Sep
29
Purchase orders are obviously vital to the operations of any business procuring either materials or services but with the purchasing process fraught with inefficiency and bureaucracy, how can you ensure that your business is as ‘sharp’ as possible when processing purchase orders?
1. Automate where possible.
Electronic ordering can reduce administration dramatically –utilizing methods such as Purchase to Pay (P2P) technology can not only streamline your process but also help in contract adherence, budget control and cash flow.
2. Use your ordering system effectively!
This may sound too obvious, but ensuring your using your ERP/MRP or other procurement system properly can streamline the process by reducing rework and corrections downstream. No system is perfect but ensuring that everyone is trained to effectively use what you do have is a good start
3. Ensure your authorisation process is effective
Reduce bottlenecks in terms of the authorisation chain. If your purchase orders have to be authorised by the world and his wife, then it is very likely that it will take a long time to process the purchase order. So place your trust in people and ensure that the authorisation chain is quick, simple and has no bottlenecks.
4. Raise PO’s when necessary
Consider when your organization needs to raise a purchase order – do you raise PO’s for everything? From a postage stamp to capital equipment – do you order on every “buy” signal or can you batch up minimizing orders – reviewing your ordering mechanisms can help reduce administration.
5. Improve access to information
Ensure your buyers or order administrators have the right information at hand in order to raise their order swiftly. Do they require technical specifications, do they have ready access to the approved suppliers list – can you help with improving access to pricing information?
6. Is that paper copy really necessary?
Purchasing processes can produce vast amounts of paper – consider its use – do you take file copies of your Purchase Orders? How much of your process could you run electronically?
Sep
16
Purchasing requisition process
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The first key step of the purchasing process – is the identification of need – as we stated in our purchasing process video, typically this comes in two forms
1/ An internal request based on a requisition form
2/ A “buy” signal generated from the companies ERP/MRP system
Companies typically employ a purchase requisition process to “manage” these buy signals – allowing requests to be documented/tracked whilst following an appropriate approvals workflow. It’s important to differentiate this step in the buying process from raising an order – Purchase requisitions are not purchase orders and do not form a contract with a supplier for materials or commit money.
What actually triggers a purchasing requirement?
There can be various reasons for a company needing to buy something this could come from
• Materials needed for the manufacturing process
• Parts that are required to sell on to customers
• Safety stock
• Internal use / development needs
• New employees (e.g. requirements for IT equipment or office furniture)
Indeed –the signal to “go and buy” can come from almost anywhere (from requests for pens to requests for heavy machinery).
What is included in the Purchase requisition?
Whilst many requisitions simply state the product – depending on the end usage a requisition might need to be accompanied by various information from a technical specification to a concept to assist the buyer when seeking price and availability enquiries.
A purchase requisition will usually include key information such as
• What part/product is required
• How much of the part is needed
• When is it required by
Supplier selection
Whilst it is normally the role of the buyer to select the supplier that will be used – there is often input into supplier selection as part of the requisition process for example the requisition may stipulate proprietary items or the product may come from a vendor catalogue. Whatever supplier information is presented as part of this phase – final supplier selection is normally a procurement function.
To authorize or not to authorize – that is the question
Once a need has been identified that doesn’t necessarily mean that the purchase will proceed – there is usually an authorization process that accompanies the requisition phase – this is often a line manager or someone that has budgetary responsibility – they will verify a number of things before approval – for example
1/ Do I have budget funds for this item
2/ Is it completely necessary that we purchase the item
3/ Are we buying the right item
4/ Are we buying enough of the item
Once enough information has been gathered on the requirement and it has been approved it will usually be forwarded to the buying department for action.