A procurement department is responsible for buying the goods and services an organisation needs. It selects suppliers, negotiates prices and terms, and manages the contracts that follow. The aim is to keep costs down and quality up, which is why procurement stopped being an administrative function and became a strategic one. In this article you can read what the department does, how the process runs and where the invoice side begins.
Contents
What is a procurement department?
In smaller companies the owner or the director does the buying alongside everything else. As the volume of suppliers and contracts grows, that stops working, and a dedicated department takes over. Its job is to get the right suppliers on the right terms and to keep cost and quality in balance, which is a different skill from placing orders.
How the process runs
It starts with identifying the need, then selecting and assessing suppliers by requesting and comparing quotations. Negotiation follows, and a contract closes it. The recurring work after that is supplier management, contract management and cost analysis, increasingly supported by e-procurement systems. The department is one link in the wider procurement process, and the last link of that chain is an invoice that has to be checked, coded and paid.
Purchasing or procurement?
The two words are used interchangeably and they are not the same. Purchasing is the transaction: ordering, receiving, paying. Procurement is the whole discipline around it, from sourcing and supplier selection to contract and relationship management. A department called purchasing that only places orders is doing a fraction of what a procurement function does, and that distinction usually explains why two organisations of the same size get very different results from the same spend.
The strategic role
A procurement department that works well has its own targets lined up with the company’s: not the lowest price per order, but the lowest total cost at an acceptable risk. Data analysis and market research are what make that possible, because you cannot negotiate on a spend you cannot see. That is also the practical argument for keeping the invoice administration current: spend data that is three weeks behind is not much use in a negotiation.
Trends and things to watch
Automation and analytical models are being used to review supplier data and anticipate price movements. Sustainability and responsible sourcing have moved from a reporting obligation to a selection criterion. Supply chain resilience is being weighed against cost in a way it was not five years ago. And two sets of rules always apply: public tendering law if you buy on behalf of a public body, and data protection law for the supplier and contact data you hold, which falls under the European data protection rules.
From purchase to invoice
Once the order is placed and the delivery has arrived, an invoice follows, and that is where the procurement department hands over to the administration. TriFact365 automates that hand-over: the purchase invoice is read down to line level and prepared as a booking proposal, and after your check the journal entry goes to your accounting package. Ordering and the payment run stay in your own systems, and invoices are not matched against purchase orders; three-way matching remains a job for your ERP. Read more about the invoice side of purchasing or about the purchase order itself.
Frequently asked questions
It buys the goods and services an organisation needs: identifying the need, selecting and assessing suppliers, negotiating prices and terms, closing contracts and managing supplier relationships afterwards, with cost and quality both in view.
Purchasing is the transaction: ordering, receiving and paying. Procurement is the wider discipline, covering sourcing, supplier selection, negotiation and contract management. Purchasing is a part of procurement rather than a synonym for it.
It begins with establishing the need, then selecting and assessing suppliers through quotations, negotiating the terms and closing a contract. Supplier management, contract management and cost analysis are the recurring work that follows.
Automation and analytics on supplier and spend data, sustainability and responsible sourcing as selection criteria rather than reporting items, and supply chain resilience being weighed against cost.
At the invoice end. The purchase invoice is read down to line level and prepared as a booking proposal, and after your check the journal entry goes to your accounting package. Ordering, three-way matching and the payment run stay in your own systems.
