Modern purchasing process: 10 steps & best practices [2023]

What comes to mind when considering optimizing or fine-tuning your purchasing process?

For many, optimizing the purchasing process is broad, so getting your finger on the proper strategic pulse can be challenging.

But discovering and implementing a strategy to optimize the purchasing process will make a tremendous impact if you're a purchasing professional or have a buying role in your company. Optimization strategies do more than merely elevate procurement and the supply chain—they positively impact the entire company’s bottom line.

This guide shares a quick overview of the purchasing process at its core, then dives into best practices you can implement to optimize your organization’s purchasing process.

What is the purchasing process?

The purchasing process is the series of transactional steps that enable businesses to get the goods and services they need to function. In most companies, the purchasing process involves more than the purchasing department or the department that handles your company’s buying.

For example, the purchase requisition step often includes the procurement team and the requesting department. A request for proposal (RFP) or request for quote (RFQ) process is initiated, and a supplier is chosen and awarded with the contract. Once the contract is fulfilled, the accounts payable department gets involved with payment.

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Here are the typical steps in the purchasing process and who you might see involved at each stage:

Requisition

• Purchasing
• Procurement
• Requesting department

Approval

• Purchasing
• Requesting department

Purchase order

• Purchasing
• Supplier

Receiving

• Supplier
• Logistics
• Requesting department

Invoicing

• Supplier
• Purchasing
• Accounts Payable

Payment

• Supplier
• Accounts Payable

Are the purchasing process and procurement process the same?

Not quite.

Admittedly, the procurement vs. purchasing debate is joint, and many organizations still call purchasing ‘procurement’ and ‘purchasing.’ It can be even more confusing if your company doesn’t have a dedicated purchasing or procurement department.

Here’s a quick way to remember the difference between purchasing and procurement:

Think of procurement as a vehicle and purchasing as one of the critical mechanisms the vehicle needs to function. The purchasing process is a small but critically important subset of the procurement process.

Importance of a purchasing process

The need to buy goods and services for your business is obvious, but what’s the point of having a process for this?

Here are just a few of the benefits of a well-crafted, properly documented, and universally enforced purchasing process:

Reduced procurement risk

All purchasing involves risk.

When you enter a relationship with a third-party vendor, you must consider financial risk. One example is the possibility of a vendor going out of business and leaving you without a supplier.

In the context of software, this is even greater. SaaS security risks, like the possibility of a data breach, need to be top of mind during the software buying process. A data breach can cause you to lose your customers’ trust or result in fines for non-compliance.

By having your team follow a strict set of steps—including a supplier risk analysis—you can prevent partnerships with riskier vendors and put mitigation strategies into place for those you choose to work with.

Greater spend visibility

Gaining 100 percent visibility over where your company spending is going is the first step in cutting costs and driving more significant ROI from your procurement department.

When everyone on your team follows the same purchasing process and uses some procurement platform (ideally integrated with your other financial software), you get spending data integral for improving visibility.

Improved compliance with buying policies

While ‘process’ and ‘policy’ are often used interchangeably, they aren’t the same.

A purchasing policy sets out the limitations your buyers must abide by, and a purchasing process helps you ensure that policy is enforced.

For instance, your purchasing policy might dictate that you only source from local suppliers.

To enforce this policy, your purchasing process might include a step wherein procurement professionals vet the supplier in question and ensure their operation is truly local.

Fewer overlapping software licenses

Overlapping licenses often pop up when buyers procure software platforms independently, such as when your marketing and admin teams each purchase a project management tool.

To prevent this, a good purchasing process includes checking for existing software tools that offer overlapping features.

For the same purpose, some companies may also want all software purchases to be signed off on by the IT department.

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How to use best practices to optimize your purchasing process

Execution of the purchasing process is fundamental to its success. But what if you want to take your formal process to the next level? Here are some things you can do to make that happen.

1. Define and communicate purchasing policies

Have you ever worked with a department that frequently referenced its policies but also had any clue what those policies were? Purchasing policies play a major role in maintaining order in the purchasing process, so it’s integral that they don’t fall into the “set it and forget it” category.

Anyone in the business who will ever have any involvement directly or indirectly with purchasing goods or services needs to be familiar with purchasing policies. If there are none, now is the time to create and define some.

Defining the policies is crucial, but communicating them is just as important. Ensure policies are published and easily accessible in appropriate locations, like internal communication platforms and wikis. Remember to consistently reference relevant policies if you send out a purchasing-related or general internal updates newsletter. Also, include policies in your purchasing training program.

Whatever your method, these policies can't be hidden or invisible to those who need them, and it’s best to mention them frequently so employees understand their importance.

2. Set SMART goals

SMART goals are specific, measurable, achievable, relevant, and time-bound. The goals you set for the purchasing process should align with the company's overall goals. A best practice for enforcing this type of consistency is listing the supporting company goal for every purchasing goal you establish.

For example:

• Company goal: Increase profit margin by reducing material costs.

• Supporting purchasing goal: Decrease costs on tangible goods by five percent within the next fiscal year.

If you need help deciding on goals to create, try reviewing the company's goals and listing how the purchasing department can help achieve them.

3. Establish and monitor KPIs

Key performance indicators (KPIs) are measurements of the efficiency and effectiveness of the purchasing process and goals you've set.

Common purchasing KPIs include:

• Cost savings
• Cost avoidance
• Maverick, rogue, and tail spend
• The average cost of purchase order processing
• Average delivery time
• Average purchasing cycle time
• Average supplier lead time

If your company uses SaaS products like e-procurement or procure-to-pay to enhance the purchasing process and provide automation, there may be additional KPIs you want to track. These often include the number of electronic purchase orders and catalog vs. non-catalog spending.

Periodically monitoring the KPIs is as essential as establishing them. Let's say you measure catalog vs. non-catalog spending annually. When checking the quarterly KPI, you notice that non-catalog spending is much higher than expected. As the purchasing manager, you know the company made non-recurring product purchases this quarter that they could not purchase from a catalog, so that you can note the reason for the variance.

But if you can’t account for this increase, it's time to look into training processes and contract availability. Is your purchasing team offering employees the necessary for using the marketplace or procure-to-pay system effectively? Are there important things the business needs for which you do not have catalogs in the company’s marketplace?

4. Engage in cohesive team-based strategic sourcing

Team-based strategic sourcing means involving all critical stakeholders in sourcing decisions. In addition to the fact that people generally like to be included in important decisions that affect them, this type of sourcing results in better contracts, relationships, and buy-in. It also helps to ensure all stakeholders understand the company’s internal priorities.

For example, are you sourcing a new SaaS product? Be sure to involve IT, as they’ll almost certainly be involved in its implementation.

5. Use SaaS technology to your advantage

Once upon a time, we printed and mailed purchase orders (yeah, that happened). And let’s not even talk about the years of carbonless copy-paper POs. Products were subsequently developed to help streamline the purchase order to payment process. Still, multiple solutions were needed to achieve the necessary tasks, and there were still many manual processes.

Fast forward to today: SaaS technology has changed the purchasing game in a big way. SaaS suppliers like Unimarket and JAGGAER now offer seamless procure-to-pay solutions, including worldwide B2B marketplaces, e-procurement, and contract management.

Asset management systems, like Oracle’s NetSuite, help record and track company assets. You can even find analytics solutions, like SAP Ariba and Corcentric, that help track spend and other metrics.

If you can dream of a particular purchasing or procurement SaaS solution, you can find it on the market. Buying SaaS technology is a great way to take your purchasing process from manual to magical.

6. Make purchasing cards your friend

Even with procure-to-pay solutions, certain types of purchases do not justify the cost of processing a PO, invoicing, and reconciling the check, wire, or direct deposit payment. For such instances, purchasing cards are an excellent way of optimizing the process.

The National Association of Purchasing Card Professionals reported that, compared to a traditional purchasing process, the savings from using a purchasing card is anywhere from 55 percent to 80 percent. That equates to a typical savings of $63 per purchasing card transaction.

Are there low-cost, raw materials, or contract goods from preferred suppliers that you purchase through the traditional process that would be more effectively bought on purchasing cards? If so, consider implementing a purchasing card program. As an added perk, look for a credit card provider that offers yearly rebates based on spend.

7. Train the trainer

Training company employees to use purchasing systems and understand purchasing policies is vital. However, the train-the-trainer approach takes training further by creating a continuous process that changes as technologies, employees, and the business change.

Here’s what the train-the-trainer approach could look like:

• Purchasing receives in-depth training from SaaS suppliers on purchasing systems.
• Purchasing develops a formal training program on all purchasing systems and policies.
• Purchasing creates an online knowledge base of tutorials, troubleshooting, and frequently asked questions.
• Purchasing trainers work with each department to establish a designated trainer.
• Departmental purchasing trainers offer in-person or online training programs.
• Departmental purchasing trainers conduct periodic training updates.

The idea with this training approach is that after one person receives training, they then train others, and the cycle continues.

Think about this scenario: Someone in your company needs to order a software license for their office desktop computer. That software is available for purchase by catalog in the procure-to-pay system. But this person has not been trained in purchasing, and despite asking around their department, no one knows how to order the software. To get what they need, they go to the software provider's website and order it at a higher-than-contract price.

Considering this one-off scenario points to a larger problem, your company can benefit tremendously by implementing a solid training program.

8. Find the perfect balance between centralized and decentralized purchasing

Businesses can take two general approaches to purchasing: centralized and decentralized.

In the centralized buying approach, all purchases are made by a central procurement team.

Under the decentralized model, leaders of business units, departments, or branches have the authority to procure the goods and services their teams need.

There are benefits and drawbacks to each approach.

Centralized procurement incurs less risk, as only a handful of employees have the authority to purchase. However, it is more cumbersome and has more red tape, which can lead to purchasing delays that frustrate department managers and employees.

In a decentralized approach, the opposite is true. Purchasing is faster, as managers don’t need to consult with a procurement team, but more risk is involved, and less attention is paid to cost-cutting.

A model that sits somewhere in the middle is sufficient for many organizations. For instance, you might allow branch managers to make purchasing decisions related to inventory, office supplies, and other goods specific to their business unit. However, software and purchases above a certain amount must be forwarded to the purchasing department.

9. Make automation your best friend

The most effective organizations use automation to create efficiencies while maintaining compliance with their purchasing process. A classic example of this is the approval workflow.

Here, you’d use automation to build out a process like this:

• Employee raises a purchase request
• The request is sent automatically to their department leader
• If the department leader approves the request, it is forwarded automatically to a purchasing employee
• The purchasing team member assesses the request and, if approved, engages in the sourcing process
• Once the purchasing team member finds an appropriate product or service, they seek advice from the original requester
• The requesting employee approves the purchase, and the purchase request is converted to a purchase order

10. Take a bottom-up approach to process optimization

Think of the purchasing process not as a one-and-done- affair but as an evolving part of your business operations. Regularly review the process and make adjustments that optimize it, either by reducing risk or making it more efficient.

This optimization should come from the bottom up: Whenever considering changes to the process, consult with the people who use it. They can provide valuable insights into what is and isn’t working and how you can make the process faster, more convenient, or easier to follow.

The purchasing process: Taking your company to the next level

The core of the purchasing process is systematic and transactional, but don’t let that stop you from using expert strategies to create an even more positive impact on your company. Using the best practices we’ve revealed here, your purchasing team will create a domino effect of savings and efficiency throughout the business for years.

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