Standard Operating Procedure for Purchase Department

The Purchase department is responsible for the procurement of goods, material and services which are essential manufacturing or creation of the company product or service. They procure these from external parties and hence the main function of this department is keeping this supply uninterrupted and also within the specified financial guidelines. The purchasing activity for any enterprise is one of the most critical factors.

To ensure the purchasing process runs flawlessly the purchase team needs to manage several processes effectively. Several sub-processes are to be executed before the final purchase order is placed. If any of the sub-processes fail it could lead to grave and critical situations. An SOP will help minimize such faulty episodes and help the purchase department become process-driven. Each activity in the procurement lifecycle can be mapped in the SOP for the purchase department and the same can be made into a purchase process handbook. Today we are in a tech-savvy world and the purchase function is also slowly transitioning from a manual process towards a digital one.

Vendor Selection and Shortlisting Process

Vendors play a crucial role and their performance directly impacts the entire procurement process. Standard operating procedure (SOP) can help as we can create and map the steps required in this process. Selection and shortlisting of vendors vary from business to business. Also, many other factors are to be considered for example past performance of a vendor who has been the company supplier for a long period, quality of the goods, selling and purchase cost, delivery timelines and quantity of supply, adherence to compliance standards, etc.

A detailed process map for each step in the SOP document which will help the purchase team while carrying out the vendor selection process. This can be more enhanced by integrating the SOP to an ERP procurement module.

Standard Operating Procedure for Purchase Department

The purchase requisition is confirmed by an organization, you are now ready to shortlist and finalize a suitable vendor. A well-designed SOP and integrated ERP module will help you shortlist vendors by providing records of past vendor performance which are recorded earlier in the system. This is time and cost-saving and expedites the process.

The Purchasing team will procure material/goods which are required in manufacturing/creation of the final product. Hence, the vendor performance has a direct impact on the profit and success of an organization. If the quality of goods is substandard or the vendor fails to deliver on time then it can cause unfavourable and unpleasant situations. An SOP where the vendor shortlisting process is mapped helps the purchasing team and all others involved in procurement to carry out the process flawlessly.

Procurement Policies and Terms

Compliance is a very essential part of any business setup. Value for money, business goals and contribution to profit need to be considered while placing any procurement order. The procurement order passes through various gatekeeping stages. Mapping the process in SOP and integration with the ERP system makes it accessible to anyone in the team and makes it easy to access to anyone in the team. Any employee involved in this process can refer to the purchasing policy manual mapped in SOP and execute the entire process more efficiently. SOPs also act as a checklist to ensure complete adherence is met towards the procurement policies and terms.

Contract Purchase Agreements (CPA) / Blanket Purchase Agreement (BPA)

Blanket Purchase Agreement (BPA) is defined as an agreement with suppliers for repetitive services of goods or services. This is a system which enables the organization to place an order for any repetitive need.

Contract Purchase Agreement is done for a specific period or for a particular consignment and is focused majorly on terms and conditions which both the parties need to agree on mutually. As both these processes are crucial for the purchase function and are responsible for vendor-customer relationships it becomes all the more critical to map them. 

Standard Operating Procedure for Purchase Department

By predefining the same an organization will have a ready reckoner when the time arises to implement and execute these two agreements. A well-integrated purchase ERP module can incorporate the SOP and make it less complicated for the user.

New Supplier On-Boarding Process

A well-defined onboarding process can help your organization face legal risks. Accuracy maintained while conducting the compliance verification is the initial step which helps in designing the supplier – organization relationship and the required operational framework. On-boarding SOP design must include a checklist which can be referred. The on-boarding process is designed keeping in mind the company size and hence varies from organization to organization. Going digital in this process is an ideal solution. Automating this step can help in expediting the purchase life cycle and also minimize the taken to bring the supplier on-board.

ROL (Reorder Level) Management

While placing a new order, inventory management is very important. It is very important to decide what, when and how much quantity is to be ordered. Below points need to be considered while creating a reorder SOP

  1. When to reorder?
  2. Define minimum /
  3. maximum reorder quantity
  4. Reorder creation
  5. Payment

As this mechanism ensures business operations run smoothly it must be defined in the SOP. A well-designed SOP will help the reorder mechanism to be carried out more effectively and also ensure smooth execution of the order and reorder management. If the reorder process is not executed flawlessly it may lead to critical situations and may also make the production process halt.

Procurement Process

The cumulative process of need identification, vendor shortlisting and selection, agreement of terms and conditions, placing a purchase order, receiving the required good/service and making the final payment basis of the purchase invoice is known as procurement process. Right from the step of need identification until the final step of making a payment to the vendor all the steps have a direct impact on business operations and eventually on organization goals and objectives. The costing needs to be in alignment with the financial objectives of an organization.

Automating the procurement function is an option which will help you accelerate the lifecycle and fetch you good results. Three main observations post automating the procurement process are

  1. Reduced processing time
  2. Improved supplier relationship
  3. Real-time tracking of procurement progress

By integrating procurement SOP to your in-house ERP module will ensure each step of the purchase function is carried out error-free.

Mapping of the procurement process in SOP will help the organization teams to execute the function more effectively and give a clear, defined, step by step guideline to execute this critical process.

Import Process

In some cases, the vendor can be based overseas and will be delivering across the globe. Such situations make it very essential to understand and adhere to regulatory and compliance guidelines. Most importantly EXIM policy must be referred and only then the import process must be carried out. Adherence to these guidelines ensures there are no gaps in your procurement process. With the import process getting defined in SOP, it will help you and your organization to conduct import activity more efficiently and without any regulatory loopholes.

Logistic Management

The mechanism of acquiring, storing and transporting the ordered resources to their designated locations is known as logistics. Today this process is not confined to domestic geography but vendors now also supply goods across the globe. There are 5 types of logistics

  1. Procurement Logistics
  2. Production Logistics
  3. Sales Logistics
  4. Recovery Logistics
  5. Recycling Logistics

Inefficient logistics management can impact business operations. Mapping the logistics process to an SOP to make this critical step less cumbersome.

Standard Operating Procedure for Purchase Department

Advance Shipping Note

The format which is shared by a logistics service provider regarding an upcoming delivery is known as Advance Shipping Notice. Details captured in ASN depend on the preference of the end customer. Usually, the ASN includes details of order requisition, delivery time and date, shipping mode details, delivery location and others. You can define the ASN details preferred by your organization in SOP making it easier for anyone managing the resource delivery.

Purchase Return Process

Occasionally the received order is not found satisfactory by the organization and they reject the same. The reason can be a discrepancy in the delivery quantity, late delivery, quality is not satisfactory, etc. An organization must have a defined process to make the purchase return process flawless and smooth. Defining the steps in SOP will help you and your organization to carry this cumbersome process smoothly and also help strengthen the customer-vendor relationship.

BPX Methodology

At BPX we help you design SOP for your purchase function. SOP design and management are one of our major services. We also help you design your process not only on paper but help you get them integrated to your in-house ERP/Procurement software, thus giving you better implementation results. We ensure the implementation is practical and easy to operate.

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