Purchasing System Options for Growing Companies

Bonus: Purchase order system checklist

 

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 mode advanced, you probably use Google forms.

You are probably struggling with one of the following:

1. Purchase requests take forever to approve.
2. Creating Purchase orders takes more time because your AP team has to create a purchase order in your accounting system.
3. Poor Cash Flow planning because you don’t know about all expenses unless the invoice shows up.

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.

What is a 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 solutions, so companies don’t have to worry about installing the application 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 if there is no 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:

1. Ability to electronically create a purchase order request.
2. Approve the purchase and compare it with the available budget.
3. Issue the purchase order to the vendor and track the purchase order.
4. Track stock for items that you keep in inventory.
5. Provide detailed spend reporting for finance and the entire company.

3 types of purchasing systems

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.

Manual purchasing system

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 to start.

The purchasing policy defines the purchasing process. The two key elements of the purchasing policy are as follows:

1. Define when an employee needs to create a purchase order request. For example, based on the total amount and so on.
2. Who should approve the purchase request?

Once these two processes are defined, you are ready to implement a purchasing system.

A manual process would include:

1. A Google form to capture the requirements for the purchase.
2. A cheat sheet for employees so that they know the list of approvers.

When to use it

Use a manual process If you are less than five employees and are creating less than ten purchase orders.

Accounting software as the purchasing system

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.

1. You can give access to your employees so that they can create the purchase orders in the system.
2. You can have the AP team create the purchase orders and send them to the stakeholder, who can then send them to the vendor.

We don’t recommend the first option because if there is no access control, someone can mess company’s books.

For the second option, you need the following:

1. You would need an electronic form for employees to start the purchase request. It could be a Google Form or a Microsoft Word document.
2. An approval matrix for users so that they know who will approve.
3. You should have a process to route the purchase order request to the AP team. The AP team needs to create the purchase request in the accounting system.

When to use it

Use this approach when you are under 20 employees and creating less than 15 purchase orders per month.

Best of breed purchasing system

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 back to your accounting system.

We will cover the details of the purchasing system next.

When to use it:

Use an automated purchasing system when you have more than 20 employees and create more than 15 purchase orders per month.

Automated purchasing system

In this section, we will cover a purchasing system’s functionality.

Note: we have used ProcureDesk as an example in the following sections. But you can replace ProcureDesk with any other purchasing system. The key is understanding the key features needed to identify the best purchase order system for your company.

Here are the key feature of an automated purchasing system

1. Purchase request automation

The purchase request automation provides your 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 on the “Submit these items for Approval” button to send the information back 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 to purchase.

The item is then automatically added to the user cart.

With the mix of vendor and self-managed catalogs, you can significantly increase the purchasing experience for your buyers.

2. Purchase approvals

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 you can use 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:

1. Use the mobile app.
2. Directly from email without the need to log in to the system.
3. Use ProcureDesk’s web application.

With the Omni channel approval strategy, your approvers can approve the purchase using the best method.

3. Budgets

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 simply 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 how much budget is available before they submit the purchase request.

 

When the approver receives the request for approval, 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 in case the user goes above 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.

4. Purchase order software

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 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:

5. Inventory management

Inventory management allows you to track stocked items and assess inventory value at any time.

If you are concerned about inventory value at any time, then 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 track of 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.

Inventory adjustments

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.

With the manual adjustments, you can create a release and issue the inventory.

The benefit of creating a release is that you can track who is using 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 inventory 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:

6. Spend reporting

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 spend 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.

7. Integration with the accounting system

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 be sending 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.

QuickBooks Online

QuickBooks Enterprise

Sage Intacct

Netsuite

Xero

Microsoft Business central

Now your turn!

We have covered the seven key features you need to set up a purchasing system.

After implementing a purchasing system, you would see the following benefits after the first 30-45 days.

1. The average PO cycle time reduces by 30-40%. I.e., the time spent creating, approving, and tracking purchase orders.
2. You can plan your cash flow better because all purchases are pre-approved by the management.
3. You spend less time processing invoices because you can easily match the invoice with an existing purchase order.

There are two ways to move forward:

1. Create your purchasing system using forms and other workflow tools and learn from hit and trial.
2. You can implement ProcureDesk, a proven purchasing system used by hundreds of companies.

If you are interested in seeing what ProcureDesk can do for you, click the button below to schedule a demo with one of our product specialists.