The purchasing or procurement process is one of the most important for any business, especially in lean economic times. Cost of goods sold is looked at by most bankers as the real cost of doing business; it represents a measure of efficiency and provides clues into how successful the business model will be over time.

Business owners and managers can use the procurement process, from contract negotiations to management, as a tool to improve the business model and the efficiency of their operations.

Step 1: Map the process.

There are many tools available to improve the quality of business processes. One of the most effective is process mapping. This involves drawing the process out from end to end using a flow chart.

Step 2: Create a flow chart.

Begin the flow chart by using five squares with arrows showing the sequence of the process. Take note of where decisions are made. The first step in the procurement process is contract negotiation and the last step is the actual use of raw inventory.

Step 3: Look for improvement.

Identify areas for improvement by looking for redundant steps or places to automate the procurement process. The goal is to make the process faster while improving quality. This will also help you respond to customer demand faster.

Step 4: Use software

Develop or purchase procurement software. Some companies are using technological innovation to build a B2B (business to business) procurement website. Procurement technology improves both the shopping experience and scalability.

Step 5: Evaluate a strategy

Some organizations do better with a decentralized purchasing process; that is, giving procurement (signature) authority to each functional area. This should help to reduce costs by maximizing economies of scale. However, one way to streamline the process is to centralize procurement operations or even outsource it.