Efficient purchasing in any business is essential to stay within budget and ensure that only necessary materials and supplies are being purchased.
To do that, there’s a minimum trio involved in putting together a business case for purchasing.
All purchases begin with the user. Employees in any department will first identify what they need. In most cases, the suggestions are directed to supervisors, team leaders or line managers. These people represent the end user and direct the suggestions to upper management.
Finance departments can’t just approve any purchase. In many situations, it’s a completely new purchase being introduced to the business, in which case, the business case must be made to justify the expense.
Finance departments are very prudent with funds available, ensuring they are only spent on necessary materials, or tools that will benefit business objectives.
When it’s something entirely new, funds should first be directed towards market research and this is where things can go wrong – when this stage is skipped.
Approaching any market blindly without sufficient knowledge of typical costs will result in paying a higher price, and often negligible contracts with minimum value due to a lack of market knowledge.
It happens in the copier industry, telecoms sector, and many other services where finance departments skip the most prudent part of a buying process. Assessing the market to find out what’s available, at what price, what contract options are available, and service level agreements. SLAs and contract finalisations is when negotiations should always be happening. Everything’s negotiable!
When approaching any unfamiliar sector, it’s best to assign a buyer to research the market and then compile a report detailing viable options before proceeding beyond this stage.
The core responsibilities on all finance departments are always to:
Assess the proposals from end users. It’s the responsibility of users to present the business case explaining the benefits of whatever’s to be bought, and explain the benefits of the purchase ensuring it supports business objectives.
Once users have made their case and sold it’s up to finance to assess budget implications and the financial impact of any purchase to ensure it’s viable.
Funding sources will be identified and a budget assigned to a buyer.
With the budget assigned, it’s then the buyer who has the final responsibility of ensuring they can source services or products within budget, and agree to contractual terms with suppliers.
Negotiation in the final buying stage is prudent.
Before final purchasing decisions are made, especially when the contract terms are long and expensive, input should be sought from end users prior to any agreements being formalised and finalised.
That’s the trio that should always be involved in a buying process and never solely left to one person in a finance team. Chances are that they will have no idea what the end user requires.
Every employee is a key stakeholder in all businesses and should be given the opportunity to provide input into what they feel would help them work more efficiently. It’s then up to your line managers to present viable solutions to finance. Finance should then review the business case put forward by line managers, sign off on it, identify funding sources and assign a budget to a buyer.
If your business does not have the finance teams or buyers in place, there’s a high chance you’re overspending due to the lack of resources put into purchasing.
Should that be the case, there are likely to be areas where you could significantly reduce your operational costs, by putting value adding contracts in place, sometimes cheaper than existing providers have you on, while maintaining quality and without disruption to service.
Should you find your expenses getting out of hand, our savings audit will highlight where your business is over spending.
For businesses with fewer employees, lacking the resources from those in finance and buyers who know their way around contractual law, it’s often best to bring in outside help from a professional procurement service.
Image courtesy of supplychainstation.com.