• Shelly Bortolotto

Save money with our 8 step guide to improving the purchasing process in your business

Updated: Jul 22, 2019

Focusing on improving how you can quickly and easily buy what you need is smart business. The result: you will save time, money, effort and improve customer service.

What is a purchasing process?

The purchasing process is a way to describe all the activities that happen in order to get the goods and services that you need to operate your business. This captures all the steps from planning what you need right through to paying an invoice. It’s sometimes called “procure to pay” or P2P for short. It includes printing services to raw construction materials, and everything in between.

Want to level up your process? Download our free cheat sheet with 24 extra tips to improve your purchasing process.

Who does it in your business?

Do you have a purchasing policy? Do you know who is able to spend on behalf of your company? If the answer to either question is “No” – then read on.

Typically only managers, supervisors and key employees are able to purchase on behalf of a business. Employees can usually purchase only up to a set dollar amount. They should know who can approve their requests to purchase.

Why should you focus on the purchasing process anyway?

Improving your purchasing process is one of the first steps to strengthening your entire supply chain. Having a strong purchasing process, written purchasing policy, a good receiving method, and timely payment of invoices is a crucial first step. Without these, any efforts at supplier management, spend analysis and category management won’t be as effective.

Putting in the effort to get it right can save your business thousands of dollars. Having employees that are able to easily and quickly get what they need to do their jobs will also create more satisfied and productive staff, and a better employee culture.

Step 1 – Plan ahead for what you need to purchase

Planning ahead is critical to a great purchasing process. Is this something your organization does well? You can have an amazing receiving and invoice payment process, but without planning ahead, you still won’t get the goods you need: at the right time, at the right place and at the right price.

As you probably know, planning can always be done better. Look for these telltale signs in your organization that you could be benefit from really diving deep and improving your planning skills.

  • Do you frequently run out of commonly used materials?

  • Are you paying invoices with rush shipping or overnight charges?

  • Do your employees get panicked and make “urgent” purchases that aren’t really “urgent”?

  • Do you forget to order supplies for upcoming holiday events on the calendar?

How do you improve your planning? Join my mailing list and stay tuned to get notified of my upcoming article with tips for planning your buying ahead of time.

Women standing up and speaking at business planning meeting.
Plan your business purchase needs for the year.

In the meantime, I suggest turning to the ultra-organized individual in your workplace. Look for how you and your staff can either improve their planning skills or create a workaround. We are huge fans here of building on your best skills and creating solid workarounds for skill weaknesses.

Step 2 – Getting quotes

When you have planned what you need, it’s time to get an understanding of cost. This can be a simple process from checking a price list, to doing three quotes right up to completing a full Request for Tender (RFT) or Request for Quote (RFQ).

Of course, you will have different processes in your organization depending on the complexity of the purchase, and any standing offers or quotes you already have setup. However even the most casual quoting process should still have some rigor to it. This ensures that you are receiving competitive pricing from potential suppliers.

What is the simplest way to quote? Just call up the suppliers and ask. There are three key guidelines to an effective telephone quote request:

1. Be specific – ask for exactly what you need

2. Take notes – jot down the person’s name and any additional details

3. Know the details – have any extra details to hand, such as specifications or color preferences

In short, give the supplier what they need to quote accurately. We highly, highly recommend getting every quote in writing. It’s perfectly okay to ask the supplier to email you a copy of the quote.

When to use three quotes in business?

  • When you want to test the market pricing

  • If it’s been some time since you last tested the market

  • When a new supplier has come onto the market

  • When cost of raw materials or other market conditions have changed

  • When the expected cost is above what’s stated in your organizations procurement policy

When to use a Request for Proposal or Request for Tender?

You would typically use a request for proposal (RFP) or a request for tender (RFT) when the project or job is a higher value or multi stage request, or if you were doing very high volume over the year. For example, an RFP could be used for a multi year fleet arrangement, and an RFT could be used for procurement of raw sand for a year long contract. Your company procurement policy will typically specify the dollar limits for when an RFP or RFT should be used.

Step 3 – the ask to spend

Do you know if you can buy on behalf of your organization? Or do you need to ask for someone’s approval? This is called “the ask to spend” – otherwise known as “can I buy this please?”

The ask to spend in step 3 and the approval to spend in step 4 are two parts that are joined together. By looking at them separately we can understand them in more detail.

By requiring employees to get approval before they purchase it helps business owners to:

  • Control their expenses

  • Forecast their cash flow and budget accordingly

  • Standardize equipment and brands

  • Control the purchasing process so they can optimize it

The ask to spend can be an informal process or a formal process. An informal process might be a quick email to a manager, or catching your supervisor in the car park. A formal process may be entering a requisition into your computerized system.

There are four key parts to the ask.

  1. Item description

  2. Reason for needing it

  3. Approximate or maximum $ amount

  4. Department or location paying for it

Here’s where it’s gets interesting. All of these are critical to making sure that the rest of the process flows smoothly. Missing the department or location information won’t actually affect the process until it hits step 8. Unless accounting knows which department or location is paying for the goods, they won’t be able to process the invoice and get it paid on time.

Step 4 – the approval to spend

This is the second half of this part – getting the approval to spend. This ensures that the right person or people in your organization are approving the purchase request. Communicate who this is to your employees so that are clear on who they need to ask. Ideally you have a purchasing policy that clearly sets out who has the authority to approve purchases and up to what limit in your company.

If you don’t have a purchasing policy, that's something we specialize in. We offer a free Purchasing Power Clarity Call to get you started.

To keep the business running, make sure that your requisition approval people are available to approve when needed. Ask yourself, what happens when someone is sick? Who can approve in emergencies? What constitutes an emergency? What happens afterwards to fix up the paperwork?

This is a major control point in your budget. If you have employees purchasing without the proper approval, even or especially if it’s to get their job done, then a review of your purchasing policy and process is definitely a good idea.

As you can see, a lot of work has already happened before the goods even get purchased. By doing this work up front it creates a much smoother end to the purchasing cycle.

Step 5 – Purchasing the items

Wow, finally we are at purchasing the items! This is the “no going back” moment when your business gets committed to the purchase. You commit to receiving the goods, and paying the invoice.

Did your employee just order 20 real live elephants instead of framed photos? Oh no! Here’s hoping you can get hold of the supplier before they box them up and start shipping them.

Speeding up the time spent on this step can be a quick win. Check with your suppliers to see if they offer online ordering instead of waiting on the phone. Add your items onto

auto shipping, if you use them often enough at a predictable rate. You will never run out of office coffee again!

Please, I implore you, train your employees to provide a Purchase Order (PO) number to your suppliers. Advise all your suppliers to ask for one. If you don’t use PO numbers, then use a department name or requester name instead. Anything to help your receivers know where to send the box.

What are your tips for ordering faster and more efficiently? Share them below in the comments.

Step 6 – Items received and sent to requester

This is really the make or break part. When the boxes of goods arrive to your business, how quickly do they get opened and into the hands of the person that needs them? Within 24 hours? Within 2-3 days? Or do the boxes sit unopened for a week until someone thinks to open them?

Completing this process in a timely manner is important to:

  • Check for breakage / missing items;

  • Speed up time from ordering to delivery;

  • Avoid spoilage or damage; and

  • Receive stock into inventory in a timely manner.

What are the 4 key steps that your warehouse receiver or receptionist should do when they open the box?

You asked! You got it! Here are the six key steps after the big reveal…

  1. Inspect the goods for damage

  2. Check off against the packing slip

  3. Receive goods into inventory if necessary

  4. Deliver goods to requester

  5. Goods placed in proper storage conditions

  6. Packing slip sent to accounting

What if something isn’t 100% perfect with the package? Do your receivers know the steps to fix the problem? Reporting damage promptly to shipper and supplier, getting the new items shipped…

Okay, I can’t resist. I have to share the process we use when we notice a damaged or missing item:

6 step checklist for missing or damaged items

  1. Notify supplier by phone and follow up with email.

  2. Notify shipping company if box is missing or damaged, or broken part inside.

  3. Find out when replacement is due to arrive.

  4. Follow up if replacement does not arrive.

  5. Ship back broken part if requested.

  6. Amend purchasing system records as needed.

Take a few minutes over the next few days and observe this process in your own business. Could you use one of these handy checklists to streamline your business?

Step 7 – Invoice sent to accounting

It’s simple really, just make sure that the invoice gets to the accounting department. BUT…. You’d be surprised how often this is the cause of a delayed payment. The invoice never made it to accounting.

Unless the invoice gets to accounting, it will likely never be paid. Accounting really should not be paying anything without an invoice. Here are some of the places we’ve discovered invoices – not in accounting:

  • Delivered to location with goods

  • Back to supplier

  • In a pocket

  • On a shoe

  • Emailed to wrong person

  • Emailed to dead email account (for months!)

  • Sent to the wrong company

  • Faxed to weird location

  • Created online and just not printed out

Remember, accounting only needs one invoice, not multiples. Getting more than one copy actually makes it harder to be efficient at processing invoices.

Did you know that getting EVERY SINGLE INVOICE to accounting in a timely manner can be crucial to the financial health of the business? It allows the accounting department to get the expense into the correct financial period. This gives senior management accurate information about the true cost of the finished goods. This is used to price the goods accordingly and do future price modelling.

Step 8 – Accounting confirms goods received and pays invoice

The final step is paying the invoice. The most important one too, if you want to be able to start again at step one next month. You need to pay for the goods and services you have received.

Three way match method

Your accounting department or person needs some key information to pay for the goods. Ideally they will have these three pieces:

  1. Confirmation that the goods arrived – this can happen by someone confirming by phone, email or signature, or electronically in a computerized system.

  2. The packing slip if physical goods were shipped or a confirmation of services performed.

  3. The invoice issued from the supplier.

This is called a 3-way match, and gives the organization the greatest confidence that they are only paying for goods and services properly purchased and received. If you are using a computerized system then all three pieces can be matched together using the Purchase Order number.

What next? Go and talk to your accounting department. Find out what their biggest pain points are. What are they spending their time on that they wish they weren’t? Is it receiving duplicate invoices, items not received, invoices not arriving, invoices not matching the Purchase Order? They will really appreciate you making the effort to help them. Especially if you can improve the situation and make a difference. If you really want to get them involved, share this article with them.

Want to go even further? Pick up our free cheat sheet to help you improve your purchasing process. We've got 24 tips to help you level up your purchasing.

317 views1 comment