No commercial organization is devoid of a purchasing department, as it helps provide everything necessary to carry out work and production in the company. It is responsible for receiving the purchase budget amount and clarifying how it is spent. It also ensures that high-quality goods are brought in at appropriate costs. What is the definition of procurement management, and why does it bear all these responsibilities, or rather, why is it important? You will learn the answers to these questions, in addition to more details, in our article.
Definition of purchasing management
Purchasing management is the department that specializes in providing all the resources that an organization needs to carry out its production operations in order to enable it to provide the services or goods on which its business activity is based.
The purchasing department is not only responsible for purchasing what the organization needs, but it is also responsible for monitoring the inventory and replenishing it every now and then before it runs out. It is its responsibility to choose the highest quality supplies at the best price, purchase them in appropriate quantities, and organize the purchasing process in accordance with the organization’s productivity.
Purchasing is a continuous process, so management seeks to strengthen relationships with suppliers with the aim of obtaining the best available goods and services at the lowest costs every time, and this is what helps the organization achieve higher profits thanks to reducing expenses.
Why organizations need procurement management
Institutions that do not have a purchasing management department run into many problems, and the production process may falter due to the lack of specialists who monitor inventory and purchase appropriate goods in the quantities that the company needs. Therefore, they have gained great importance in institutions, and their importance can be included in the following:
- The role played by the organization’s purchasing department is what ensures that the organization’s operational plan is implemented as it is supposed to be.
- It contributes to saving expenses by choosing the best quality goods at a reasonable price, and it also works to provide the supplier with the specifications of the supplies required to provide them at the appropriate time.
- Working to coordinate between multiple departments to achieve cooperation and joint work and reach the best possible result.
- Procurement specialists have the ability to negotiate, and they collect basic information about suppliers and follow the prices of goods outside the market and the expected decrease or increase in prices so that they can seize opportunities that enable them to save expenses.
- Through the information available to the purchasing department, it becomes easy to make the right decisions regarding the goods to be purchased and the sources of purchase.
- Knowledge of the laws regulating the buying and selling process, which ensures compliance with them, while possessing experience in customs and tax tariffs and the ability to deal with them.
- Reducing waste of money and goods while helping to increase product efficiency.
- Maintaining trust between customers and the organization, thanks to the tangible quality of the final product that the company provides to the customer.
Types of purchases
Purchases are classified into several types according to the method of use or their type, and accordingly, they are classified into the following types:
Purchasing management objectives
The objectives of the purchasing department are as follows:
- Identifying multiple sources for purchasing goods will facilitate finding alternatives when needed.
- Supplying high-quality goods to the company without wasting money on things that are not useful.
- Saving money and planning to overcome the consequences of economic crises.
- Enhancing trust and friendly relations with merchants.
Purchasing management responsibilities
Purchasing management is linked to all departments of the organization, which makes its responsibilities complex, and it is necessary to follow up on the ways to carry them out. These responsibilities include the following:
- Develop purchasing plans that suit the allocated budget.
- Organizing the purchasing process and determining how much goods the company needs.
- Ensure that the warehouses are suitable for the goods that must be kept in them.
- Communicate with merchants to get the best product for the right price.
- Controlling purchasing expenses and studying offers submitted by merchants to reach a winning deal.
- Issuing purchase orders and filling them with details of the required goods.
- Dealing with contracts and agreements and merging them to settle any legal matters related to the purchase process.
- Implementing purchases from merchants and transporting goods to the company’s stores.
Elements of a Purchasing Management Program
The purchasing management program helps organize and implement purchasing operations smoothly while enabling you to monitor the level of company growth and determine the best time to develop the purchasing department. In the following image, you will find the eight most important elements that make this program an indispensable tool.
Steps in the purchasing process
When you buy the company’s supplies, you will not be able to make the decision to purchase from a specific supplier without taking a few steps to ensure a successful deal and not wasting money. These steps include the following:
Determine what the organization needs.
Determine what goods you need to complete in order for the production process to continue efficiently. This must be determined during a specific period to calculate the number of pieces required for each product and ensure their sufficiency during that period. During that period, you will need to cooperate with other departments of the organization to determine the necessary requirements for each department and provide them. .
Issuing the request
It is an official document submitted by the purchasing department to the director of the company or department that supervises purchasing operations to inform him of the details of the goods to be purchased in terms of their prices, type, quantities required, and other information. The request can be accepted, managed, or rejected, and amendments can be made to it until it becomes acceptable.
Supplier selection
This is a very important step because this supplier may become a permanent source of goods needed by the company, and a request for quotation (RFQ) can be sent to potential suppliers with details of the products required. Based on the offers they provide in terms of cost, quality level, and time taken to prepare the order, you must choose the best one to deal with.
Issuing a purchase order
It is an official document in which all the details of the requested product are specified. Through it, the date and place of receipt of the goods are agreed upon, as well as other details related to the requested product.
Signing contracts
This stage comes after submitting the order details to the supplier, who provides his prices and production dates for the required goods and prepares them for delivery. Any aspects related to the purchase process are agreed upon between the two parties, whether related to delivery dates, quantity, or price.
Receiving and inspecting goods
Here you see for yourself whether the goods you obtained are actually at the required level or not, and you also verify the quantities required and that the goods received match what was ordered in the purchase order.
Three-way matching work
This means comparing the purchase order, order receipt, and invoice to verify the correspondence between the purchase order and the cost of the goods, knowing that any costs that are not included in a clear or unapproved invoice cannot be paid.
Accept invoices and payments.
After reviewing the details of the purchase order and invoices and ensuring that everything is correct, the agreed-upon amount will be paid for purchasing the required goods. If payment is made in advance, the payment details will be agreed upon.
Record your purchase.
Every detail of the purchasing process must be recorded in an accounting book because this helps in assessing the company’s trends and comparing the prices of goods between suppliers. It also gives the organization knowledge of all its spending destinations and helps it make appropriate decisions.
Challenges facing procurement management
There are many challenges faced by purchasing management in any organization, and these challenges include the following:
Rising prices
Most companies face this problem, especially when purchasing in a currency different from the local currency because the currency difference causes cost increases, which eliminates opportunities to reduce costs and increase profits.
Limited budget and stubborn management
A certain amount is allocated to purchase needs based on the organization’s financial planning. This amount may not be sufficient to purchase the goods the organization needs to satisfy it for the period that was planned, which causes a reduction in quantity or acceptance of lower quality. In both cases, the impact will be negative on the company as a whole, and with management’s intransigence, the purchasing team will not be able to obtain a suitable deal.
Fewer or more sellers
The lack of available opportunities or options is a confusing matter when wanting to purchase the goods that the company needs, especially if you do not find what satisfies your expectations. At the same time, the increase in suppliers causes confusion and anxiety about the lack of credibility in the advantages these suppliers claim to give them an advantage over competitors.
Lack of credibility
One of the biggest challenges facing purchasing management is when the supplier tells you that your goods will be produced with certain specifications for a specific price, and then you find something other than what was agreed upon. This problem may cause a waste of money or a decrease in the quality of the products if the deal is accepted, and even if it is rejected, your company loses time and loses confidence in the supplier.
Lack of information related to the product
If there is not enough information for those working in the purchasing department to rely on, there will be a problem because the effort made to complete the purchase will be in vain and the product will not be at the required level, which wastes time and money.
Lack of familiarity with purchasing laws
Lack of experience with these laws may cause customs or tax problems or even make doing business difficult, so the team may lose many opportunities due to a lack of experience with environmental and tax laws.
How to improve the performance of the purchasing department
There are simple steps that, if you follow them, can increase the efficiency of the purchasing department and ensure its ability to achieve its goals. These steps are:
- Looking at past events and learning from any purchasing experience the company has had previously to avoid repeating mistakes and taking strengths into account.
- Monitoring the department’s activity on an ongoing basis to monitor positives and negatives and avoid any weaknesses that appear during performance monitoring.
- Maintaining the continuous development of the procurement official by providing training courses that contribute to enhancing his skills and experience and facilitate his keeping up with everything new.
- Follow up on deviations in results and seek to find out their causes to correct them and avoid any potential new problems.
Key performance indicator standards for purchasing management KPIs
KPIs are used to measure the level of performance in the Public Procurement Department in order to uncover weaknesses in performance and work to strengthen them, in addition to working to seize the strengths and turn them into effective tools to obtain the best goods at the most appropriate prices. These standards are divided into:
Cost-saving KPIs
These standards are concerned with measuring the revenues and expenses made by management and contribute to developing optimal plans for purchasing if expenses are excessive. They can do this by measuring the following:
- Spending ratio.
- The return on purchase that the team can achieve.
- The level of competition between suppliers and its impact on product quality.
- The cost of paper purchase invoices versus relying on electronic invoices.
Delivery KPIs
It is responsible for monitoring when purchases are made to help organize a procurement plan that suits the scheduled dates for receiving the goods and their cost. This is measured through the following:
- Determine the agreed-upon period for delivering the purchase order to the seller until he delivers the goods to the company.
- Knowing the availability of different sellers of the same goods to ensure the availability of the company’s needs for goods at the time it needs them.
- Know the percentage of the company’s need for emergency purchases.
- Determine the period in which the purchase is made, or more clearly, know how much of the purchased goods are sufficient until the next purchasing cycle.
Quality KPIs
Companies need high-quality goods, and this cannot be compromised so that the company does not risk its reputation and the trust of its customers, so it takes into account the following considerations:
- Comparing purchase orders with the goods obtained.
- Measuring the extent of compliance with the company’s approach and purchasing laws as they affect costs and profits.
- Monitoring the quality of the goods and comparing them with the services the supplier offered to determine whether they are reliable or not.
How do you benefit from the Qoyod accounting system in purchasing management?
The Qoyod accounting system helps make the purchasing department in any organization more capable of achieving goals and organizing business, as it is useful in:
- Providing various systems and packages that give you what you need for registering invoices and issuing purchase orders. These transactions remain electronically preserved, and you can access them in times of need.
- You can implement a data network on the system so that you can compare suppliers and determine their ability to implement the agreed-upon details of the goods and their quality. Also, in the end, you obtain documents that include complete data about these sellers to benefit from them according to the circumstances.
- The Qoyod system helps you track your inventory, as details of available goods are recorded and a periodic update is made to record what has been used, which relieves you of the problem of not replenishing inventory promptly and prevents it from running out.
- On the Qoyod accounting system, you can record all your financial transactions, which means that you get comprehensive and complete financial reports so that you can evaluate the purchasing department and know the extent of its ability to adhere to the responsibilities assigned to it, and this is what makes business development there more smoothly.
Conclusion
Join the Qoyod accounting system users through a free 14-day trial to benefit from the services it provides, especially monitoring the performance of the purchasing department in your company. It is an effective and secure system and is capable of meeting all the requirements for business success.
