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

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. To get around this, company procurement cards are commonly used to buy lower-cost items at the department level, without having to work with the purchasing department. By doing so, the purchasing staff can concentrate on sourcing a much smaller number of high-value goods and services.