Implications of Purchasing Strategies on Businesses

Purchasing in business refers to the process of obtaining products or services for resale or to be utilized in the creation of other products or services. It is imperative to acknowledge the significance of purchasing as a critical function within any firm.

Purchasing is the carrying out of tasks that are aimed at ensuring the availability of the necessary supplies and materials in an organization in order to meet its production needs. Effective logistics of a purchasing department will be aware of the market and its suppliers in order to make the best bargain for the needed products and services.

Purchasing involves the acquisition of required materials through supply networks from outside suppliers. It starts after the procurement teams have laid down the corporate requirements for it. Hence, common buying processes such as PO and management of inventories play a vital role in supply chain management of an organization. In addition, keeping a positive rapport with the suppliers is essential to successful purchasing in order to prevent future headaches.

Classification of Purchasing

1. Goods and Services: This is the most fundamental kind of purchasing, where companies pay suppliers to obtain products or services.
2. Strategic Purchasing: This involves identifying the overall requirements of the company and then going out and searching for ways to help meet such needs.
3. Contractual Purchasing: This kind of transaction is normally done in big projects or acquisitions in which the buyer and the seller have a legal contract on the matter.
4. Bulk purchasing: The concept of bulk purchasing agreements can be utilized when a business requires making large purchases of products or services.

Steps in the Process of Purchasing

Organizations use a more formal purchasing process than consumers. In this case, instead of using what might be regarded as impulsive decision, one makes decisions with the consideration of the opinions of third parties, costs, and quality of product or services.

Usually, a purchase involves the following steps:

1. Understanding the Issue: Any employee in the company from the lowest rank can initiate the procurement process for supplies, equipment, or other products that the company might need in its operation. The purchasing team then discusses with other teams to determine the requirements and to know the best solution.
2. Initiating a Purchase Requisition: A purchase request refers to a communication that is internal and is made by an employee of the organization to the purchasing team or the manager. The data of the purchase request includes the sender’s information and specifies all the relevant data about the purchased product or service.
3. Assessing Third-Party Candidates: The process of seeking for possible third parties is the third in the purchasing cycle. Another potential data source is from the trade exhibits, searching the internet or asking friends in case the organization has no business relationship with the third party.
4. Negotiating Contractual Terms: The agreement is given to the third bidder who wins. Following that, the buying manager negotiates terms and conditions with the chosen vendor. As a result, they edit and review the agreement before signing. A legally binding agreement between the buyer and the seller is delivered to the PO after the deal is signed. The buying manager may, at times, also require availing an account credit with the third party.
5. Finalizing the Order: It should be noted that the formal order is placed only by the purchasing team once the contract is signed. Other related factors which include the time frame of delivery, frequency of delivery, price and any other charges which are payable may be agreed and documented by both parties at any one time or from time to time. A hard copy of this agreement is kept in the files of the respective business for reference in the future.
6. Quality Assurance Inspection: Within the predetermined window of time, the third party delivers the goods or services. The purchasing team inspects the order upon delivery to make sure there are no flaws or deliveries that the vendor did not make.

Best Practices for Effective Purchasing

1. Establish and Communicate Purchasing Guidelines: Start writing accurate policies and standard operating procedures that articulate and describe your expectations of purchases accurately.

These ought to include, for example:

• The conditions and the parties that can make the purchase choices.
• In which scenarios can one distinguish additional authorization?
• Instructions on completion of a purchase order form also known as a purchase requisition.

Once you have generated such papers, ensure that you update the papers, and they are easily accessible.

2. Process Automation:

Purchase Automation benefits:

• This procedure should increase the speed and the accuracy of the record-keeping procedure.
• Automatically conduct the three-way matching procedure in order to obtain the maximum matching amount for each of the transactions, including a purchase.
• Allow the right number of employees to collaborate and authorize diverse stages of the procurement process in one place. Using one virtual account, several team members, no matter which phase of purchasing they are in, can monitor the process.
• Automatically export the data that you need in the proper format.

3. Building Effective Supplier Partnerships: As much as possible one should endeavour to have long-term business relations with reliable suppliers. Such exchanges evolve into symbiotic relationships in which organizations and employees benefit from each other. Suppliers are frequently an excellent source of industry knowledge. Even though there are occasions when you are quite certain of which type of goods and services you and your business need, suppliers are experienced producers of goods and providers of services. They may have data and research results to be of help to you in exploring new inventions and cheaper options. It is possible to make expenditures and increase your net profit by developing good relations with your suppliers.

4. Evaluate Your Requirements Periodically: Your needs are likely to change with the growth of your firm. Be reminded on this by reviewing the purchase procedure and business requirements frequently. So, pay attention to the workflow and plan the orders more effectively.

5. Stay Informed on Market Dynamics: Keeping up with market trends is a good idea. For instance, you should know if there are issues to do with a supply chain that has an impact on the ability of your vendors to supply as planned. However, you can also do this by maintaining a good relationship of communicating regularly with your suppliers and subscribing to periodicals, email newsletters, and social media groups which deal with topics on purchasing and procurement of your sector.

In any organization, whether big or small, it is imperative to have an efficient purchase department so that it can be assured adequate materials and services that is required in the production process at minimal costs possible. Companies may use better and time-saving business procedures in procurement and operations, including evaluating third-party candidates for procurement and negotiating and managing good supplier relations. In order to enhance purchasing performance and ensure the organization is viable and effective in supply chain management, the following best practices should be adopted: Automation of purchasing processes and well-defined policies should be adopted, and more frequent purchases should be made with an analysis of the market done to identify a suitable supplier.

Procurement Resource: Your Partner for Purchasing Optimization

At Procurement Resource our vision is to be the one-stop supply chain solution provider. Our firm can guarantee a wide array of services to our clients towards helping your company in making rational decisions that can improve the efficiency of your procurement processes. Therefore, better knowledge of supply chain data, category insights, market intelligence services, and procurement analytics improves the ability of businesses to make logical decisions that lead to profitability and expansion. If you choose to use our services, we also guarantee that your procurement plan will be improved and that you will have more possibilities for suppliers in your market. Make an appointment for a meeting with us right now to discuss how your business can prosper in the dynamic global marketplace.

Author

Mansi Singh (Associate Business Analyst in Procurement Resource)