“Without data, you’re just another person with an opinion” – W. Edwards Deming. This rings true when it comes to the purchasing processes of a company. Regardless of whether a company is a startup or a multinational, purchasing is a must. Every company has similar procurement processes that start by identifying the items required for their operational purposes, creating requisitions, issuing orders to the suppliers, receiving the goods and making the payments. This constitutes the procurement cycle and any loopholes can affect the bottom-line profits of an organization. Each step is data collected that helps procurement teams make informed decisions in the future.
The Procurement Plan:
Requisitioning: This is the very first step in the process which involves identifying the need for a particular product or service. A requisition is created in the company which is then sent to the corresponding department or in some cases to an individual for approval. Suppliers can also be identified at this stage along with an indication of costs.
Purchase Orders: Once approvals are completed, purchase orders are raised and sent to the suppliers along with agreeable costs and delivery timelines.
Goods Received: All the products received would need to be logged into the system so that an inventory is maintained, and goods are ready for use.
Invoicing: This is the final step in the procurement cycle wherein the suppliers are paid for their services or products.
There are many important interim steps that take place depending upon organizations such as various levels of approvals, vendor preferences, alerts, etc.
To complete the procure-to-pay process, a company must adopt a robust procurement and an accounting application. Both applications must bring their unique abilities of procuring items within budgeted costs and timelines and making payments as per the agreed terms.
There are 3 ways that companies handle this process:
Procurement without accounts
With the advent of eProcurement, a lot of companies have adopted the digital way to handle purchases. Naturally, these companies always have an accounting system that is used to make timely payments. What is missing here is the link between the two. Both systems could be working parallelly without any information being passed resulting in loss of data that if shared, could result in better predictions, forecasting and a lot more transparency.
Accounts without procurement
Most companies would always deploy an accounting system at the start of business. They may not feel the need for a procurement application as this could be carried out by old methodologies such as excel sheets or even paper/pencil in some cases. In a scenario wherein only an accounting software is being used without a procurement system, the payments are made based on data that is sent on excel sheets or by people directly. The accounts department would not have the entire information regarding this purchase order with respect to the timelines of the order, details of the products received or any approval process.
This would always be the ideal way to complete a procure-to-pay cycle. A procurement system would do its job of creating requisitions, orders, receive the goods, log in inventory and have the accounting system then read this data and the log history to make better payment judgements.
At Eyvo, we assist companies in sharing the data that can be generated by our system with various accounting packages while importing the data back from the accounting package resulting in a broader perspective on transactions and effective functioning of both the procurement and accounts teams.