No matter what size your company is, at some point you’ll need to make purchases.
As your business grows, you’ll find the number and complexity of these purchases is likely to increase. Some companies wait until they desperately need a formal purchasing program to create one, but doing so has drawbacks—haven’t you heard the slogan “Always Be Prepared”?
Setting up a formal purchasing program before the situation gets too crazy prevents you from making rushed purchasing decisions and allows you to shop around for the best prices.
Why Have a Purchasing Program?
Purchasing programs don’t have to be complex—in a company of two people, making one person solely responsible for purchasing will do the trick. But not having guidelines about who purchases what can result in unnecessary purchases (“You ordered HOW many pens?”), thereby affecting your company’s bottom line.
Not having a formal program also affects your company’s efficiency. Companies that only buy goods when they’ve run out can often find themselves making snap decisions and accepting more expensive goods or services from substandard suppliers. They may also be more affected by supplier delays leaving them in a tight spot when they really need something.
Image Credit: Erich Ferdinand
A formal purchasing program that designates who is in charge of which purchases and when those purchases are made prevents duplicate ordering and ensures necessary items are always stocked.
Put Someone in Charge
It’s best to first determine what policies and procedures are most effective for your organization. Putting one person (or department) in charge of purchases increases efficiency. If your company has multiple departments, one person in each department should be responsible for submitting requests to the purchasing entity.
The purchaser should gather and complete orders, check inventory if needed, select vendors, order goods, ensure goods delivered are adequate, check invoices and follow-up by either paying the invoice or sending the invoice to the accounting department. Essentially, they’re the point person for all things purchase related.
When setting up your program, be specific about who has the authority to make purchases, what goods or services that person can purchase, any purchasing limitations, requirements for selecting a vendor and the company’s policies on conflicts of interest. Make sure these things are clear and don’t be afraid to remind the point person if they’re unsure.
Consider Corporate Image
Your purchasing program should reflect your corporate image. If your company is environmentally focused, make sure your purchasing program reflects that. If you put an emphasis on locally sourced products, use local suppliers where you can.
Image Credit: photosteve101
Consider policies and procedures that allow blank orders for routine items. Having someone order highlighters once a month isn’t as efficient as having a one-year contract for highlighters to be delivered every four weeks. This also allows your company to take advantage of bulk pricing and reduces the chances that you’ll run out of highlighters (which would surely be a travesty).
Periodically analyze your purchasing program to make sure it’s still efficient and enables you to keep costs down. As your company grows, you’ll likely have to refine your process, make adjustments and find room for efficiencies.
In the end, a formalized purchasing program saves your company time and money. It’s a good idea to have one, even if your company is small.
If you want more information, Entreprenuer offers an in-depth look at the ins and outs of creating formal purchasing programs.