What is purchasing management?
Purchasing management — or purchase management — is the management of all aspects related to the purchasing process, such as receiving, reviewing, and approving orders.
It also includes risk management, purchase order management, and managing supplier relationships, as well as managing requests made by internal collaborators like the procurement team or accounts payable department.
Depending on the size of the business, purchasing management may be handled by one employee or by a team of employees.
Purchasing management example
To illustrate how the purchasing process benefits from purchase management, below is a step-by-step breakdown:
|Purchasing process step
|Purchase management example
|– Standardized request intake form with controls to reduce errors and purchases that don’t align with company policy
– Automated notifications to purchasing team
|– Identifying non-compliant suppliers
– Identifying cost-saving opportunities
|– Visibility into supplier performance
– Automated communication between internal and external collaborators
|– Automatic approval escalation based on purchases that exceed price or quantify thresholds
– Automated approval notifications
|Purchase order generated
|Automated POs built from approved purchase requisitions
What are the functions and objectives of purchase management?
Key functions of purchase management include:
- Reviewing and approving purchase orders
- Keeping up with market trends that may impact the cost or availability of goods/services
- Sourcing suppliers/vendors that meet the 5Rs: provide the right quantity of products from the right (and compliant) place at the right price with the right quality and delivered at the right time
- Managing and maintaining purchase records and inventory
- Identifying risks or compliance issues
But while purchasing quality goods and services that fall within budget and maximizing cost savings are a large part of procurement and purchasing, the objectives of purchasing management go well beyond the actual act of sourcing and buying goods or services. Additional objectives of purchase management include:
The goal of purchase management is to ultimately source what’s needed for the least amount of cost without compromising the quality of what’s needed.
However, businesses don’t have an infinite amount of money to burn, so minimizing expenses when and where possible is important. This ensures that the purchasing department is not only able to fulfill purchases but is able to do so without being a financial drain on the business.
Increasing cost savings for the organization
In addition to minimizing expenses, purchase management identifies opportunities to increase cost savings throughout the organization by improving supplier relationships or diversifying a company’s supplier portfolio.
Increasing cost savings for the organization can also happen by reducing risks or interruptions in the supply chain that can lead to unnecessary or unexpected financial leaks that ultimately pool into larger time and financial waste.
Gaining visibility over supplier performance
Managing and overseeing supplier performance is a critical part of increasing organizational savings and minimizing expenses.
In order to understand how to save money, it’s important to understand how money is being spent and whether there are any steps in the purchasing process that are failing or leading to wasteful inefficiencies, such as dark or uncontrolled spending.
Improving process efficiency
A process and its outputs are only as efficient as the steps that make up the flow of work. So continuous process improvement — either through process audits, process redesign, or implementing business process automation software — is not only beneficial, it’s necessary.
This not only leads to more efficient, accurate, and integrated processes but also more engaged and productive employees and silo-free collaboration and communication between related departments and processes.
6 best practices for better purchasing management
1. Map (and document) your purchasing process
Understanding your purchasing process is the first step toward better purchase management. With a clear view of how a process works, it’s easier to have visibility over its inner workings and possible bottlenecks.
Failing to map your purchasing process can lead to an unstructured process that is hard to manage or track and workflow complications that can lead to issues like purchase errors or dark spending.
2. Create a purchasing strategy
Without a purchasing strategy that outlines how a company completes purchases, it may become difficult to meet purchase management objectives and goals.
That’s why a purchasing strategy that reduces risk, informs better purchasing decisions, centralizes purchasing, optimizes the overall procurement cycle, and is informed by business objectives is necessary.
3. Develop purchasing controls and policies
Poor spending controls negatively affect business revenue because it fails to limit unregulated spending or enforce purchasing policies. Luckily, this is a fixable issue.
Policy transparency and establishing clear purchasing controls simplify purchasing management by:
- Limiting unregulated spending
- Setting parameters for regulated spending
- Saving the purchasing team time
- Shining a light on spending patterns
- Aligning purchasing strategy with overall business objectives
4. Focus on supplier diversity and optimization
Supplier diversity can make it easier to source and purchase business needs that generate additional value for a business and reduce supply chain risks that may disrupt business operations.
5. Frequently measure process performance
Keeping an eye on metrics that show how your purchasing process is performing is essential for continuous process improvement and purchasing process optimization.
6. Invest in purchase management software
Delayed approvals, data-entry errors, incorrect purchase orders, costly vendors, incurred charges, and bad financial performance. These are just some of the common issues that can affect the purchasing process, especially one that is managed manually and limits end-to-end process visibility.
Investing in purchasing software to automate repetitive or redundant tasks and streamline purchase management can unlock additional benefits that make time for more efficient sourcing and cost savings.
Pipefy adds a layer of communication and visibility that eliminates silos by connecting existing systems and technology for greater stack extensibility. With an integrated purchasing process, the overwhelming need to manually chase after scattered information across email threads or systems is eliminated and repetitive and error-prone tasks are automated for higher accuracy.
Less time chasing and correcting information means more time to focus on strategic sourcing and purchase management.