A purchase approval process workflow determines how a request for a purchase order is made, who approves the purchase, when a purchase order is issued and how the purchase is made. Whenever any employee requests to purchase an item for business purposes, the purchase request must go through this workflow to complete the purchase. A procurement solution streamlines the purchases made by any business since no one is authorised to spend money without getting approval.
Procurement Solutions Improve Spend Management
The procurement process remains challenging for businesses because of diverse vendors and suppliers. Cash flow problems, rising operational costs, and overall operational inefficiencies make it difficult for businesses to keep track of spending. There is an increased purchase risk involved because the procurement process involves emails and phone calls.
According to a Mckinsey report, about 40% to 60% of business cost is towards external spending. Without real-time spend management, financial leaks in the system will result in revenue loss. Disorganised spending will result in increased business costs. Poor procurement management will result in a warehouse with an excess of unnecessary supplies while the business keeps spending more money on essential supplies. A comprehensive enterprise-wide procurement system is a solution that can help with efficient spending management.
How Purchase Approvals work
Businesses place a purchase order (PO) with a vendor for buying specific goods or services. The vendor responds by acknowledging the purchase order and agreeing to the terms and conditions. When the seller accepts the PO, the purchase is confirmed, and the terms of the PO contract legally bind both the buyer and seller.
Within the enterprise, before the PO is sent out to the vendor, the purchase request must go through the purchase approval workflow. The employee placing the purchase request specifies the need for the purchase. This need can either increase productivity or minimise errors to save time.
The purchasing department receives the purchase request, validates the request, and begins the search for finding the right suppliers. The purchase manager will have the authority to authorise purchase requests for small ticket items. For higher-priced requests, the workflow escalates to a higher authority such as a senior manager to approve the request. If, for some reason, the purchasing department finds the purchase request unreasonable, the request can be rejected, stating the reason for the purchase request cancellation.
Once the purchase request is approved, a purchase order is generated and forwarded to the chosen vendor. Once the vendor acknowledges the PO, the legal contract is established.
Procurement Software and Purchase Approvals
Traditionally, the entire purchase approval workflow is carried out using emails and spreadsheets. It is easier to bypass authorization requests when pen and paper-based procurement processes are followed. A procurement software ensures that only authorised personnel place and approve requests according to the budgeting constraints. Custom rules can be created to ensure that no one in the organisation spends money unnecessarily.
Procurement leaders always look for ways to optimise the procurement process and manage business spending. To improve efficiency and cost optimization, outdated manual processing and workflow should be replaced with an automated procurement solution. Smarter procurement decisions can be made with the data analytics provided by the procurement software.
Electronic Procurement Solution Benefits
The automated procurement system restricts access for requesting and approving a purchase order request. Purchase approval that took a few days in the manual process takes only a few hours with e-procurement.
Following are some of the benefits of e-procurement:
- Seamless collaboration between multiple departments - Electronic procurement breaks down the barriers of data exchange between multiple stakeholders such as employees placing a request, purchasing team, finance team, inventory management team, and so on. Essential documents and paperwork are converted into digital files that can be seamlessly shared across the automation platform.
- Competent budget management – The procurement software allows for customization to impose budgeting restraints as and when it is needed. This allows the businesses to control the amount of money spent.
- Eliminate fraudulent dark spending – Dark spending is a huge challenge for the procurement team, and e-procurement puts an end to human intervention, enforcing transparency and accountability.
- Real-time visibility of enterprise-wide spending – At any point, the purchase request process is available for review through the procurement system platform. The software automates various administrative tasks such as arithmetic calculations, deadline schedules, and approval routing. This makes it possible for any manager to review the purchase order workflow.
- Detailed analytics of spending – One of the biggest benefits of an automated procurement solution is effective spend data analytics and reports. The detailed information is useful in making data-driven procurement decisions.
- Compliance management – For auditors, information on who was involved in the purchase order is crucial to ensure compliance. The e-procurement platform has detailed logs of all touchpoints providing a complete digital trail of the purchase order, adhering to the company’s compliance requirements.
Increasing business revenue is the primary goal for any business. To realise profits, your organisation must control spending because a penny saved is a penny earned. Procol is an advanced procurement software with a flexible, user-friendly platform to optimise your procurement management. Contact us for a demo and learn how to deploy a procurement solution in just 7 days.