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How to design a Purchasing Process Part 1

With the introduction of modern technology, Purchasing Processes have been able to change dramatically. Improved methods of communication have meant that Order requests can be transferred electronically, notification of delivery emailed, supplier payments automated.

While many businesses may find the utopia of fully automated procurement a strategy rather than reality, purchasing departments often find themselves in a hybrid where a mixture of technology, partners and culture may be unable to accept a fully automated approach and traditional and contemporary processes co-exist.

In designing purchasing processes it’s important to take into account both how information systems can be leveraged and where business constraints and govenance exist. Whilst some fundamentals e.g. originating need – communicating the need to the supplier – delivery – the payment of the supplier - may exist in most processes – how they are deployed can vary depending on the overall strategy of the business and the prevalence of, and confidence in, Information Systems.

When designing purchasing processes it’s helpful to understand both the traditional and contemporary methods in order to select the appropriate element that applies (or can apply) to your organisation.

Traditional Purchasing Process

Where information technology is not heavily ingrained - Traditional Purchasing processes tend to be characterised by high levels of bureaucracy, encumbered with manual authorisation (often requiring multiple signatures independent of the order value.), slow communications and a focus on unit price rather than long term commodity arrangements. Due in part to the lack of readily available Management Information.

The diagram below provides an example of a traditional purchasing process.

example of a traditional purchasing process

* The process may require authorisation at various intervals – including at the requisition, Purchase Order, supplier payment process – this may be multiple authorisations at each stage e.g. the operator and his/her supervisor.
* Sourcing and tendering may focus on obtaining multiple cost/availability options from various suppliers rather than leveraging formal long term contracts. There may be little to no pressure on limiting the number of suppliers used.
* Manual Purchase Orders are raised and sent to suppliers – manual acknowledgements are also requested. Communication is slow and paper based.
* Periodic expediting activity takes place to ensure delivery schedules are adhered to
* Items are delivered and forms/documents are transferred within the business to close down orders
* Manual invoices are submitted and subject to authorisation procedures often requiring signatures to indicate that the Purchasing process has completed satisfactory (and that the order has been met).

In the second part of our guide - we'll look at how technology plays it's part in a modern technology driven Purchasing Process. How to design a Purchasing Process Part 2


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