. There are also more specialized solutions for specific components of the purchasing process. Sourcing, for example, with digital tools connected to legal bases that enable you to quickly find a supplier suited to your needs or specifications. And one that respects its social commitments.
Depending on the sector of activity, logistics solutions also stand out, with flow optimization and real-time stock rotation. Applications have also been developed for managing company car fleets, with all the issues that this can entail, such as maintenance, sharing and distribution of mileage flows.
There is thus a plethora of specialized, high-performance tools that may prove necessary in a company’s purchasing organization. These measure the performance levels of the purchasing department as a whole, as well as the results obtained. They are generally used to evaluate suppliers, spending, purchasing performance and supplier risks.
Deploying these tools offers the opportunity to better rebalance purchasing strategies. Based on the data collected, your company can implement new action plans.
Optimize purchasing management with a precise policy and effective strategies
The use of purchasing management software is already an excellent and effective strategy for making savings and improving performance. In addition to this, in order to achieve the desired results, it is important to deploy specific strategies andadopt a global policy for perfect purchasing control. This applies to all stages of a company’s development, especially when it is expanding rapidly.
Integrating a responsible purchasing policy
Improving your CSR (Corporate Social Responsibility) approach and making responsible purchases are part of an effective purchasing strategy. This policy takes into account the purchasing process throughout the product life cycle. Managers need to ask themselves what consumers really want, and analyze the products available on the market. The aim is to make intelligent, reliable purchases at all levels, while taking various environmental issues into consideration. All this must also respect social standards. Responsible purchasing means that it is carried out in accordance with precise values and predefined codes, most often within the purchasing policy desired by the company’s general management.
When we talk about the product’s entire life cycle, we’re talking about the materials chosen to make it, its manufacturing process and the energy expended to design it. All of these elements must focus on preserving the ecosystem.
What approach should you choose to develop a responsible purchasing policy?
A responsible purchasing policy is far more than just an image you want to put forward in order toimprove your company’s reputation and win more customers by being “green”. It’s a particularly effective way of optimizing efficiency, especially in the purchasing department.
The first step you need to take is to align your company’s values with the concept of responsible purchasing. This means that the company must work to align its needs with its corporate ethics.
Once the responsible purchasing policy is in line with your values, you need to develop a coherent and organized methodology. This will enable you to pool requirements and centralize purchasing. This will make it easier for you to choose suppliers offering raw materials that match your needs.
To avoid getting lost in this process, you can rely on standards to guide your choices. In particular, ISO 20400 defines the social and environmental criteria for products and services. There’s also the NF X50-135-1 standard, which offers recommendations for those wishing to control their purchasing function and keep costs under control.
How to implement a responsible purchasing policy?
In order to implement your sustainable purchasing policy, you need to be able toassess the size of your company and clearly define your objectives. For large companies, a well-defined process should be put in place right from the procurement of raw materials. For smaller companies, this policy improves purchasing practices and better meets their objectives: structuring the organization, competitive advantage, activities in line with company values.
Drawing up an effective and appropriate purchasing strategy
To successfully manage your purchasing missions, define clear benchmarks. Streamlining the purchasing chain is one of the first strategies you need to adopt to achieve your purchasing performance improvement objectives. Start by identifying the needs you’re looking for, so you can define the right indicators. For example, the subject could beimproving invoice processing stages, or controlling budgets for the year.
You should also consider controlling supplier risks in your purchasing process. You need to determine the right means and the right time to approach a supplier. Secondly, consolidate supplier information ina single database: the supplier panel. Organizing and categorizing this information ensures a clear vision and enables you to move forward in better conditions.
If you are unable to define a strategy applicable to all your purchases, you can start by concentrating on your main purchasing families. Certain techniques are better suited to different purchasing categories. Finally, remember to communicate your purchasing strategy to all your employees. It should be in line with your company’s spending policy and the dissemination of values within your organization.
Weproc is the best SaaS e-procurement solution for digitizing purchasing and optimizing corporate spend management. It enables you to streamline order placement within your purchasing organization. Finally, this installation-free software lets you digitize your purchasing process in no time at all. Opt for an innovative solution, promote the development of your teams and achieve your performance objectives.
Want to learn more about our procurement management software Weproc? Contact us or request your free 15-minutes demo below!
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.