This article reviews some of the benefits of purchasing management software for distributors. Purchasing may seem straightforward but it is not – it involves managing several key related processes. Deciding when to purchase an item, how much to purchase, which vendor to purchase from, and on what terms are all complex questions. Then when the vendor delivers the goods, the vendor’s invoice must be matched against the purchase order and sometimes multiple receipts to be tied out and the vendor paid. Purchasing management software helps manage the whole purchasing workflow which is sometimes referred to as the procure-to-pay process.
Through the purchasing management process, distributors purchase goods to restock inventory and track the costs associated with purchasing these goods. The purchasing management process involves several related steps:
- Vendor Management
- Cost Management
- Replenishment Analysis
- Purchase Order Management
- Paying Vendors
Purchasing management software can help distributors automate all these processes.
Before you can start purchasing you need to identify which vendors you will purchase from. To do this successfully, you need to initially obtain a lot of information on potential suppliers to prequalify them. Then, you can select the best vendors based on their qualifications, terms, and business policies. Importantly, you will need to reevaluate vendors on an ongoing basis as you start to build business relationship histories with these vendors. Your purchasing management software should be able to keep detailed Vendor history records showing for a specific item all the vendors it was purchased from, how many were purchased, when, and at what price, how long it took the vendor to deliver, how complete was the purchase order when received, etc.
To keep your costs down, you need to continually assess the prices you are being charged by different vendors. Vendor history records are part of this exercise but are based on past purchases and may not reflect current terms. Another key feature of purchasing management software is the ability to manage RFQs (requests for quotation) from multiple pre-qualified vendors. Your purchasing management software should allow you to create an RFQ, easily send it to a list of vendors, record vendor responses, automatically select the best combination of vendors and items, and then automatically create the POs (purchase orders). RFQ functionality can also facilitate a just-in-time sourcing model where goods are purchased from multiple vendors at the best terms to supply a customer’s order. This also makes possible drop-shipping and cross-docking processes, both of which can reduce warehousing and inventory costs as well as freight and handling costs. The best purchasing management software also supports special order processing which links sales orders to specific purchase orders
Closely related to Cost Management is determining optimal repurchase quantities. This involves tying the demand for the item created by sales to customers with the supply of the item through purchasing so as to minimize the number of purchase orders that need to be processed but also minimizing the amount of capital tied up in inventory that is not moving quickly enough. Your purchasing management software should be able to determine optimal economic order quantity based on inputs of the vendor review cycle, lead time, safety stock, and use rate. Importantly, purchasing management software can help you review the validity of these key inputs based on recent vendor performance results. This ensures that your purchases reflect the variations of an economic cycle as well as short-term supply chain disruptions, such as those caused currently by the Coronavirus pandemic.
Purchase Order Management
The process of generating POs, sending POs to vendors, monitoring, and updating the expected delivery dates, then receiving and putting-away goods, can largely be automated by good purchasing management software. Your purchasing management software should be able to auto-create POs off the replenishment analysis, based on the primary vendors selected for each product. You should be able to automatically send POs by email or EDI to your vendors and get PO Acknowledgements. POs should be able to be tracked by container, by vessel, by voyage, by shipping date, by arrival date, by destination, etc., and this should all be able to be updated from time to time. You should be able to store all information related to the PO as the goods move through the supply chain. You should be able to track and save all the related costs of goods, insurance, freight, clearing, port storage, etc., with the PO continuously from the time the PO is submitted to the vendor until the goods are received. Once received, the associated costs (referred to as Landed Costs) should automatically be apportioned to the goods based on a variety of allocation methods and capitalized into the cost of the goods in inventory. Your purchasing management software should be able to handle multiple receipts for each PO and automatically generate receivers and put-away documents based on locations associated with the items received.
Your purchasing management software should automatically link vendors' invoices to PO Receipts and the original PO to create payment vouchers. The best purchasing management software also includes linkage with an Accounts Payable automation system that allows vendors to be paid in a timely fashion, so as to secure early payment discounts, and allow for each vendor to be paid in the most cost-effective manner accepted by the vendor. Getting away from manually processed checks can create substantial efficiency and cost savings for distributors.
Benefits for Distributors
To get the most out of purchasing, distributors need to ensure that their purchasing management software can accomplish all the things described above. It should be completely integrated with all other ERP functions such as order management and inventory management. Ideally, it should be Cloud-based so it is accessible throughout your organization and linked to your vendors. If your purchasing management software falls short, you are leaving money on the table. Contact us today to demo Accolent ERP, a leading Cloud-based purchasing management solution for wholesale distribution and light manufacturing.