As an operative buyer, your main responsibility is managing the procurement of goods and services necessary to ensure the smooth functioning of your organization. This includes everything from manufacturing components to office supplies, and your job often involves using standard operatve procurement processes. However, the specific nature of what you’re buying—whether it’s components for a manufacturing site, spare parts, or office supplies—can greatly affect how you apply these processes.

In this case study, we will explore how buying different types of goods, such as manufacturing components, spare parts, and office materials, influences the applicability of standard operative procurement processes like order management.

Standard Operative Procurement Processes

Before diving into specific examples, let’s review some standard operative procurement processes that you, as an operative buyer, would typically manage:

1. Placing POs, Order acknowledgement and Order management: This involves placing purchase orders, tracking them, and ensuring the goods are delivered on time.
2. Invoice Matching: Ensuring that the supplier’s invoice matches the received goods and the original purchase order before payment is processed.

Buying Components for a Manufacturing Site

Let’s start with an example where you are procuring components for a manufacturing site. This type of procurement is typically complex and has specific requirements, making it distinct from other types of purchases.

Key Characteristics:

• High Volume: Components are often bought in large quantities.
• Critical to Production: Timely delivery is essential as any delays can halt production, which can be costly.
• Customized Specifications: Components often have detailed technical specifications that must be met by suppliers.
• Long-Term Supplier Relationships: Component procurement generally involves long-term contracts with established suppliers, ensuring consistent quality and reliability.

In this context, the Operative Procurement Processes (sometimes called Procure-to-Pay (P2P)) process needs to be highly streamlined and efficient. The supplier relationship is often built on long-term agreements, which means orders are placed through an ongoing contract, minimizing the need for repeated negotiations. Each component order is carefully tracked through the order management process, and real-time visibility into inventory levels is crucial for avoiding stockouts.

Example of Application:
In a typical scenario, you might place a purchase order for 1,000 units of a specific component. This PO is automatically generated by an MRP (Material Requirements Planning) system within your ERP (Enterprise Resource Planning) software, which tracks inventory levels and forecasts future demand based on production schedules. The supplier receives the PO, confirms the order through an acknowledgment, and provides an expected delivery date.

Once the goods arrive, they are inspected to ensure they meet technical specifications. Any discrepancies between the ordered and received quantities (or quality issues) need to be resolved before the invoice is matched and payment is processed. If there are consistent issues with late deliveries, you might need to adjust your supplier performance management approach to ensure smoother operations.

Here, inventory control is essential to ensure that stock levels are neither too high (leading to excess inventory) nor too low (risking stockouts). The Just-in-Time (JIT) inventory method is often used, meaning you only receive components as they are needed, minimizing holding costs.

Buying Spare Parts

Next, let’s look at the procurement of spare parts, which is quite different from buying components for production. Spare parts are often needed for equipment maintenance and repair, and while they are crucial for ensuring operational continuity, they are not always required in large quantities or on a regular schedule.

Key Characteristics:

• Unpredictable Demand: The need for spare parts can be difficult to forecast accurately since it’s based on equipment breakdowns or scheduled maintenance.
• Urgency: When equipment fails, there is often an urgent need for spare parts to minimize downtime.
• Small Quantities: Unlike production components, spare parts are usually ordered in smaller quantities and less frequently.
• Supplier Availability: Having reliable suppliers who can provide quick delivery in case of emergencies is critical.

In the case of spare parts, the order management process needs to be flexible to accommodate the unpredictable nature of demand. Often, the PO is raised on an as-needed basis, meaning it might not be part of a long-term contract but rather a one-time purchase. The use of e-procurement tools can greatly enhance efficiency here, especially for spare parts that are not highly customized and can be ordered through an online catalog.

Example of Application:
Imagine a scenario where a key machine breaks down in your manufacturing plant. The maintenance team identifies the need for a specific spare part, and it becomes your job as the operative buyer to source and purchase that part as quickly as possible.

Because of the urgent nature, you might use an e-procurement platform to find a pre-approved supplier who can deliver the part within 24 hours. You create a purchase order and send it through the system. Once the part is delivered and installed, you process the invoice and confirm that the part meets the required specifications.

For spare parts, inventory control often involves keeping a small stock of critical parts on hand, but it’s difficult to maintain a large inventory due to the unpredictability of demand. You might also work closely with suppliers who offer expedited shipping options for emergencies.

Buying Office Materials via E-Procurement

Finally, let’s consider office materials procurement, which is usually less complex but still requires efficient processes. Office materials include items like stationery, printer inc, and cleaning supplies. These are typically low-cost, high-volume items that are used by various departments within the organization.

Key Characteristics:

• Routine Purchases: Office materials are often purchased on a regular basis.
• Low Value: While the individual items are inexpensive, they are necessary to maintain day-to-day operations.
• High Volume: Office supplies are used frequently and in large quantities.
• E-Procurement: These items are typically purchased via e-procurement platforms, which streamline the ordering process and allow for easy supplier comparison and selection.

For office materials, Procure-to-Pay (P2P) is highly automated. E-procurement platforms allow users to browse online catalogs, select the items they need, and place an order with just a few clicks. This eliminates much of the manual work associated with traditional procurement processes.

Example of Application:
Let’s say an employee in the finance department needs more printer paper. Instead of manually requesting this from the procurement team, they log into the company’s e-procurement platform. They select the required items from a pre-approved supplier, and the system automatically generates a purchase order, routes it for approval, and sends it to the supplier.

In this case, the order management process is minimal, and inventory control is simplified because office materials are stocked in larger quantities. Invoice matching is also straightforward since the items are standardized and don’t require complex quality checks.

Invoice Matching

Invoice matching is a key step in the Procure-to-Pay (P2P) process. It involves verifying that the details on the supplier’s invoice match the corresponding purchase order and goods receipt. The matching process is essential for ensuring that you only pay for goods that were actually received, and at the agreed-upon price and quantity.

In this case:

• Three-Way Matching: The most common form of invoice matching is the three-way match, where the invoice is matched against both the purchase order and the receiving report (goods receipt). For components, which are typically purchased in high volumes with precise specifications, three-way matching ensures that any discrepancies between what was ordered and what was delivered are caught before payment. This is critical for managing quality and ensuring supplier accountability.
• Spare Parts and Office Materials: For smaller, lower-cost items like spare parts or office materials ordered through e-procurement, invoice matching is still necessary but may be simpler. Since these items are often standardized, matching may be faster and automated through the e-procurement system. The goal is to ensure that only items delivered and verified are paid for, minimizing errors and fraud.

Automation in Invoice Management and Matching

For office materials, which are often ordered through e-procurement tools, the process of invoice management and matching is highly automated. E-procurement platforms allow for seamless integration of purchase orders, goods receipts, and invoices, reducing the time spent on manual checks and improving accuracy. In this case, automation greatly simplifies the matching process, ensuring that routine office supply orders are processed efficiently without delays.

Comparing the Three Scenarios

When procuring components for manufacturing, you are dealing with critical, high-volume purchases that require precise order management, long-term contracts, and careful inventory control. Spare parts, on the other hand, involve more unpredictable, smaller-scale purchases that often need to be made on short notice, placing emphasis on flexibility and supplier availability.

For office materials, the procurement process is relatively simple, often involving automated e-procurement systems and minimal inventory control. This category emphasizes cost control and efficiency over supplier relationship management.

Conclusion – applying operative procurement processes.

As an operative buyer, your approach to procurement must be tailored to the specific characteristics of the goods or services you’re purchasing. Whether you’re managing complex, high-volume component orders, responding to urgent spare part needs, or streamlining office supply orders through e-procurement, each type of purchase requires a different application of standard procurement processes.

By understanding how to adjust your P2P process, inventory management, and supplier relationships based on what you’re buying, you can ensure smoother operations, cost savings, and more efficient procurement practices. This adaptability is key to being an effective operative buyer in a dynamic business environment.

Effective invoice management and matching are crucial to ensuring smooth procurement operations. For complex purchases like manufacturing components, strict invoice matching helps avoid discrepancies, while for routine office materials and spare parts, automation helps streamline the process. As an operative buyer, having a robust system for managing and matching invoices ensures that your organization remains financially efficient, avoids costly errors, and maintains healthy supplier relationships through payment on time.

Case is part of the course Operative Processes 2, the first course of three, introducing key responsibilities of the operative buyer role.

Note: Illustration to the blogpost “Case Study: How the Nature of What You Buy Affects Operative Procurement Processes” was created by Chat-GPT on Oct 20, 2024.

Learn more about LHTS’s courses in Swedish.

EXTRA: Explanation of Three-Way Matching of Invoices

Three-way matching ensures accuracy before payments are made to suppliers. It involves comparing three documents:

1. Purchase Order (PO): This document includes details of the items ordered, such as product descriptions, quantities, and agreed prices.
2. Goods Receipt: This confirms that the products have been delivered and matches the quantities and specifications in the purchase order.
3. Invoice: The supplier’s request for payment, listing the items delivered, quantities, and total cost.

For a payment to be approved, these three documents must match in key areas: the product, quantity, and price per unit. If there are discrepancies, they need to be resolved before payment can proceed, ensuring that the buyer only pays for goods that were actually ordered.