6 best practices for purchasing management
Learn what purchasing management is and discover the six best practices to include in your own buying strategy to cut costs and reduce vendor procurement risks.
Many problems can emerge without strong controls in place regarding department spending and company purchasing decisions,
To solve these challenges, the best finance and procurement teams implement effective purchasing management practices.
Learn what purchasing management is and discover the six best practices to include in your own buying strategy to cut costs and reduce risk.
What is purchasing management?
Purchasing management is the monitoring and controlling of all things related to the procurement of goods and services for your organization.
It encompasses all aspects related to purchasing, including:
- Purchasing policies and guidelines
- Approval workflows
- Developing and approving purchase orders and purchase requisitions
- Price benchmarking and market analysis
- Strategic sourcing of new vendors and vetting of new suppliers
- Risk management and mitigation processes
- Contract negotiations
- Monitoring of contract compliance and quality standards
One especially important aspect of an effective purchasing and procurement process is a focus on developing and maintaining vendor relationships.
Better supplier relationships improve long-term sustainability, boost your ability to negotiate more favorable terms and reduce aspects of vendor risk, like market risk.
The importance of structured purchasing management
Better risk mitigation
A well-developed purchasing strategy helps buying teams protect their company against the myriad risks involved in bringing external suppliers into business operations.
This strategy begins in the selection phase and continues throughout the purchasing process.
Supplier selection policies help purchasing agents objectively assess the risk profile of potential suppliers by providing a framework for assessing each vendor.
Throughout the purchasing management process, regular contract compliance and performance review meetings keep vendors accountable to the terms of your agreement and give the purchasing department an opportunity to comment on areas where vendors need to improve.
Improved spending visibility
By developing a rigorous purchasing management structure, procurement leaders gain better insight into company spending.
One of the best practices in purchasing management is to leverage specialized purchasing software to monitor and manage company spending.
These powerful platforms provide a real-time view of expenditure by department, category, and employee, with the best options providing forecasting abilities to predict spending in the upcoming financial period.
Stronger vendor relationship management
A key focus of purchasing management is enhancing the relationship between your company and its vendors.
This is about more than simply becoming friends with the account manager at your supplier’s company.
It’s about understanding how the relationship might be mutually beneficial, so the agreement helps both companies pursue their goals.
A strong vendor relationship management process should include regular check-in meetings (quarterly is generally appropriate) to review supplier performance and identify areas for improvement.
The cost reductions delivered by a structured purchasing management approach come from a variety of initiatives, including price benchmarking, risk management protocols, and a focus on long-term strategic relationships.
Powerful purchase management software provides price benchmarking information and overlapping spend alerts, allowing you to negotiate better agreements and find opportunities to consolidate SaaS licenses.
A focus on supplier relationships means agreements stay in place for longer, reducing the costs of sourcing and onboarding new suppliers.
Risk management protocols and purchasing workflows reduce the likelihood that your company will be exposed to litigation or have to bear the cost of solving security breaches due to poor data management policies on behalf of a vendor.
6 best practices for purchasing management
Implement these best practices to streamline your purchasing management function.
1. Define and distribute purchasing policies
Effective purchasing management begins with a clear acknowledgment of the rules and procedures each of your procurement managers needs to follow.
These policies should clearly outline:
- Who has the authority to make purchasing decisions
- When purchases must be signed off on by a manager or senior leader
- How individuals should request approval and what information they need to provide for the relevant person to make an informed decision
- How to identify vendors that are already on the “approved to buy from” list
- Who is responsible for managing vendor relationships once they are established
Once your purchasing policies are clearly defined, ensure they are widely communicated and easily accessible by all who require them.
A workplace wiki tool like Notion or Slite is best practice here, though document storage platforms like Box or Google Drive are also suitable alternatives. Additionally, with Vendr, you can centralize SaaS management to help everyone work more efficiently.
2. Use automation to speed up approval workflows
The policies you’ve created in the previous step will outline when to seek approval for purchase decisions, as well as how to request this approval.
To speed up the decision-making and sign-off process, create automated approval workflows in your purchasing management solution.
An example approval workflow process might look like this:
- The department leader or purchasing manager submits a purchase request and attaches the relevant supporting documents
- The relevant senior leader receives an automated notification that a purchase request is ready to review
- If they don’t get to it within a set timeframe, they’ll receive another automated reminder
- The leader reviews the request and either approves it, declines it, or sends it back with a request for further information
- The department head or purchasing manager receives the appropriate automated notification based on the senior leader’s response
Automated approval workflows like this remove the need for follow-up conversations—“Hey, did you see my email about the new CRM purchase?”—and streamline purchasing activities.
3. Look for areas of software license overlap
SaaS purchasing is frequently decentralized, meaning department leaders quite often purchase software independently of others.
This regularly leads to software license overlaps—perfect opportunities to cut costs and control risk.
In this case, the best practice would be to perform a needs analysis, compare costs and features, and decide on a single platform for both teams.
Then, you can renegotiate your contract with the desired vendor and ideally receive a better price due to upping your user count.
4. Use price benchmarking to enhance negotiations
Purchasing management isn’t entirely about the bottom line, but finding opportunities to get the best price on a given purchase is important.
When purchasing software, use price benchmarking to help enhance your negotiation power.
Price benchmarking is essentially an insight into what your competitors pay for a given product.
At high volumes, especially at the enterprise level, pricing is almost always negotiable. If your SaaS buying platform helps arm you with information on what others are actually paying (like Vendr does), you can use this as leverage in your contract negotiations.
5. Focus on strategic vendor relationships
Strategic vendors are those who are mission-critical to your company’s ongoing operations. Without them, it would be impossible to continue doing business.
Your sales CRM might be a great example of this. Though you have plenty of options in the market, switching would mean a huge overhaul of operations.
Purchasing management should focus on developing strong relationships with these strategic suppliers. This gives you better insight into their internal operations and helps highlight any potential risks.
For instance, if you discover that they are looking to move away from supporting a specific feature (and it’s one crucial to your workflows), you can plan early for a vendor switch.
6. Leverage specialized software to drive purchasing success
Procurement management software is designed to help you manage and optimize all aspects of the purchasing cycle, from vendor selection to relationship management and software renewals.
It's your hub for all things purchasing management, and if you implement the right platform, it can help you save thousands of dollars in SaaS expenditure.
Key features to look out for include:
- Price benchmarking with a robust data set
- Tailored assistance from a team of purchasing experts
- Contract renewal notifications
- Overlapping spend alerts
- Automated workflow approvals
- Customizable reporting dashboards
Learn more about choosing a procurement management platform in our dedicated guide: 9 best procurement software solutions for 2023.
Vendr: Your SaaS purchasing management partner
Managing SaaS buying across the procurement cycle takes a specialized set of skills and a powerful tool designed for exactly that.
Vendr is the software buying platform that pays for itself (we guarantee it).
Our intuitive platform gives you a real-time view into SaaS spending, allowing you to identify areas of license overlap, control rogue spending, and monitor vendor relationship health.
We’ve got the largest set of SaaS buying data in the game and a team of software purchasing experts with the knowledge to help you get the most out of your supplier relationships and negotiate the best possible terms.
Find out how much you could be saving today with our free cost savings analysis.