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.
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.
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:
Purchases are classified into several types according to the method of use or their type, and accordingly, they are classified into the following types:
The objectives of the purchasing department are as follows:
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:
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.
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. .
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.
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.
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.
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.
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.
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.
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.
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.
There are many challenges faced by purchasing management in any organization, and these challenges include the following:
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.
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.
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.
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.
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 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.
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:
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:
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:
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:
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:
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:
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.