What is a Purchasing System?

A purchasing system is a set of processes used to acquire goods and services for an organization. These processes include the following activities:

Acceptance of purchase requisitions. This task involves the review of purchase requisitions to ensure that they have been approved, and that the acquired items are within budget and can be purchased.
Finding and evaluating suppliers. This task is targeted at the procurement of new goods or services; existing items are typically purchased from existing suppliers.
Negotiating prices. This task involves a back-and-forth with suppliers to determine the lowest price at which goods and services can be acquired.
Placing purchase orders. This task involves filling out purchase order paperwork and sending it to suppliers.
Monitoring procurement cards. This task involves the review of what is being acquired with procurement cards, to ensure that purchases are being kept within approved purchasing guidelines.
Disposing of excess assets. This task is mostly targeted at dispositioning inventory that is unlikely to be used in the near term, in order to avoid inventory holding costs and to keep from incurring losses on obsolete inventory.

A purchasing system is an essential control over the cash outflows of a business, so that only what is needed is actually acquired and purchases are made at reasonable prices.

A key input to a purchasing system is the production planning system, which can be used to automatically calculate what needs to be purchased and when; it is possible for the production planning system to automatically place replenishment orders with suppliers, completely sidestepping the traditional purchasing system.

Problems with a Purchasing System

A purchasing system may face several problems that can hinder its effectiveness, efficiency, and reliability. Here's a list of common issues:

Lack of automation. Manual processes lead to errors, delays, and inefficiencies, as well as difficulty in tracking purchases and approvals.
Increased bureaucracy. The main concern with a purchasing system is that it introduces some bureaucracy to the purchasing process, which slows down the acquisition of goods and services.
Inefficient approval workflows. Lengthy approval processes can cause delays in procurement.
Poor supplier management. There may be limited visibility into vendor performance.
Lack of integration. There may be disconnected systems (e.g., between purchasing, inventory, and finance), which lead to duplicate work or data silos.
Compliance issues. There may be a failure to adhere to internal policies or regulatory requirements, which increases the risk of fraud due to insufficient controls.
Limited scalability. The system may struggle to handle increased transaction volume as the organization grows.
Delay deliveries. Deliveries from suppliers may be delayed, due to poor communication with suppliers about lead times.
High costs. Some purchasing systems may result in expensive system implementations or maintenance fees.

Addressing these issues often involves implementing robust procurement software, streamlining workflows, enhancing communication, and ensuring proper training and compliance protocols.