Your guide to setting up and optimising purchasing management
For too long, purchasing and supply management have been relegated to second place, but they are an extremely important part of any company's profitability and stability, and just as strategic as sales management.
Purchasing can account for up to 60% of sales, which is no mean feat!
If you want to offer competitive prices to your competitors, optimising your purchasing management can make a real difference to your margins, and therefore to your profits.
Don't miss out on this growth lever, and discover a few ways to manage your purchasing effectively.
Purchasing management: definition
What is purchasing management?
Purchasing management refers to the entire process by which a company acquires the products or services it needs to run smoothly, whether in the form of :
- direct purchases, such as raw materials, which are essential for production,
- indirect purchases, such as office supplies.
What are the different stages in the purchasing process?
The purchasing management process comprises a number of key stages:
- identifying requirements
- sourcing suppliers
- requesting quotes or issuing invitations to tender,
- analysing bids according to a number of criteria:
- product quality
- acquisition costs
- delivery times,
- Negotiating with suppliers,
- contractualisation,
- invoicing.
What are the tasks and objectives of the purchasing department?
What is the role of the purchasing department?
Long regarded as a support department within a company, the purchasing function is becoming increasingly strategic for a company's competitiveness and development.
The purchasing department defines and ensures compliance with purchasing management procedures. More specifically, this involves drawing up a structured action plan and identifying the players and documentation associated with each action.
It is based on the company's purchasing policy, i.e. its purchasing and supply strategy.
And its objectives?
The main objectives of the purchasing department include
- controlling the budget and optimising supply chain costs via a number of levers :
- controlling the company's purchasing portfolio
- (re-)negotiating purchases with suppliers
- re-evaluating margin targets, if necessary, in collaboration with the sales department;
- stock management and risk management in the event of stock shortages;
- participation in product development, quality control and production purchasing costs, etc.
How can you manage purchasing effectively? Our 6 tips
Tip 1: Define a purchasing policy
Purchasing management goes hand in hand with purchasing policy.
More concretely, the latter is defined as the strategy deployed :
- to meet the company's objectives (cost reduction, carbon footprint reduction, etc.) ;
- in line with the specific characteristics of its structure, its market and purchasing trends.
Defining this policy then involves
- drawing up an action plan and reviewing procedures to achieve the predefined objectives ;
- Assigning roles and responsibilities to everyone in this new ecosystem;
- analysing the strategy deployed by monitoring key performance indicators (procurement cycle time, average order cost, supplier default rate, etc.).
☝️ Although special attention should be paid to strategic purchasing, the monitoring of so-called "soft" purchases should not be neglected.Even though strategic purchases must be given special attention, it is important not to neglect the monitoring of so-called "wildcards", purchases that are secondary but made in a hurry and which, taken together, represent a very significant item of expenditure.
Tip 2: Establish a clear procedure to facilitate management
Understanding the key role played by the purchasing management department means defining and then testing performance-oriented processes.
Derived from the policy mentioned above, they must be simple and involve as few people as possible so as not to become a gas factory.
💡 The good news is that there's no need to start from scratch - instead, build on the tried-and-tested procedures already in place within your organisation, as well as the various data at your disposal.
And of course, it's a good idea to communicate these processes to all the staff involved, to improve overall efficiency.
☝️ The purchasing procedure must be :
- integrated into the company's purchasing information system, in the same way as data relating to suppliers, prices and stocks ;
- integrated into the general terms and conditions and explained to service providers to guarantee company satisfaction, transparency and the best possible supplier relationship;
- possibly mentioned in the CSR policy, to encourage responsible purchasing and sustainable development internally.
Tip 3: Manage purchasing efficiently, from ordering to warehousing
It is possible to optimise each stage of purchasing management.
For example, don't forget stock management.
Good supply management is not just about buying goods and services. It also involves the warehousing of products, which is costly, particularly in terms of storage space.
It also involves controlling the risks of obsolescence and wastage, a real financial loss for the company.
👉 Find out how to improve your stock management in our dedicated article.
Tip 4: Group orders
Grouping your purchases gives you better negotiating leeway with wholesalers and saves you money, particularly on shipping costs.
You can also reduce the number of time-consuming orders and use this time for supplier benchmarking.
Tip 5: Categorise purchases to track them
Of course, you also need to identify the different types of purchaseso that you can :
- categorise them
- segment supplier accounts
- monitor and analyse purchasing data.
The first step is to categorise purchases in order of importance and recurrence, according to 3 classes:
- Class A for strategic production purchases,
- Class B, for recurring and strategic non-production purchases,
- class C, non-recurring and non-strategic purchases.
The nomenclature is then refined by purchasing families and sub-families (products or services with similar functionalities and meeting similar needs), with which key buyers and suppliers are associated.
Tip 6: Choose purchasing and supply management software
There are a number of tools that can significantly improve the performance of the purchasing department:
- order management
- invoice processing
- real-time monitoring of expenditure
- automatic categorisation of purchases
- supplier identification
- creation of calls for tender.
These include :
- purchasing software, such as an e-procurement system (procurement, online purchasing) for the provision of services, negotiated products and the listing of partner suppliers for e-commerce ;
- a solution integrating procure-to-pay for centralising and validating your purchase requests, consulting supplier catalogues and managing the procurement cycle, from orders to processing supplier invoices;
- stock management software, to rationalise procurement, reduce stocks and references and automate purchasing processes;
- ERP, including purchasing and inventory management modules, to manage sales and provide an overall view of the balance between sales and purchasing.
🛠️ Software example:
Quadient Accounts Payable is a platform designed for the global processing of your supplier invoices and purchase orders. Create your purchase requisitions directly in the software. The software will then streamline the approval process to reduce delays, errors and, therefore, the risks associated with receivables. Quadient Accounts Payable also incorporates automatic data recognition functions to minimise the need for manual invoice management. All of which means significant savings on your administrative costs!
Purchasing management at a glance
In the face of competitive pressure, purchasing management is becoming an increasingly strategic business function. It's out of the question to operate in a haphazard way: you need to define a clear and solid strategy and processes. That's why many organisations are now turning to outsourcing all associated activities.
But with the right software, there's no need to rely on an external service provider. With the right software, however, there's no need to turn to an external service provider.