Your guide to setting up and optimizing purchasing management
For too long relegated to the background, purchasing and supply management is a key factor in the profitability and stability of any business, and just as strategic as sales management.
In fact, purchasing can account for up to 60% of sales- a significant proportion!
To keep your prices competitive with the competition, optimizing purchasing management can make a real difference to your margins, and therefore to your profits.
Don't miss out on this growth lever, and find out how 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:
- 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,
- analyzing bids according to several criteria :
- product quality,
- acquisition costs,
- delivery times,
- negotiation with suppliers,
- contractualization,
- invoicing.
What are the missions and objectives of the purchasing department?
What is the role of the purchasing department?
Long considered 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 optimizing supply chain costs through several levers :
- controlling the company's purchasing portfolio,
- (re-) negotiating purchases with suppliers,
- re-evaluation of margin targets, if necessary, in collaboration with the sales department;
- inventory and risk management in the event of stock-outs;
- participation in product development, quality control and production purchasing costs, etc.
How to manage purchasing efficiently? 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 corporate objectives (cost reduction, carbon footprint reduction, etc.) ;
- in line with the specifics of the company's structure, market and purchasing trends.
Defining this policy then involves :
- drawing up an action plan and reviewing procedures to achieve predefined objectives ;
- assigning roles and responsibilities to everyone in this new ecosystem;
- analyzing the strategy deployed by monitoring key performance indicators (procurement cycle time, average order cost, supplier default rate, etc.).
☝️ Although special attention must be paid to strategic purchasing, it is important not toEven if strategic purchases require special attention, it is important not to neglect the monitoring of so-called "wildcards", secondary purchases that are made in a hurry and which, when added up, represent a very significant expense item.
Tip 2: establish a clear procedure to facilitate management
Understanding the key role played by the purchasing management department means defining and testing performance-oriented processes.
Derived from the policy mentioned above, they must be simple and involve as few people as possible to avoid becoming a gas factory.
💡 Good news: there's no need to start from 0. Instead, rely on the procedures already tried and tested within your organization, as well as on the various data at your disposal.
And of course, communicate these processes to all relevant employees, to gain overall efficiency.
☝️ Purchasing procedures must be :
- integrated into the company's purchasing information system, in the same way as supplier, price and stock data ;
- integrated into the general terms and conditions, and explained to suppliers to guarantee corporate satisfaction, transparency and the best possible supplier relations;
- may be included in the company's CSR policy, to encourage responsible purchasing and sustainable development within the company.
Tip 3: Manage purchasing efficiently, from ordering to warehousing
It's possible to optimize every stage of purchasing management.
For example, don't forget inventory management.
Good supply management involves more than just the purchase of goods and services. It also involves product warehousing, which is costly, especially in terms of storage space.
It also involves controlling the risks of obsolescence and wastage, a real financial loss for the company.
👉 Find out in our dedicated article how to improve your stock management.
Tip 4: Group orders
Grouping purchases gives you better negotiating leeway with wholesalers and saves you money, particularly on shipping costs.
It also reduces the number of time-consuming orders, allowing you to devote this time to supplier benchmarking.
Tip 5: Categorize purchases for tracking purposes
Of course, it's also necessary to identify the different types of purchasesin order to :
- categorize them
- segment supplier accounts,
- track and analyze purchasing data.
The first step is to categorize purchases in order of importance and recurrence, according to 3 classes:
- Class A for strategic production purchases,
- Class B, for recurrent and strategic non-production purchases,
- class C, non-recurring and non-strategic purchases.
In a second stage, the nomenclature is refined by purchasing families and sub-families (products or services with similar functionalities and meeting similar needs), to which key buyers and suppliers are associated.
Tip 6: Choose purchasing and supply management software
A number of tools can significantly improve the performance of your purchasing department, in particular :
- order management
- invoice processing,
- real-time expense tracking,
- automatic categorization of purchases,
- supplier identification,
- tender creation.
These include :
- purchasing software, such as an e-procurement system (e-procurement, e-purchasing) for the provision of services, negotiated products and the listing of partner suppliers for e-commerce;
- a solution integrating procure-to-pay to centralize and validate your purchase requests, consult supplier catalogs and manage the procurement cycle, from orders to supplier invoice processing;
- inventory management software, to rationalize procurement, reduce stocks and SKUs, and automate purchasing processes;
- ERP, including purchasing and inventory management modules, to steer sales management and gain an overall view of the balance between sales and purchasing.
🛠️ Software example:
Quadient Accounts Payable is a platform for the global processing of your supplier invoices and purchase orders. Create your purchase requisitions directly in the software. The software then takes care of streamlining the approval process to reduce delays, errors and, consequently, receivables risks. Quadient Accounts Payable also incorporates automatic data recognition functions to minimize 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 no longer enough to operate in a haphazard way: you need to define a clear, solid strategy and processes. That's why many organizations are now turning to outsourcing all associated activities.
However, with the right software, there's no need to turn to an external service provider. With the right software, however, there's no need to turn to an external service provider.
Article translated from French