by martieLast Updated : Jun-27-2023
Are you tired of the manual purchasing process and looking to automate purchasing using a purchasing system?
If you don’t have a purchasing system, you are probably creating the purchase orders manually.
Employees are filling up paper purchase request forms, or if you are more advanced, you probably use Google Forms.
You are probably struggling with one of the following:
Don’t worry. We got you covered!
This article will cover a step-by-step process for setting up a purchasing system. You will leave with a deep understanding of what features you need in the purchasing system.
A purchasing system automates the purchasing process for the company. It provides an electronic process for employees to submit, approve and track digital purchase orders in one place.
Purchasing systems are mostly cloud-based, so companies don’t worry about installing applications on different user computers.
A well-adopted purchasing system helps increase productivity, control spending , and better compliance with the purchasing policy.
With a purchasing system, companies can implement a cost control process. The managers can review the spending before it happens.
That allows them to decide whether a purchase request should be approved or rejected without a budget.
More importantly, a purchasing system allows the finance team to see all purchasing data in one place.
With greater Spend visibility, the finance team can improve the cash flow and manage working capital.
In summary, a purchasing system provides you with the following capabilities:
In this section, we will discuss three different types of purchasing systems that you can implement. The options range from a manual process to a fully automated process.
You can set up a manual purchasing system if you don’t have the budget to invest in a purchase order system.
More important is to have a well-defined purchasing process.
If the purchasing process is well-defined, you can use a manual process.
The purchasing policy defines the purchasing process. The two key elements of the purchasing policy are as follows:
Once these two processes are defined, you can implement a purchasing system.
A manual process would include the following:
Use a manual process If you have less than five employees and are creating fewer than ten purchase orders.
If you use an accounting software package like QuickBooks, you can use that as your purchasing system.
You, of course, need to define your purchasing process first.
There are two variations to using your accounting software as a purchasing system.
We don’t recommend the first option because, without access control, someone can mess with the company’s books.
For the second option, you need the following:
Use this approach when you are under 20 employees and creating less than 15 monthly purchase orders.
As the name suggests, a best-of-breed purchasing system automates the purchasing process.
The ProcureDesk purchasing system automates the purchasing process and provides better Spend visibility to the finance teams.
A purchasing system integrates with your accounting package, so you don’t have to worry about syncing the purchasing data to your accounting system.
We will cover the details of the purchasing system next.
Use an automated purchasing system when you have over 20 employees and create more than 15 monthly purchase orders.
In this section, we will cover a purchasing system’s functionality.
Here are the key feature of an automated purchasing system
Purchase request automation provides employees with an electronic process to create, track and manage purchase requests.
So instead of filling up forms, they can use an electronic purchase request.
The electronic purchase request process works as follows:
The user logins to the purchasing system and selects to create a new purchase request.
The system remembers the default department, ship to, and cost centers.
The user then adds the item to the purchase request by selecting it from a vendor catalog or typing in the description of what they want to purchase.
There are two types of vendor catalogs.
The vendor manages one, and the other you create and manage.
The catalogs that the vendors manage are also called vendor punchouts.
Here is an example of purchasing experience using Amazon vendor catalogs.
The user clicks on the Amazon logo from within the ProcureDesk.
The system takes the user to the Amazon account (You need a business account for this to work).
Here is an example of that:
Once you have selected the items you want to purchase, click the “Submit these items for Approval” button to return the information to ProcureDesk.
The data is automatically populated back into the purchase request without the user needing any data entry.
Though it is the perfect employee experience, not all vendors offer a punchout catalog.
That is where internal catalogs can help.
An administrator or the user creates the catalog with the basic item information.
Employees can then search the catalog and choose the items they want.
The item is then automatically added to the user’s cart.
With the mix of vendor and self-managed catalogs, you can significantly increase the purchasing experience for your buyers.
Purchase approvals automate the purchase approval process.
Instead of sending emails for approvals, the system first identifies the correct approvals and then automatically routes the request to approvers.
You need to set up the workflow for the system to route the purchase approvals automatically.
ProcureDesk offers a flexible workflow engine to configure your approval matrix.
Here is an example of how to set up an approval workflow:
In the screenshot above, the request first goes to the manager, and CFO approves any request of more than $100,000
You can set up the workflow based on department, location, GL account, amount, and other variables.
Once you set up the workflow, the system automatically assigns the approvers and sends the request to the approver.
The approver has the option to approve the request in one of the following ways:
With the Omni channel approval strategy, your approvers can approve the purchase using the best method.
Budgets provide a control mechanism so that you don’t go over budget.
You can create a budget based on the GL, department, location, etc.
If you already have a budget in QuickBooks, you can import the budget from QuickBooks.
Here is an example of a monthly budget for sales and marketing expenses:
When employees create a purchase request, the system asks them to select the appropriate budget.
The system can control budget access by the employee’s department.
The user can also see the available budget before they submit the purchase request.
When the approver receives the request, they can see exactly how much budget is available and what would be available after the request is approved.
In the screenshot above, an approver can see the budget usage. Managers can approve with confidence using budget tracking.
You can also set up rules so the system knows the appropriate action if the user exceeds the budget.
For example, you can easily set up a rule that blocks the purchase if the appropriate amount is unavailable in the selected budget.
The purchase order software module allows you to create and issue the purchase order to the vendor.
The purchase order module also allows you to track the purchase order software lifecycle.
The purchase order lifecycle includes tracking the order from issuing to the time it is delivered.
Once the purchase request is approved, you can either send the request to a buyer for further review or convert it to a purchase order and send it to the vendor.
You can configure a workflow in the system to automatically convert the request to a purchase order or have a manual review process.
Here is an example of a purchase order:
The system then generates the purchase order document and sends it to the vendor based on the vendor’s preferences.
Here is an example of a purchase order document:
The system emails the purchase order to the vendor or electronically sends the Purchase order to the vendor.
Once the system sends the purchase to the vendor, the vendor can acknowledge the receipt of the purchase order.
The supplier can respond by email or use the ProcureDesk portal to acknowledge an order.
Once the vendor acknowledges and ships the order, they can also send ASN (Advance Shipping Notice).
Here is an example of ASN:
Once the system has the tracking number, it can track the shipment and update the buyer when the product gets delivered.
After receiving the product, the buyer can inspect the product, check the packaging slip and confirm the delivery of the product by creating a receipt in the system.
A goods receipt confirms the received quantity.
You can create partial receipts if the complete purchase order is not shipped.
Here is an example of a purchase receipt:
Inventory management allows you to track stocked items and assess inventory value anytime.
If you are concerned about inventory value at any time, inventory management helps you with stock visibility.
The inventory management process starts with identifying the list of the items which you want to keep in stock.
Once you identify the items, every time you purchase the items, the system updates the on-hand quantity.
So the person responsible for keeping inventory can easily track what quantity is already on order.
Here is an example of how it looks:
When you receive the product from the vendor, you can create a receipt to confirm the delivery and update the on-hand stock levels for that item.
You can store inventory at one or multiple warehouse locations.
Here is an example of tracking the inventory across different locations.
You can also transfer the inventory across different locations.
You can create an inventory adjustment to update the stock levels of the items. There are two ways to update the current stock levels.
You can create a release to adjust the inventory or update the inventory levels in bulk through a spreadsheet upload.
You can create a release and issue the inventory with manual adjustments.
The benefit of creating a release is that you can track who uses the inventory and for what purpose.
The stock adjustments tracking is especially helpful when you want to track the usage by different projects.
Here is an example of manual inventory adjustment:
The other option is to upload the inventory status through a spreadsheet upload process.
To upload the inventory count through a spreadsheet, the user must provide the current quantity and the average unit price for inventory valuation.
The upload is a quick and easy way to keep track of the inventory.
Once the inventory is updated, you can run an inventory valuation report to see the total value.
The report breaks down the inventory across different warehouse locations, making it easy to transfer inventory.
Here is an example of an inventory valuation report:
Spend reporting is a key feature of a purchasing system. It provides instant visibility into your total spend and the committed spend.
With Spend reports, you can better manage your cash flow and working capital needs.
The ProcureDesk purchasing system supports both management reporting and detailed operations reporting.
With the Spend dashboard, you can see the Spend summary anytime.
Here is an example of the Spend dashboard:
You can easily see a summary of what you are purchasing, from whom, and who is purchasing.
You can also monitor monthly spending trends to understand your burn rate and cash flow needs.
With reporting, you can see everything that is going on in your purchasing process.
Here is an example of an open-order report:
With the open order report, I can see my open liabilities.
For example, you can view an order, invoiced, and balance amount.
I can also track this detail at the order level to know what orders are pending invoicing.
This report helps with cash flow planning and supports the accounting team with accrual management.
ProcureDesk supports more than 30 reports to help you get what you want.
Without integration with your accounting system, there is no way to transfer the data from your purchasing system to your accounting system.
The data exchange is two-way. Purchasing system needs data like charts of accounts, suppliers, items, classes, etc., from the accounting system. These details are required so that the user can allocate the cost to the correct account.
The purchasing system should send the purchase order data to the accounting system so that you don’t have to recreate the purchase order in the accounting system.
ProcureDesk supports two-way sync with accounting systems to support the data exchange.
You can import the required data from your accounting system and automatically sync the purchase order data to the accounting system. The system automatically syncs the data without manually pushing the “Sync” buttons to sync the data to the accounting system.
ProcureDesk supports integration with the following systems.
The utilization of a purchasing system provides numerous advantages, contributing to an efficient purchasing process, enhanced cash flow control, improved order tracking, and the utilization of legally binding purchase orders.
Organizations can streamline their procurement process by implementing a purchasing system, resulting in a more efficient purchasing workflow. This efficiency translates into time and cost savings, allowing businesses to focus their resources on other critical aspects of operations.
An essential feature of a purchasing system is the integration of purchase orders. Purchase orders serve as legal documents establishing a formal agreement between the buyer and the seller. These documents help prevent duplicate orders and minimize confusion or discrepancies during purchasing. Furthermore, purchase orders are vital in tracking incoming orders, ensuring they align with the original specifications and quantities requested.
Effective cash flow management is crucial for any business, and a purchasing system aids in controlling cash outflows. By implementing a systematic approach to procurement, organizations can establish budgetary controls, monitor expenditures, and make informed decisions regarding their purchasing activities. This level of control prevents overspending, optimizes financial resources, and contributes to the company’s overall financial health.
Order tracking is simplified through the use of a purchasing system. With automated tools and processes in place, businesses can easily monitor the status of their orders, track deliveries, and identify any potential delays or issues. This transparency enables proactive supply chain management, facilitating timely decision-making and ensuring customer satisfaction.
The inclusion of purchase orders within a purchasing system not only facilitates order tracking but also serves as legal documentation. Purchase orders provide a clear record of the terms and conditions agreed upon between the buyer and the seller, protecting both parties interests. In disputes or discrepancies, these documents serve as evidence of the agreed-upon terms, enabling resolution and mitigating risks.
Selecting the ideal purchasing system for your business requires careful evaluation based on several critical factors. Considering your organization’s specific needs, the complexity of your processes, budgetary constraints, available market options, and suitability are all essential components of the decision-making process.
First and foremost, understanding your organization’s specific needs is paramount. Assess the size of your business, your industry, and the breadth of products and services involved in your procurement process. Determine the key functionalities and features required to support your unique purchasing requirements. This thorough understanding will enable you to focus on systems that align closely with your business needs.
Next, evaluate the complexity of your purchasing processes. Determine whether your procurement activities are straightforward or involve intricate procedures such as multiple approval levels, prime contract management, or integration with other systems. This assessment will help you identify purchasing systems that can effectively handle the complexity of your operations.
Consider your budgetary limitations when exploring purchasing system options. This will help you understand your financial capabilities better. Some systems may require a significant investment, while others offer more affordable alternatives. It is crucial to balance cost and functionality, ensuring that the chosen system provides value for money and aligns with your available resources.
Research and explore the market options available. Look for a selection of vendors that offer computerized purchasing systems tailored to your industry or specific needs. Consider their track record, customer reviews, and support services. Engage in product demonstrations or trials to gain hands-on experience and evaluate the usability and suitability of each system.
During the evaluation process, assess the suitability of each purchasing system based on your identified needs to a maximum extent. Compare their features, functionalities, scalability, integration capabilities, and user-friendliness. Consider factors such as customization options, reporting capabilities, and potential for future growth or expansion. A system that can adapt to your evolving business requirements will likely be more suitable in the long run.
Implementing a purchasing system in your business requires a systematic approach to ensure a successful transition. By following these key steps, you can effectively implement a purchasing system that improves procurement processes and enhances overall efficiency:
Begin by assessing your company’s requirements and pain points to help you implement an efficient procurement process. Identify areas that need improvement, such as reducing human errors, streamlining workflows, or enhancing financial control. This evaluation will help you determine the features and functionalities necessary for your purchasing system for a reasonable price.
Conduct thorough research to explore the various purchasing system options. Consider scalability, integration capabilities, user-friendliness, and customer support. Compare features, pricing, and customer reviews to identify systems that align with your company’s needs, helping you implement budget control.
Based on your assessment and research, choose the purchasing system that best suits your organization’s requirements that will help you gain complete control of your purchasing process. Ensure that the selected system aligns with your administrative structure and provides the necessary functionality to address your identified needs effectively.
Provide comprehensive training to your employees on how to use the new purchasing system. This training should cover all relevant aspects, including raising purchase requisitions, processing purchase orders, managing invoice approvals, and navigating the system’s interface so your team gains effective control over your process. Empower your employees with the knowledge and skills to utilize the system efficiently, reducing manual errors and increasing user adoption.
Implementing a purchasing system is an ongoing process requiring continuous monitoring and evaluation to help you control inventory. Regularly assess the system’s performance and gather user feedback to identify improvement areas. Monitor key metrics from time to time, such as order processing time, error rates, and financial control indicators, to measure the system’s effectiveness. This gives finance teams insight to make better business decisions.
Incorporate adequate policies, internal audit requirements, and financial control measures into the system. Set up processes and workflows that adhere to these guidelines, ensuring compliance and reducing risks. Regularly review expenditures and compare them against budget lines to identify areas for cost reduction while maintaining adequate financial control.
Ensure that the purchasing system delivers real-time data and generates accurate reports. This information will enable you to make informed decisions, identify trends, and optimize purchasing strategies. Regularly review and analyze expenditure reports to identify opportunities for process improvement and adequate cost savings.
By following these steps, you can implement a purchasing system that addresses your company’s specific needs, improves efficiency, enhances financial control, and provides valuable insights for decision-making. Regularly review and adapt the system as your business evolves to ensure continuous improvement and maximum benefit.
We have covered the seven key features of setting up a compliant purchasing system that will help you manage your administrative costs better.
After implementing a purchasing system, you and your department heads would see the following benefits after the first 30-45 days.
There are two ways to move forward:
What you should do now
Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.