The Purchasing Process as a Function of Your Business
A business’ purchasing process can be seen as a specialized task performed by individuals with a defined role such as “procurement officer,” “purchasing manager,” or “buyer.” In some cases, this responsibility may fall to the controller, or even the CEO. The purchasing function is intended to acquire supplies, necessary widgets, services or other business-related items. The more efficient this process becomes, the easier it is for a company to obtain the parts – including the services and labour – necessary to carry out their operations. For instance, you might be able to get away with not ordering pickles, but you can’t make a hamburger without bread and meat.
The main challenge that organizations face is understanding, and properly integrating, purchasing with the supply chain management or logistics functions of the business. Successfully integrating and measuring purchasing within a company will allow for more insight into company spending. You will have a better understanding of how many pickles you need, or better yet, how much bread and meat you should have in stock at all times.
The Purchasing Process as a whole can be boiled down to answer two main questions.
The purchasing process as a whole can be boiled down to two main questions:
Question 1: What do we need to obtain? (Depending on how effectively you can properly answer this question you can move onto answer question 2). Many companies, however, have major problems answering this question. For example, do you really need pickles? What kind of bread should you be buying? What about the meat?
Question 2: Whom should we go to obtain what we need (and how do we approach that person)? This question is a lot more dynamic because it has many more moving parts. If you choose to buy pickles, do you go directly to a farm and make them yourself? Or, do you buy them from a store? If that’s your choice, how will the pickles get to you?
A major concern in the supply chain is the communication between each of the links on the chain. Getting information from one link to the other without a properly integrated system usually requires either time or money. Possibly both.
The impossible triangle suggests you can only exist at one point within the triangle. You can have fast and cheap, but it won’t be good. You can also have fast and good, but it won’t be cheap. Of course, there is also good and cheap, but it won’t be fast. This is a fairly common challenge when it comes to managing the purchasing process. What is your solution to a problem like this?
The trick to solving the triangle is, strangely, to not actually solving the triangle at all. The trick is to find a new triangle, or create a new shape or way of doing things entirely.
How Does This Apply to the Purchasing Process?
Generally speaking, someone in a company will realize that they need to order (or expense) something. They’ll make a request for order, or go through a requisition process. If an order is approved, the purchaser will typically have a supplier in mind and will need to obtain a quote. This takes time. Then, there might be a period of negotiation. This also takes time. The order then needs to be placed and, eventually, received. This will take, you guessed it, time and communication. Finally, a payment needs to be made. This takes clear communication channels and, possibly, time.
Delays in the purchasing process will reduce efficiency and create bottlenecks. It might even cost you cold hard cash. You can’t have upper management just sitting around waiting for requests, and you shouldn’t skip steps in your purchasing process or it’ll create monster problems later. The trick is to find a solution that suits your organization’s requirements. You wouldn’t buy a Ferrari to drag a trailer. It really comes down to finding out your options.
A robust purchasing process can be a competitive advantage for your organization. Every business has expenses, purchases and orders they need to make, so if your company doesn’t have proper control of its purchasing process, it will hurt.
Hint see: Hidden costs. Indirect Costs. Preventative measures. Bottlenecks.