When was the last time you thought about your company’s purchasing process?
We get it: creating a formal purchasing (or procurement) process may not be your #1 priority. After all, conventional wisdom says a business doesn’t need to invest in procurement solutions—or even a procurement team—until it reaches $500M or more in annual spending. It makes sense: procurement solutions on the market today are typically expensive and take significant resources to implement.
But thankfully, you don’t need a formal procurement solution to start thinking about your purchasing process—and the sooner you start thinking about it, the better. Consider the long-term implications of the purchase decisions being made across your company: every vendor contract creates a new business relationship with inherent risks and introduces another cost that could be eating into your bottom line.
Looking into how your employees spend is low-hanging fruit for any company hoping to improve business health. It can lead to quick wins like eliminating unnecessary or duplicate expenses, renegotiating bloated contracts, and getting out of relationships with risky vendors.
This guide will walk you through how to start centralizing your purchasing process, complete with examples from companies who have undergone the process themselves.
What is a Purchasing Process?
Your company’s purchasing process includes every activity involved in obtaining the goods and services you need to support daily operations. This means any business expense outside of payroll. Technology tends to be a big one—tangible goods like cell phones or computers, as well as the business software your employees need to do their jobs.
Here’s a high-level overview of what a typical purchasing process looks like:
Source: Identify vendors & collect quotes
First, the buyer will research and identify potential vendors. Depending on the purchasing process, this may work in one of three ways:
- RFP (request for proposal) or RFI (request for information): The buyer will send out a public statement that the company is the market to make a purchase, including an invitation for vendors to complete a formal, standardized questionnaire.
- Pre-approved catalog: The company will pre-select vendors before the purchase is even needed. When the time comes, the buyer will select a vendor from an internal catalog.
- Business-user-led: The buyer will talk to their peers, look at review sites, and do their own discovery work to identify and request information from vendors who may be a good fit for their needs.
Purchase: Getting the green light to buy
Once the buyer has selected a vendor, they’ll get the internal green light to make the purchase by collecting approvals from different departments and executive sponsors. The legal team, or whoever else is responsible for contract review at the business, will review, negotiate, and approve the terms of the vendor contract.
Pay: Accounting handover
Once the contract has been approved, the company needs to pay the vendor. This typically involves a handover via an ERP (enterprise resource planning) or accounting system or directly to your accounts payable team to manage the recurring expense.
Manage obligations: Know your upcoming responsibilities
Even after the purchase has been made, someone has to keep track of renewals and continually evaluate the vendor relationship. Depending on the company, this could be the business user or even the operations team.
If you don’t have a dedicated procurement team, the responsibility of running this purchasing process is usually shared between your legal, finance, and operations teams.
- Legal needs to review contracts and manage negotiations.
- Finance has to make sure the right approvals and budget are there, understand payment obligations, and continue to manage those obligations over time.
- Operations is responsible for streamlining the process across all teams making purchases, consolidating tools, and making sure the business is running as efficiently as possible.
How CLM can help streamline your purchasing process
A CLM (contract lifecycle management) solution can be a great way to start centralizing your purchasing process and getting better insight into your business expenses across departments.
With CLM, any edit, email, message, or deadline notification associated with any purchase, contract, or negotiation is then updated and automatically routed to approvers and anyone else you want to have oversight into the process. This avoids the uncertainty of emailing redline updates back and forth and verifying which version of the contract or negotiation is attached.
Further, vendors can be vetted to assure their GDPR and CCPA compliance, and these compliance regulations are kept current, saving your company legal exposure. These are advantages any company can benefit from, not just the Fortune 500.
But what if you don’t have a procurement department? Legal, finance, and ops all have input and an interest in purchasing and agreements. With all parties and departments contributing and referring to one cohesive platform, this nuts-and-bolts aspect of business becomes automated and useful instead of scattered across stored files.
Key benefits of CLM for managing your purchasing process
1. Control spend: Protect company profit margins by managing spend across the organization
If you have limited visibility into purchasing activities across the organization, CLM can help. Centralizing your vendor agreements in one place makes it easy to uncover key insights in your contracts, like duplicate, rogue, or poorly negotiated purchases. It can also help you manage things like auto-renewals, identify price increases, and avoid late fees by keeping better track of your obligations.
2. Reduce risk: Remove as much contractual, financial, regulatory, or data-privacy-related risk from the purchasing process as possible
When business users make purchases, speed is often prioritized over due diligence. However, addressing risk post-purchase is far less effective and often causes confusion. CLM can help embed due diligence into your purchasing process to ensure vendors meet compliance standards before you buy.
Procurement aims to remove as much risk from a purchase as possible. Common risks addressed are:
- Corporate and regulatory compliance
- Data security
3. Procure quickly: Acquire goods and services at the rate the organization requires to achieve internal goals.
Business moves fast. By removing manual processes around document generation, collaboration, and negotiation, business users can buy faster with all the right approvals across departments.
3 case studies on centralizing purchasing processes
How Ironclad’s Head of Finance built out our procurement process
In this video, Elliot explains the procurement process, how it’s used, and how he used Ironclad’s Workflow Designer to build a workflow specifically for procurement.
How Iterable’s Associate General Counsel standardized the vendor contracting process
And here, an Associate Corporate Counsel at the marketing company Iterable shares how his company tested several options to institute procurement, chose Ironclad, and found that it eliminated the tedious, time-consuming task of building reports.
How Cofense found the right CLM for their purchasing process
A phishing defense company, Cofence, tried implementing another CLM platform and found it created far more work than solved. After switching to Ironclad, they went from a contracting system based on email logs to having robust reporting capabilities and 100% adoption of the technology across all departments in the company, including sales, legal, and procurement.
Conclusion: Put your vendor contract data to work with Ironclad
Getting a handle on expenses is low-hanging fruit for any business looking for productivity and efficiency gains. The trick is understanding that expenses and financials are not only a concern for accounting.
Every expense in a business is to some degree a legal department concern, too—certainly, the more significant deals and revolving contracts are negotiated and signed off and kept track of by legal. But the bulk of business contracts, even seemingly mundane purchasing, can be varied and complex, allowing mistakes and liabilities when scattered around a company without reporting ability.
The overall advantage of using Ironclad to centralize your purchasing process is your ability to distill that information from various sources of software and departments, to organize it into templates that catch the small print and provide a coherent view of the most pertinent information—due dates, renewals, etc.—helping your department, and company, to stay ahead of the ball rather than chasing it.
Interested in learning how Ironclad can help your company centralize your purchasing process? Request a demo.
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.
- What is a Purchasing Process?
- How CLM can help streamline your purchasing process
- Key benefits of CLM for managing your purchasing process
- 3 case studies on centralizing purchasing processes
- Conclusion: Put your vendor contract data to work with Ironclad
Want more content like this? Sign up for our monthly newsletter.