Getting exactly what you paid for with perfect purchase management
Getting your supplies delivered on time is crucial for inventory and production management. You can use this article as a complete guide to understanding your purchase management processes to optimize your business.
Last updated: 10.05.2022
You find a supplier offering a deal that’s just too good to be true.
Naturally, you purchase an order from them since they sell what you need at the lowest possible price. But, the delivery comes late, delaying production and now customers have to wait longer for their order. Then, to add insult to injury, the delivery finally arrives, and the items are of bad quality.
Suddenly that good deal is now a bad one.
In this article, we will look into purchase management to help you better understand how to make your purchasing process more efficient and optimize your inventory management.
Complete purchase and end-to-end management
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Purchase management, sometimes referred to as procurement management, is important for growing your business.
It involves managing all aspects of acquiring materials and vendor management. The main principle of purchase management is to save money and increase profits by closely monitoring the costs of inventory stock needed for a business to run efficiently. You can improve your manufacturing costs by implementing purchasing strategies developed alongside a basic purchasing cycle.
Ultimately, purchase management will make sure that you get exactly what you paid for.
Achieving purchase management is done by following the three P’s — process, people, and paperwork:
The complete guide and regulations that you’ll maintain during purchase control. This can involve placing orders, procurement, and paying for goods and services. The complexity of the procurement process depends on what the company needs to do when gathering its raw materials.
The people, usually purchase managers or project managers, with responsibilities during the purchase cycle. Whoever is involved in the purchase management process, either starting, approving, or monitoring each cycle phase. One or several people can perform this function, but the chance of an error occurring increases with each person added into the mix.
This involves the administrative side to purchase management. The documentation associated with each phase of the purchase cycle must be collected and stored for future reference and review.
The importance of purchase management for manufacturing businesses
Alongside improving inventory management, purchase management involves the decision to commit large quantities of a business spend. What does this mean for you? Without proper purchase control, you risk losing capital by getting involved with a supplier who isn’t fit for the purpose.
Another thing that needs to be taken into consideration is that your purchase department will be the ones negotiating with suppliers and representing your company.
They will need to finalize deals between your manufacturing business and supplier as well as maintain your business’s reputation.
If your purchase management workflow is established properly, you can use it as leverage to save you time, money, and resources. Most of the cost reduction will come from avoiding long manufacturing lead times and maximizing your resources. All of which will significantly improve your bottom line.
The benefits of implementing purchase management into your workflow
The biggest benefit of establishing sound purchasing management is creating a set of rules that will allow you or your purchase managers to hasten approvals and place orders for supplies in a timely fashion — improving inventory control and lowering costs.
Here are 6 other benefits to introducing proper purchasing management:
1. Lower costs
We’ve mentioned this several times in the article, but how exactly will purchasing management lower your costs? Organizing your procurement management process will help you get the best prices and terms with suppliers. Also, having the process more controlled means purchasing managers can take advantage of possible warranties and discounts which would otherwise go unnoticed.
2. Reduced Risks
When negotiating for items, you can share or move risks onto vendors. Your purchase managers can dedicate their time to identifying key supplies and focus on keeping the supply chain stable.
3. Supply chain management
Purchase management is an important aspect of your supply chain. By improving your purchasing management, you can streamline your supply chain to provide the most value to your customers — this could be from reducing associated costs or simply finding better materials.
4. Inventory management
Another benefit we’ve highlighted several times — Improving purchase management will have a spillover effect on your inventory management. You can avoid:
Ideally, you want to find a supplier who will provide you maximum value and one willing to stay in this partnership for the long haul. Your purchasing managers will need to cultivate this relationship, preferably with a tool or purchase management system that both businesses can use to make real-time inventory stock data adjustments.
6. Quality management
By improving purchase control — and going a step further by implementing purchase order software — you can set performance targets for quality and easily monitor deliveries, such as checking the durability of items or the timeliness of delivery.
So, now you know the importance and benefits of purchase management, what are the objectives of purchasing control?
Objectives of your purchase management
Using this article, perhaps you’re already aware of what’s coming up in this section — which of the following is the objective of purchasing?
Here are some objectives you should focus on for improving your purchase control capabilities:
Perfecting your stock control
You or your purchase manager will need to keep a close eye on materials to identify essential items for your manufacturing.
This will help you improve your stock control, purchasing, and identify safety stock levels and reorder points. Analyzing your purchasing will allow your business to order the correct stock quantity to ensure there is no shortage or excess inventory.
Focusing on supplier management
Firstly, going into business with the supplier offering the cheapest deal doesn’t necessarily mean larger profit margins for you.
Your primary goal with finding a supplier is to find the most responsible seller and not the one selling products cheaply. Once you have, you need to maintain a good relationship with your supplier. Both of you should be performing to a certain standard — for example, fulfilling regular purchases and sales.
However, don’t be afraid to collect several suppliers’ contact details. That way, you can purchase from elsewhere or get better deals during negotiations.
Using demand planning, look into historical business insights (purchases and sales) and current trends and predictions to try and estimate your future material requirements.
Doing this will not only help you better understand how much or little you need to buy, but it will give you an insight into the monthly costs of purchases and identify the best supplier for each item. All of which will give you data to provide even more value for your customers by making better business decisions.
Research your budget
This is closely related to choosing the right supplier, but don’t only use price as your criteria for finding a supplier since that might not be the best deal.
You’ll need to consider other aspects such as quality of materials and delivery terms because, without due diligence, the wrong supplier drives up costs. Can the supplier guarantee delivery? Because a shortage or a delay will only serve to put a stop to production on your end.
Don’t rough it out with spreadsheets
Managing your purchase orders request with spreadsheets on a small scale and with one purchase manager might be achievable.
Once your business starts to scale, spreadsheets inefficiencies will rear their ugly heads. That’s why many manufacturers turn to automated purchase order management solutions to help them keep track of their purchases. Another benefit of using software is that it allows you, your employees, and even suppliers access, so purchase management statuses can be updated in real-time, from anywhere.
How to make a strategy for your purchase management objectives
Now you’re fully educated on all matters involving purchase management, now it’s time to put together a plan and execute flawless purchasing control.
But, here’s the issue. Your strategy will all depend on your business. The strategy will be so unique, that many manufacturers hire outside consultants to help them with this task.
It’s not essential, but you can use your strategy to understand your purchase cycle.
Understanding the purchase cycle
The purchasing cycle is the invoice approvals process or workflow in which you order, secure, and pay for goods and services for your manufacturing business.
The first thing that needs to be established is purchase requisition processes. Is there a price threshold that will need to be approved by multiple purchasing managers? Will the quality of supplies and delivery need an inspection from your company?
These questions will help you start to develop procedures and policies for purchasing items.
Getting this established allows a certain level of autonomy in your company because they can follow your purchase order template.
Your purchasing managers will handle long-term contract approvals once you have a supplier in mind, assuming it’s not a one-off purchase. If the items pass your product management quality inspections, record them for inventory and future reference. Then, repeat the purchasing cycle with a group of core suppliers, and outsource larger ad-hoc purchases during emergencies.
Purchasing management is a repetitive endeavor, and this is why many manufacturers implement automation to help them stay on top of this important task.
Katana manufacturing ERP software
Katana ERP gives you and your purchase managers the tools to handle your purchase management, from setting reorder points, arranging orders, and automatically updating stocks when receiving orders.
Taking advantage of purchase order management software allows you to perform purchase control easily and automate all the mundane, repetitive tasks associated with it — helping you save time, money, and free up resources.
Purchase control could come in the form of a feature of an MRP software or a purpose-built tool. Regardless of where the tools for purchase management can be accessed, all will serve to digitalize your records, allowing you to achieve paperless manufacturing in your business, and ensuring that everyone is on the same page. Ultimately, having your inventory management automated means that you can keep ideal levels of inventory moving through your business at all times.
Not only will a purchase order management system give you centralized real-time inventory tracking to help you with purchase management, other benefits include:
Improved supplier control through the supply chain management
Long-term cost savings
Greater efficiency and productivity
Improved Inventory and warehouse management
Real-time data to make better purchasing decisions
Katana manufacturing ERP software gives users the freedom to manage their purchase management, sales, manufacturing operations, and many more aspects of their business, all from one easy-to-use and intuitive platform.
Try it out for yourself with the Katana 14-day free trial, allowing you to automate your purchase management and easily monitor your purchase cycle.
James Humphreys has a background in creative writing and has been writing about the manufacturing industry for 3+ years.
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