In today’s competitive business environment, SMEs grapple with efficient purchasing processes. CFOs, controllers, and accounting managers often resort to manual methods, leading to visibility issues, cash flow complexities, and error-prone invoice matching.
Recognizing these challenges underscores the importance of automating purchasing. Automation streamlines the process, ensuring accurate tracking and accounting, reducing manual burdens, and providing real-time insights for enhanced decision-making.
This blog explores why automating your purchasing process is crucial for improved business operations, offering benefits like cost control, enhanced cash flow visibility, and more time for strategic tasks.
10 Reasons Why Your Company Should Automate Purchasing Process
If you want your procurement team to improve the way you do things and finally avoid repetitive tasks brought by manual tasks, it’s high time you consider automating the entire process in your procurement department.
Here are 10 reasons why your company should start automating your procurement workflow:
Time Is Money
Automating your procurement process not only saves valuable time but also reduces the likelihood of manual errors.
By streamlining tasks, teams can achieve a 40-50% average reduction in the procurement cycle time. This efficiency frees up resources for more strategic endeavors and enhances overall accuracy by minimizing manual input.
The elimination of repetitive manual tasks not only expedites the workflow but also contributes to a more agile and responsive procurement system.
Automating the purchasing process brings about time savings, error reduction, and a streamlined workflow, ultimately improving the overall efficiency of the procurement cycle.
Cost Savings
Cost savings through procurement automation involve leveraging technology and streamlined processes to optimize purchasing workflows within an organization.
The primary advantage lies in the ability to exert greater control over operational costs while mitigating the risks associated with unregulated or “maverick” spending. This entails the implementation of specialized procurement software designed to enhance efficiency, accuracy, and overall financial management.
One key aspect of cost savings through automation is the reduction of errors. Automated systems are inherently less prone to human error compared to manual processes, as they operate based on predefined rules and algorithms.
This minimization of errors not only ensures the accuracy of transactions but also helps prevent costly mistakes that may arise from manual data entry or oversight.
Efficiency Boost
Procurement process automation yields a significant efficiency boost by mitigating compliance issues, enhancing supplier performance, and streamlining approval processes. The automation of procurement workflows ensures adherence to established rules and regulations, minimizing the risk of non-compliance and associated consequences.
By leveraging automated tools to monitor and evaluate supplier performance, organizations can foster stronger partnerships, leading to a more reliable supply chain. Additionally, the technology expedites processing times and accelerates purchase requisition approvals, resulting in overall productivity improvements across the procurement lifecycle.
The seamless integration of automation contributes to faster and more precise execution of tasks, enabling organizations to adapt swiftly to market changes and gain a competitive advantage.
Enhanced Accuracy
Automating the procurement cycle is a strategic move to minimize the potential costs associated with human errors in business operations.
By leveraging automation, organizations significantly reduce the risk of mistakes in crucial areas such as purchase requests, invoices, and inventory records. The consistent and reliable execution of procurement tasks through automated systems ensures heightened accuracy, contributing to the overall integrity of financial and inventory data.
Strategic Insights
Access to real-time visibility and data analytics is a key benefit of procurement automation, providing organizations with valuable insights for more informed decision-making in the purchasing process.
Automated systems offer a comprehensive view of purchasing patterns, enabling organizations to identify cost-saving opportunities within their payable processes. This strategic use of data contributes to more efficient resource allocation and optimized procurement strategies.
Supplier Relationship Management
Procurement automation plays a vital role in strengthening relationships with suppliers, offering advantages such as payment discounts.
By managing supplier relationships more effectively, organizations can negotiate better terms, improve collaboration, and ensure a more reliable and cost-effective supply chain. This not only enhances operational efficiency but also positively impacts the bottom line through favorable supplier arrangements.
Compliance With Regulations
Procurement automation facilitates the effortless adherence to fast-changing regulations and procurement policies. With purchase order software, organizations can stay up-to-date with compliance requirements, reducing the risk of regulatory violations.
This ensures that procurement activities align with legal standards, enhancing the organization’s reputation and minimizing potential legal and financial consequences.
Reduced Paperwork
The adoption of automated procurement processes eliminates the need for cumbersome paperwork.
Digital forms and cloud-based procurement software replace manual record-keeping, reducing workload and increasing operational efficiency. Faster cycle times result from the streamlined procurement functions offered by chosen automation tools, further contributing to a more agile and responsive organizational workflow.
Faster Decision Making
Procurement solutions with automated workflows expedite decision-making processes, allowing organizations to capitalize on opportunities swiftly. This increased agility enhances competitiveness in the market, empowering procurement professionals and the organization as a whole to respond rapidly to changing conditions and make informed decisions with efficiency.
Scalability
As companies grow, the volume of purchasing transactions increases.
Procurement automation, particularly through purchase order workflows, provides the scalability needed to accommodate higher demand. This ensures that the purchase order approval process remains efficient and adaptable to the evolving needs of a growing organization, contributing to sustained operational success.
How Do You Automate Purchasing Process?
Automating your purchasing process involves leveraging technology and software solutions to streamline and optimize various stages of your procurement.
Here are the steps on how you can automate your purchasing process:
- Assess your current process: First, make sure you identify key steps in your current purchasing workflow. Analyze your pain points, bottlenecks, and areas prone to error within your procurement pipeline. Ask yourself what’s holding your supply chain back.
- Define clear objectives: Set specific goals for automation, like reducing processing time, minimizing errors, or enhancing data visibility.
- Choose a Procurement Automation Software: Choose a suitable procurement or purchasing automation software that is based on your company’s size, needs, and budget. Look for features that your company needs such as purchase order creation, vendor management, and integration capabilities. In the next sections, we’ll be covering the features our tool ProcureDesk has and how it can help your company leverage automation.
- Vendor Onboarding: Set up a centralized system for managing your vendor information which includes contact details, contracts, and performance metrics.
- Automate your purchase requisition: Using your purchase order software, implement an automated system for creating and approving purchase requisitions. Make sure you enable your employees to submit requests electronically with automated approval workflows.
- Electronic Purchase Orders: As you transition from manual to electronic purchase orders, ensure that your system integrates with the other tools you’re using.
- Automate your invoice processing and Budget Tracking: Integrate automated invoice processing to reduce manual data entry and streamline the approval process. In addition, make sure you enforce budget controls and compliance with company policies and industry regulations.
- Training and Change Management: Provide training to employees using your new automated system. Training users and communicating the benefits of automation will encourage your employees to a smoother transition.
Top 6 Purchasing Process Your Company Should Automate
Aside from simply understanding why you should automate the purchasing process and how you can do it, it’s important for you to also know the top processes your company should automate.
Here’s a list of the things you should consider automating:
- Purchase Requisitions: When you automate the creation and approval of purchase requisitions, you make sure that the requests for goods and services are submitted electronically with automated workflows for approval. As a result, you eliminate paper-based processes.
- Purchase Order Generation: When you automate the creation and management of your electronic purchase orders, it becomes easier to streamline your ordering process which reduces manual errors and ensures quick and accurate communication with vendors.
- Invoice Processing: Utilize Optical Character Recognition (OCR) technology to extract data from invoices, match them with purchase orders, and streamline the approval process. ProcureDesk offers this feature that makes it easier to do two-way and three-way matching.
- Vendor Relationship Management: This includes onboarding processes, tracking performance metrics, and maintaining up-to-date vendor information.
- Expense Management: You can do this by integrating your purchase data with your expense reporting systems. This ensures accurate tracking of expenses, compliance with policies, and timely reimbursement for employees.
- Inventory Management: Automate your inventory-related processes such as such as reorder notifications, stock level monitoring, and tracking inventory turnover. Doing this ensures you get a seamless flow of information between your procurement and inventory management.
Automate Purchasing Process With ProcureDesk
ProcureDesk has critical features that mid-market companies need to automate processes. Here’s a list of some key features to name a few:
Purchase Approvals
Automatically assign purchase approvals with our tool. You can easily configure the purchase approvals based on the amount, department, location, budget owners, and much more. You can easily configure your custom approval workflows.
The system checks the requisition against the purchase approval workflow and then identifies the required approvers for the purchase. For example:
All the employee needs to do is submit the request for approval.
Once the request is submitted, the system notifies the approver of a pending request. This can also be done through our mobile app:
Purchase Order Management
Once the requisition is approved, you can send the purchase order to the vendor. Purchase order management software automates this process. ProcureDesk can even help you easily get quotes from different vendors with a supplier quote module.
Here is an example of comparing the cost of servers from 2 different vendors.
Automated Purchase Order Creation
The tool helps you save time and skip worrying about converting purchase requisitions to purchase orders with automated purchase order creation.
Here is an example of a purchase order that ProcureDesk automatically generates.
Inventory Management
ProcureDesk has inventory management features to help you easily track the inventory of stocked items.
For each inventory item, you can manage the information such as inventory location, min and max levels, and re-order points.
Here is a sample of how you can track the inventory by location:
OCR (Optical Character Recognition)
No need to extract the invoice data from the document; ProcureDesk automatically takes care of that for you. The system scans the document and extracts the invoice data using AI technology during uploading.
The OCR engine extracts and matches the data with the available purchase orders.
Here is an example of how the OCR engine extracts invoice data.
Invoice Approval Workflow
With the ProcureDesk invoice approval workflow engine, you don’t have to worry about routing invoices for review and approval.
Using the customized invoice approval workflow engine, you can create your custom workflow and automate the approval process.
Here is an example of how easily you can set up the approval workflow for invoices:
Benefits When You Automate Purchasing Process
Having talked about the process, let’s talk about key benefits that mid-market companies can achieve by automating the purchasing process from requisitions to invoices and payments
Better Cost Control
Automating the purchasing process provides a better mechanism to control cost.
Since all purchases are approved before purchase, managers have an opportunity to review whether the spend is required or not. Depending on company spend, this could result in significant savings.
As per a recent estimate from research firm Spendmatters, mid-market companies can see cost reductions by 2-3% after implementing an automated purchasing tool.
The reason for cost avoidance is that the spend is preauthorized and managers can effectively control spend and avoid unnecessary spend. Also, it helps to align the purchase timing with your cash flow strategy.
The other benefit of purchasing automation is that it helps reduce fraud.
By implementing a workflow for purchase and invoice approval, companies can ensure that one person doesn’t have control and authorization of the overall spending process during the invoice approval.
Reduce Waste And Inefficiency
Lean operations are not just doing more with less but also reducing any waste and inefficiencies in your operations and processes.
If you look at the overall purchasing process, the value-added activities are negotiating the best price and ensuring that purchases are authorized and vetted.
If you have a manual purchasing process then you have a lot of inefficiencies in the process, which includes
- Employees filling up tedious requisition forms take a long time to create a purchasing requisition which leads to errors.
- Sending emails for purchasing approvals and chasing managers for approvals.
- Keying in the purchase orders and invoices into your accounting systems.
- Overheads of sending emails for purchase orders and scanning invoices.
The above activities lead to lower productivity and higher headcount requirements as you scale your business.
A purchasing system can automate these things, reduce time and effort, and eventually allow your employees to spend time on value-added activities.
Visibility Into Cashflow
Having visibility into cash flow is critical for businesses of all sizes, CFOs are not only challenged with growing the business but also running the operations effectively.
An automated purchasing system can provide a detailed view of the cash flow including:
- Proper accruals of open purchase orders.
- Purchases that are received but not invoiced.
- Standard invoicing aging reports.
- Predictive analytics on the cash flow requirements based on the purchasing history and trend.
Automating the purchasing system leads to better visibility and provides information on the decision maker’s fingertips.
Purchasing Cost Reduction
When it comes to negotiating better costs with your suppliers, the more prepared you are, the better it is.
Most of the companies have limited information about their purchasing patterns. You can pull a supplier spend report from your accounting information but it does not help you understand spending patterns, for example
- What are you purchasing at the line item level, especially on the Indirect spend side – office supplies, cleaning supplies, marketing, advertising, IT hardware and software, etc?
- Do we buy in bulk or do we buy in small batches?
- What is the unit price trend over time for key commodity items?
- When was the last time pricing was negotiated?
- Are we buying the same item from different suppliers across different plants?
An automated purchasing system not only provides productivity benefits but also presents granular information that helps in negotiating better costs.
Better Employee Experience And Morale
Policy and controls are important for corporate governance.
Creating policy documents is the easiest part, implementing it is somewhat challenging and implementing it in an employee-friendly manner is even more challenging. Purchasing policy is no different and that is where an automated purchasing system can simplify the process by automating the controls and guiding the users on what needs to be done at each step.
Most of modern purchasing systems allow companies to define policies in the system and automatically alert employees of any violations and corrective measures that need to be taken to remediate the situation.
Purchasing automation done right can help in controlling costs, reducing costs strategically, providing better visibility for financial management, and high morale for your employees. I am curious to know about your purchasing process and lessons learned, feel free to drop a note in the comments section.
FAQs
What Is Purchase Automation?
Purchase automation refers to the process of using technology and software solutions to streamline, optimize, and mechanize various aspects of the procurement or purchasing process within an organization.
The goal of purchase automation is to reduce manual intervention, enhance efficiency, minimize errors, and improve overall control and visibility in the procurement workflow.
What Are The Steps To The Purchasing Process?
Here are the steps to the purchasing process:
1. Requisition: This is the first step in the purchasing process, for employees looking to purchase a product or service. If the process is not automated, you are mostly doing it through a manual email process. It is not uncommon for employees to fill out a paper form or an Excel file with what they need and then send it for approval before it is routed to a buyer for execution. The problem with the manual process is that it is time-consuming and can’t scale without adding more headcount.
2. Spend authorization/approval: The second step is the approval of the purchase. It is very common to see the approvals routed via email. In some cases, companies still manage this through paper-based processes, and approvals are obtained on printed forms. If your employees are using credit cards for purchases, then the approvals are likely happening post-purchase when they file their expense reports. The best compliance is proactive using pre-purchase authorization.
3. Purchase order: This step includes generating the purchase order and sending it to the supplier. This step normally involves creating the purchase order and emailing the purchase order, this type of activity can be easily automated, resulting in time and savings for your company. Also, the manual process leads to more errors while creating the purchase order, and that generates a lot of back and forth.
4. Receipts: Creating receipts not only serves the purpose of confirming whether you received your order but it also helps keep track of where the assets like laptops are post-purchase. It also prevents fraud because there is an audit trail of who received the item and when.
5. Invoice and payments: Most mid-market companies don’t have automated processes to capture invoices which means that the Accounts Payable team is spending time on entering the invoices in your ERP/accounting system. This is an activity that you can easily shift to your vendors, asking them to enter invoices directly into your systems through a supplier interface. The best practice is to move to electronic invoices so you can completely avoid the data entry overhead.
The Bottomline
When you adopt automation, you don’t just make your tasks easier- you reclaim valuable time for you and your team to focus on strategic endeavors.
As you consider the transformational power of automation, remember how it can impact your company into a new era of efficiency.
