Purchasing process - A step-by-step overview

Every business, no matter its size or industry, needs to buy goods and services to operate. From raw materials for manufacturing to office supplies or software subscriptions, these purchases keep the business moving. But purchasing is more than just placing orders, it's a structured process that ensures the right items are bought, from the right sources, at the right price, and at the right time.

In many organizations, especially those with complex operations or large supplier networks, the purchasing process is not handled casually. It follows defined steps to reduce waste, control costs, avoid delays, and ensure quality. Whether it's a small company buying in bulk or a large enterprise managing hundreds of suppliers, an efficient purchase process can directly impact cash flow, compliance, and profitability.

1. What is the purchasing process?

The purchasing process refers to the sequence of steps a business follows to acquire goods or services from external suppliers. It encompasses recognizing a requirement, choosing the appropriate supplier, discussing conditions, ordering, obtaining the good or service, and remitting payment.

2. What is the purchasing process in procurement?

The purchasing process in procurement refers to the specific set of actions taken to buy goods or services as part of a larger procurement strategy. While procurement includes the full scope of sourcing, negotiating, contracting, and managing supplier relationships, the buying process focuses mainly on the operational steps like raising purchase requests, placing orders, and handling payments.

Purchasing is a subset of procurement. Procurement sets the strategy (example: choosing long-term suppliers, getting the best value), while purchasing follows that strategy to carry out the actual transactions. The purchasing process in procurement ensures that the company sticks to approved suppliers, follows internal controls, and maintains consistency across departments.

Why purchasing process important

A well-defined purchasing process plays a crucial role in helping businesses operate smoothly and efficiently. Without a structured approach to buying, companies risk overspending, ordering the wrong items, or dealing with unreliable suppliers. Such problems may result in delays, higher costs, and possibly interruptions in service or production.

By following a proper purchase process, organizations can:

⇒  Control costs through budget checks and supplier comparisons

⇒  Guarantee quality by procuring from authorized suppliers

⇒  Maintain transparency and accountability with clear documentation

⇒  Reduce the risk of fraud or unauthorized purchases

⇒  Improve supplier relationships through consistent communication

Difference between purchasing and procurement

Purchasing is included in procurement, but they have distinct purposes. The procurement process lays the groundwork by choosing appropriate suppliers and securing advantageous conditions through negotiation. Purchasing executes that plan by completing the actual transactions. When both functions work together, businesses can reduce costs, improve quality, and build stronger supplier partnerships.

Types of purchasing process

The purchase process can take different forms depending on a company’s size, industry, and operational needs. Below are the most common types:

1. Strategic purchasing

Strategic purchasing is focused on long-term value. It includes high-value or high-impact purchases that require deep analysis, supplier vetting, and contract negotiation. These purchases often support the business’s core operations or growth plans, such as acquiring raw materials, key technologies, or entering supplier partnerships. Strategic purchasing contributes to competitive advantage by reducing the total cost of ownership and improving supply chain resilience.

2. Routine purchasing (operational or tactical purchasing)

This type covers the day-to-day purchases needed to keep business operations running. It typically involves lower-value items that are bought regularly, like stationery, cleaning supplies, or packaging materials. Routine purchasing often follows a pre-approved vendor list and streamlined procedures. Automation tools and purchase requisition systems are commonly used to manage this process efficiently and reduce administrative workload.

3. Emergency purchasing

Emergency purchasing happens when there's an urgent and unexpected need such as equipment breakdown, stock shortages, or supplier failure. In such situations, standard protocols can be circumvented to accelerate the purchasing process. While emergency purchasing is necessary at times, relying on it frequently can lead to uncontrolled spending and supply risks. It’s important to document these purchases carefully and review them afterward to prevent future emergencies.

4. Direct purchasing

Direct purchases are associated with production or service delivery. This encompasses raw materials, components, or goods that are included in the final product or service. Accuracy, supplier reliability, and quality control are critical here, as any issue can directly impact the end product and customer satisfaction.

5. Indirect purchasing

Indirect purchasing pertains to goods and services that aid the business but are not included in the product or service offered. These include HR services, IT infrastructure, office rental, utilities, and travel services. While often overlooked, poorly managed indirect purchasing can add up to significant hidden costs and inefficiencies.

6. Centralized vs. Decentralized purchasing

In many organizations, purchasing structure plays a major role in efficiency and cost control. Two common models are Centralized Purchasing and Decentralized Purchasing, each with its own advantages and trade-offs.

⇒  Centralized purchasing is when a single department, usually the procurement team, manages all purchasing activities for the entire organization. This approach promotes consistency, better compliance, and stronger negotiating power with suppliers due to bulk purchasing. It also makes it easier to enforce procurement policies, track spending, and maintain vendor relationships.

⇒  Decentralized purchasing, on the other hand, allows individual departments, business units, or branch offices to handle their own purchasing. This model increases flexibility, speeds up decision-making at the local level, and allows each unit to cater to its specific needs. However, it can also lead to inconsistent pricing, supplier duplication, and reduced visibility over overall spending if not managed properly.

7. Sustainable or green purchasing

More businesses are adopting environmentally and socially responsible purchasing practices. This includes selecting suppliers based on their environmental performance, labor practices, and ethical sourcing. Sustainable purchasing helps reduce environmental impact, build brand reputation, and meet compliance with global sustainability standards.

Purchasing process flow chart

Below is a simple and common purchase process flow that can be adapted to suit different business sizes and industries:

Need Identified

        ↓

Purchase Requisition Created

        ↓

Internal Approval

        ↓

Supplier Selection & Quotation Evaluation

        ↓

Purchase Order Issued

        ↓

Order Acknowledged by Supplier

        ↓

Goods or Services Delivered

        ↓

Inspection & Quality Check

        ↓

Invoice Received

        ↓

Invoice Verified & Matched with PO

        ↓

Payment Processed

        ↓

Purchase Closed & Recorded

Key notes:

⇒  Purchase Requisition: Started by a department when a need occurs. It is examined for need and budget.

⇒  Approval stage: Depending on the company, it may require one or more levels of approval based on value thresholds.

⇒  Supplier election: Can be from an approved vendor list or involve a fresh RFQ (Request for quotation).

⇒  Three-way matching: Most businesses match the purchase order, goods receipt note, and invoice before approving payment.

Purchasing process steps

1. Need identification

The process begins when a department recognizes a specific need, which could be for products like raw materials, office supplies, or machinery, or for services like consulting, maintenance, or software. This step involves clearly defining what is needed, in what quantity, and for what purpose. The better this step is handled, the smoother the rest of the process will be. Needs that are vaguely defined or misunderstood often result in incorrect purchases or delivery delays. Stakeholders must also evaluate urgency, check if the item is available internally, and confirm whether it's a one-time or recurring requirement.

2. Purchase requisition creation

Once a need is identified, it is formalized by creating a purchase requisition. This document serves as an internal request to the procurement or purchasing team, indicating what needs to be purchased. It includes essential details such as item names, specifications, quantity, required delivery date, budget codes, and justification for the purchase. The requisition helps centralize purchasing decisions and reduces maverick or unauthorized spending. It also gives procurement teams a structured request to work with, enabling them to prioritize and plan sourcing activities effectively.

3. Approval of requisition

The requisition is reviewed by relevant authorities to verify whether the requested purchase aligns with organizational policies, budget limitations, and project requirements. This step might require one or multiple levels of approval, depending on the value of the request. Larger organizations may use automated workflows to route requisitions to department heads, finance teams, or procurement managers. Approval also acts as a gatekeeper to prevent fraud or unnecessary spending. Only after approval can the procurement team proceed with sourcing the product or service.

4. Supplier identification and quotation request

The procurement team now starts looking for suitable suppliers. This could involve selecting vendors from an approved supplier list, issuing open tenders, or sending Requests for quotation to multiple vendors. The goal is to collect offers and compare them based on price, availability, product quality, reputation, delivery terms, and service history. In this step, building vendor relationships and understanding the market are key. For some items, especially strategic purchases, procurement may conduct negotiations or evaluate potential suppliers based on sustainability, compliance, and risk factors.

5. Quotation evaluation and supplier selection

After receiving quotations, the procurement team thoroughly compares them. This evaluation process includes more than just checking the lowest price it involves assessing delivery timelines, compliance with specifications, payment terms, and warranty support. If necessary, internal departments (like IT or technical teams) may be consulted to assess technical feasibility. In many organizations, supplier selection follows a scoring matrix or weighted criteria to ensure objectivity. Once the best-fit supplier is chosen, a formal decision is made to proceed with that vendor.

6. Purchase order (PO) creation

After the supplier has been chosen, the subsequent step involves generating a purchase order. The PO is an official document issued by the buyer that confirms the purchase details, product names, descriptions, unit price, quantities, delivery schedule, shipping address, tax details, and payment terms. This document represents a legally binding agreement between the client and the supplier. Sending a PO helps avoid future disputes, as both parties agree on the scope and cost of the transaction. Many businesses also use PO numbers to track spending and link related documents like invoices and receipts.

7. Order confirmation by the supplier

Upon receiving the purchase order, the supplier examines it to confirm that they can comply with the stated conditions. After review, the supplier either confirms the purchase order as it is or proposes adjustments. A confirmation can be given in writing, by email, or through a supplier portal. This step ensures both parties are fully aligned before any goods are dispatched or services are delivered. In high-value or long-term purchases, the supplier may also send an acknowledgment or contract in return. This mutual confirmation is key to maintaining clarity and accountability in the purchase process.

8. Delivery of goods/services

The supplier prepares and delivers the goods or performs the service as per the agreed timeline and terms. Upon delivery, the receiving department checks the items against the PO to ensure accuracy, quality, and completeness. If any discrepancies are found, such as incorrect quantity, damaged goods, or missing items delivery report or discrepancy note is raised. This process helps avoid the acceptance of poor-quality or non-compliant materials. For services, the performance may be evaluated based on service-level agreements (SLAs) or milestone completion.

9. Invoice submission by a supplier

After delivery is completed and accepted, the supplier sends an invoice requesting payment. The invoice must clearly reference the PO number and include a breakdown of the products or services delivered, their quantities, prices, taxes, and the total amount payable. Proper invoice documentation is critical for ensuring the payment process runs smoothly. Errors in this step can lead to delays, which may affect supplier relationships. Therefore, companies often encourage digital invoicing for faster and error-free submissions.

10. Invoice verification and matching

The supplier’s invoice is verified by the procurement or accounts payable team through a three-way matching with the corresponding PO and delivery receipt. This step guarantees that the order, delivery, and billing are all consistent with one another. If the details match, payment for the invoice is approved. If there are mismatches, such as pricing errors or missing items, the invoice is flagged, and the supplier is contacted for clarification or correction. This procedure aids in safeguarding the organization against fraudulent billing or overpayments.

11. Payment processing

The finance team arranges payment based on the terms set in the PO or supplier contract once the invoice has been verified. Payment terms vary; some may be immediate, while others could be Net 30, Net 60, or milestone-based. Payment is typically made via bank transfer, cheque, or digital platform. After the payment is processed, confirmation is sent to the supplier, and the accounting records are updated. Timely and accurate payment not only maintains supplier trust but also helps the company avoid late fees or interest charges.

12. Recordkeeping and purchase closure

The final step involves closing the purchase process by organizing and storing all related documents, requisition forms, approved POs, supplier quotes, invoices, delivery receipts, and payment confirmations. These records are necessary for internal audits, budget tracking, performance evaluation, and legal compliance. Modern procurement software allows businesses to store this data digitally for easy access and reporting. Once everything is filed and reconciled, the transaction is officially closed, and the purchasing cycle for that request ends.

Purchasing process example

Scenario:

Company: XYZ Manufacturing

Need: Purchase of 500 kg of industrial-grade steel sheets for production.

Step-by-step example:

⇒  Need identified

The production team at XYZ Manufacturing realizes they are running low on steel sheets and raises a request to restock.

⇒  Purchase requisition created

The department submits a purchase requisition form through the internal procurement system, mentioning the quantity, quality specifications, and urgency.

⇒  Approval process

The requisition is automatically routed to the plant manager and the finance department for approval. Since the value exceeds a certain limit, it also goes to the procurement head for final sign-off.

⇒  Supplier selection & quotation

The procurement team reviews the approved supplier list, requests quotes from three vendors, and compares price, lead time, and terms.

⇒  Purchase order issued

Once they choose the best offer, they create a purchase order (PO) and dispatch it to the chosen supplier for confirmation.

⇒  Order confirmation

The supplier affirms the delivery timeline and dimensions by acknowledging the PO.

⇒  Delivery of goods

The steel sheets are delivered to the warehouse as scheduled. The store team performs a quality check and confirms that the quantity and quality meet expectations.

⇒  Invoice received

The supplier issues an invoice that matches the purchase order and delivery note.

⇒  Invoice matching & approval

The accounts payable department executes a three-way match involving the purchase order, delivery note, and invoice. After verification, they authorize payment of the invoice.

⇒  Payment processed

The payment is processed as per agreed terms (e.g., net 30 days), and the transaction is recorded in the procurement system.

Common challenges in the buying process

1. Unclear requirements

A major issue in purchasing is the lack of precise information about what needs to be bought. When specifications, quantities, delivery timelines, or quality standards are vague or missing, it increases the risk of ordering the wrong item or service. This not only wastes money but also delays operations. Purchasing teams often have to go back and forth with requestors, which adds unnecessary time to the process. Clearly defined needs, ideally documented in writing, are the foundation of an efficient purchasing workflow.

2. Weak supplier communication

Communication gaps between buyers and suppliers can lead to serious disruptions. This includes delays in delivery, missed updates on order status, or misunderstandings about product specifications. When communication is unstructured or infrequent, it’s harder to resolve issues quickly. Suppliers also need to be proactive and transparent. Without mutual understanding and regular touchpoints, even small problems can escalate into major delays or conflicts. Consistent communication protocols, including shared documents, meeting schedules, or digital systems  can help bridge this gap.

3. Unexpected or unstable pricing

Prices can fluctuate due to market conditions, supply shortages, or currency changes. Sometimes, vendors add hidden fees or adjust their prices after a quote is accepted, which can disrupt budgets. If buyers don’t have solid contracts or if they skip a formal bidding process, they’re more vulnerable to unpredictable costs. This makes it hard to plan ahead, especially for large or repeat purchases. Having clear, written agreements and long-term pricing strategies helps create cost stability and reduces surprises.

4. Slow internal approvals

In many organizations, purchase requests go through multiple layers of approval. While oversight is important, too many steps or unclear roles can turn simple purchases into long delays. If the approval chain isn’t defined or if someone in the process is unavailable, orders can sit idle for days or weeks. This affects productivity and can cause stockouts or project delays. Streamlining the approval workflow with automation or clearly defined rules (e.g., purchase thresholds) can make a huge difference.

5. Supplier reliability issues

Not all suppliers consistently meet expectations. Some may struggle with on-time delivery, product quality, responsiveness, or accuracy. When a supplier fails, it puts stress on operations, especially if there’s no backup. Yet many buyers continue with underperforming suppliers out of habit or lack of alternatives. Ongoing supplier evaluation is critical, using metrics like on-time performance, quality scores, and service responsiveness. A trustworthy supplier serves as a strategic partner rather than merely a vendor.

6. Inventory coordination problems

Purchasing and inventory management must work hand in hand. When buyers don’t have accurate data about current stock levels, they may reorder items that are already available or delay buying products that are running low. This leads to either excess inventory (which ties up money and space) or stockouts (which halt production or service delivery). Real-time inventory systems and regular inventory audits help prevent this disconnect and ensure that purchasing decisions are based on actual needs.

7. Poor documentation and record-keeping

Disorganized records, missing purchase orders, unclear invoices, or lost delivery receipts can lead to payment disputes, tracking issues, or compliance failures. In industries with strict regulatory requirements, poor documentation can even result in fines or legal action. Every step of the purchasing process needs to be traceable. A centralized system for storing all purchasing documents, including quotes, approvals, contracts, and receipts, helps maintain accountability and reduces risk.

8. Limited supplier options

It is risky to depend on one or two suppliers for essential products or services. If a vendor does not deliver, raises prices unexpectedly, or has a shortage, the buyer may find themselves without options. This risk is even higher during global supply chain disruptions. Diversifying the supplier base and maintaining an approved vendor list ensures continuity. It also gives buyers leverage when negotiating terms, as competition can lead to better prices and service.

9. Manual and outdated processes

Many purchasing teams still use manual methods like spreadsheets, emails, or paper forms. These systems are slow, hard to scale, and susceptible to mistakes. It’s simple to overlook orders, forget about approvals, or make duplicate purchases. Manual processes also make it difficult to generate reports or spot inefficiencies. Implementing digital procurement tools or even simple automation (like approval routing or digital purchase orders) can increase accuracy, save time, and improve visibility across the organization.

10. Lack of spend visibility

Without clear data on who is buying what, how often, and from which suppliers, organizations struggle to manage costs. Spending can become fragmented across departments, making it difficult to identify waste, negotiate bulk discounts, or enforce supplier contracts. Centralized tracking and reporting tools help purchasing teams monitor trends, spot duplicate purchases, and gain better control over budgets. The more visibility the team has, the more strategic decisions they can make.

Best practices for optimizing the purchasing process

1. Establish clear policies and streamlined approval workflows

A well-structured purchase process starts with clear rules. Organizations need to define who can buy what, from whom, and under what conditions. This includes setting approval limits, outlining preferred suppliers, and creating step-by-step procedures that employees can follow. At the same time, approval workflows should be efficient, not so strict that small purchases are delayed, but structured enough to catch unnecessary or risky spending. Automating these workflows through digital tools can help speed things up without losing control. Clear, written policies reduce errors, prevent confusion, and ensure that all purchases meet business standards.

2. Centralize purchasing and standardize tools

Decentralized purchasing often leads to inconsistency, duplicated orders, and lost cost-saving opportunities. By centralizing the purchasing function or at least standardizing how purchases are made, organizations gain better visibility over spending and vendor performance. It is also easier to negotiate better deals and manage inventory levels when things are centralized. Implementing simple procurement software or shared systems ensures everyone is using the same tools, templates, and processes. This improves record-keeping, reduces errors, and helps all departments work in sync.

3. Build and maintain strong supplier relationships

Purchasing is not just a transaction, it’s a relationship. Treating suppliers as long-term partners rather than one-time vendors leads to better collaboration and more reliable service. Open, regular communication helps resolve issues faster, and suppliers are more likely to prioritize your orders if they feel respected and trusted. Maintaining good relationships also opens the door to early access to new products, discounts, flexible payment terms, and stronger service agreements. It’s important to periodically review supplier performance and keep a backup list of qualified alternatives.

4. Use data to forecast, consolidate, and control costs

Smart purchasing is based on planning and analysis, not guesswork. Forecasting future demand based on sales trends, inventory levels, and past consumption helps avoid both overstocking and stockouts. Grouping similar purchases together can lead to volume discounts and lower logistics costs. Beyond that, collecting and reviewing purchasing data gives insight into who is buying what, how much is being spent, and whether certain categories or vendors are driving up costs. Organizations that use this data regularly can negotiate better deals, cut unnecessary purchases, and ensure every dollar is spent wisely.

5. Ensure documentation, compliance, and audit readiness

A strong purchasing process includes proper documentation at every step from initial request to final payment. This means keeping records of purchase orders, quotations, contracts, delivery notes, and invoices. Accurate documentation not only reduces disputes and delays but also ensures the organization is ready for internal or external audits. In industries with legal or compliance obligations, it’s especially critical to maintain clean, traceable records. Even for small businesses, a clear paper (or digital) trail improves accountability and makes it easier to onboard new team members or identify issues quickly.

KPIs to measure purchasing effectiveness

⇒  Cost savings

Track how much money you save through effective negotiations, discounts, and smarter buying decisions. This indicates how well the purchasing team is controlling spending.

⇒  Supplier performance

Measure the consistency of your suppliers in terms of delivering on time, maintaining quality, and fulfilling orders as agreed. It shows how reliable your supply chain is.

⇒  Procurement cycle time

Measure how quickly orders are processed from request to delivery. The shorter the cycle, the faster your organization can react to needs.

⇒  Order accuracy

Keep track of how often you receive the correct items in the right quantities and quality. High accuracy rates reflect strong procurement processes.

⇒  Compliance rate

Monitor how often your team is following internal procedures, such as using approved vendors or sticking to budgets. A high level of compliance suggests that the buying process is well-structured.

⇒  Inventory turnover

Measure how efficiently purchased goods are used or sold. High turnover indicates that you are purchasing only what is necessary and avoiding overstocking.

⇒  Supplier defect rate

Monitor the rate of defective or non-compliant products supplied by vendors. A low defect rate is crucial for maintaining smooth operations.

⇒  On-time delivery

Measure how often suppliers meet the delivery deadlines. Timely deliveries are essential for preventing delays in operations and keeping projects on track.

⇒  Purchase price variance

Compare the price paid for goods or services to the market or negotiated price. Tracking this ensures you're getting the best possible deal.

⇒  Emergency purchases

Measure how often urgent, unplanned purchases are needed. A high number could indicate poor planning or forecasting, which can increase costs and disruptions.

⇒  Sustainability metrics

Track how many of your purchases meet sustainability or ethical sourcing standards. For companies looking to get in line with green initiatives, this is becoming more and more important.

Conclusion

A clear and well-managed purchasing process helps your business run smoothly. When you follow the right steps from identifying what you need to making the final payment, you reduce mistakes, avoid delays, and save money. It also helps ensure that you’re working with the right suppliers, buying at the right price, and getting what you need on time.

For professionals like you, a strong buying process means less stress, better planning, and more control over budgets and timelines. It makes your work more efficient by cutting down on back-and-forth communication, improving visibility into spending, and helping you make faster, smarter decisions