How can we control our purchasing costs?
This is a common query that we get asked over and over again. This problem is probably more particular to medium or larger organisations, although smaller businesses can find themselves with purchasing over-spends without realising it. Many Public Sector organisations would also benefit from having purchasing controls in place.
It all comes down to that key word "control" - let's look at some of the ways that you could better control your costs.
If there is one thing we learned (or should have learned) from the recession, it's that we should be prudent about what we are spending our money on and how much we should be spending. It's all about controls and budgets. Now that the recession is over, it is definitely good practice to keep these controls in place.
Here are some ideas:
1. Standardise your Ordering Process
It may sound obvious, but we have seen many organisations where purchasing is very ad-hoc and there is no particular way of ordering - sometimes over the phone, other times by email, other times with a wink and a nod. It's all very well and good as this style of order processing requires no "data entry work", but just think of the ripple effect this has on your accounts team. Trying to piece together the information, verifying that the price and quantity are correct. It can turn very messy when there is no proper system in place.
2. Purchase Orders v Purchase Requisitions
At the very least a Purchase Ordering system should be put in place. This means that the details are recorded on a system and that if there are any disputes, there is an original agreement in place to refer back to. Purchase Requisitons on the otherhand are pretty important for organisations that have various people placing orders across different departments. The whole idea is that each person can place a requisition (a request to make a purchase), it then gets approved or rejected and this can then be converted into a Purchase Order and processed all the way through to invoice received. It prevents orders being placed here, there and everywhere without any proper controls. By having in place a requisitioning system, you should be able to stop any purchases going through before it is too late.
One of the big problems with not having a purchase requisitioning system in place is that often, orders are placed, the invoice arrives into the accounts team, only for somebody to spot that this department has exceeded their budget. By this stage, it's too late to do anything about it - the goods/services have been purchased, delivered and invoiced. If the budgetary information were made available at the purchase requisition approval stage, then this would elimiate this problem entirely.
4. Set some limits
Creating some value limits for users can also help you to control your costs. Paul working in the Administration Team may have a limit of €500 while Sarah the IT Manager may have a limit of €5,000.
5. Use Approved Suppliers
Having control over your purchases may also mean restricting who you can buy from. You may wish to have an approved supplier list and you can only buy stationery from Company ABC or XYZ. This kind of control can help to keep things organised. You may have agreed special terms with these suppliers and therefore purchasing from alternative companies may actually cost you money.
6. Invoice Approvals
If you are looking for an even greater degree of control, then you may wish to think about implementing controls at the invoice stage. So, when the invoice comes in, it needs to go to an approver to sign it off.
If you would like tighter controls around purchasing, why not register below for our webinar on WAP (Web Authorisation). WAP Purchase Requisitions and Invoice Approvals has been designed to work with Sage 200.