Purchase Management: What is it and Why Does it Matter?

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Purchasing decisions have a direct impact on a business’s inventory control and the management of accurate inventory stock levels. Good purchase management practices streamline purchasing and inventory control processes to reduce holding costs and to ensure inventory levels are replenished in a timely manner.

Many businesses invest significant resources into inventory stock yet fail to monitor purchasing. Procurement comprises of more than simply buying stock, it also involves researching products for the business, vetting suppliers and sources of inventory stock, then following up to ensure deliveries are received on time, in good condition and in the right quantity.

What is purchase management?

Purchase management is a business discipline that enables companies to manage the activities and relationships that make up the purchasing functions necessary to do business. At its core purchase management is all about saving money, increasing profits and it is an important function for any wholesale, distribution or manufacturing business.

Efficient purchase management provides a prime opportunity for wholesalers to clear bigger profits by controlling costs of the inventory stock needed to run their business. To deliver the greatest profitability for an organisation it is crucial that products and services are purchased at the best price and quality available.

To ensure the most cost-effective outcomes, purchasing strategies are necessary and should be developed in line with a basic purchasing cycle to best manage all the necessary functions from one centralised location.

Purchasing cycles

A purchasing cycle shows the steps that a business will go through before making any product purchase. It starts from the knowledge there is a product need, to specifying the quantities required and when they are needed by.

Once a purchase need is identified, the prices and quality of different products and inventory stock from different suppliers needs to be compared before a decision is reached on where to source the goods. A purchase order is then approved, in larger organisations this many require approval from more than one person.

The business and the supplier then negotiate the terms of the purchase contract. At this stage of the purchasing cycle, it may also be determined if this is a one-off sale or whether it will be an ongoing relationship with the chosen supplier.

When the stock is receipted into the business, the goods are counted and inspected for quality and then recorded in the company’s inventory management system.

Why purchase management matters

Purchase management impacts cash flow, inventory stock costs, contractual issues and product availability. Therefore, it is crucial for businesses to have a good process for procuring their inventory stock.

The most basic principle of purchase management is that goods and services must always be purchased and delivered at the best possible price to help maximise profits. Excess inventory stock costs money to hold and it represents an opportunity cost when the money could have been better spent elsewhere.

Purchase management matters because the process of acquiring the right goods, for the right price and at the right time matters. If you are paying too much for the stock required in retail or manufacturing business, it can seriously reduce your profits.

Benefits of purchase management

Purchase management is a system that creates customised approval rules providing the ability to hasten approvals and order placement for the timely receipt of inventory stock.

Purchase management streamlines the purchasing and inventory control process of an organisation for greater efficiency and lower costs.

Purchase management solutions

Implementing software into warehouse operations optimises the management and control of purchasing inventory stock across multiple channels or for a single location. The systems improve inventory control and help create better supplier relationships because everything is tracked from one centralised location. Purchasing operations integrate and electronically connect your organisation to real-time inventory stock data.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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