How Smart Companies Actually Control What They’re Buying

It all starts the same. Someone needs something for work, so someone buys it, and the receipt is approved later. This works fine when five people are in a room together. It quickly gets out of hand when there are fifty. But it’s not that people are buying frivolous things (for the most part) – it’s that no one really knows what’s going on, who’s buying what, or if the guy three cubicles over bought that exact same item last week.

Companies end up with five different software solutions that do the same thing – or they’re paying vendor A full price because employee A bought it without any other employees knowing – when vendor A, if reached out to by 20 different people, could’ve afforded to offer everyone a 20% discount if they consolidated orders.

If you’re one of those companies that do have control over what’s purchased and paid for, you do so because you’ve established buying as a process – not just haphazard transactions.

Why Spontaneous Purchasing Is Expensive

For companies that allow everyone to buy what they want when they want, buying becomes unpredictable but not tragic. However, it’s usually an expense in death by a thousand paper cuts.

Redundant or duplicate purchases are the first big red flag. The marketing team decides they need project management software and buy one program. Two months later, the operations department decides they need project management software too – but a different program. No one communicates; thus, the company pays for both. Do this across spending categories, and that’s a lot of wasted money – especially since multiple people are likely making different decisions on what’s best for their teams.

The vendor relationship issue is next. Everyone buys something and is spread out between multiple people and departments; thus, no one vendor ever sees how much they’re truly getting from one company. Meaning: no leverage for potential discounts. Company X spends $50k a year with Company A, yet it comes through in $500 increments here and there as no volume discount is ever applied since separate departments all pay out of pocket for the same service. Instead of getting good deals for being high-value customers, they’re paying standard rates like every other low-volume customer.

Budgetary awareness becomes almost impossible. When someone has to pay out of pocket, finance also has to run around compiling receipts to get a sense of what’s been bought at any time throughout the year. By the end of it, they’ve decided what everyone bought months after the fact – and at that point, it’s too late.

What Controlled Purchasing Looks Like

When companies get it right, it’s not some rigorous bureaucracy where every paperclip purchase requires three signatures; instead, structure is implemented for something that was previously a free-for-all without guidance.

It’s quite easy, actually – who can buy what? Employees need to have their purchases visible beforehand and after once they’ve been made – this does not mean micromanaging every little penny. If there is a $100 threshold for office supplies where anyone can buy what they want on their own without having to justify themselves, that’s fine. But if someone wants to purchase a new software subscription, they need department approval first; if it’s over $10K (based on industry), it needs senior leadership approval as well.

Whatever the criteria is may vary depending on company size and industry. Still, the idea is that employees must come correct – and those who can facilitate the information have expectations – for example, instead of letting everyone deal with independent vendor relations/negotiations/regulatory criteria/trustbuilding or destruction between companies and employees, all vendors should be preferred for common purchases.

Consolidating spending will allow companies to negotiate better deals; however, it will also help hold accountable any services rendered as all orders come from one person instead of fifteen.

The Technology That Makes This Possible

Good luck trying to control this buying through email chains and Excel spreadsheets – it’s technically possible but absolutely miserable for anyone involved. Therefore, procurement software has become a must-have for companies looking for transparency without an excessive bureaucracy implementation.

Great systems allow employees to request purchases from one place and track them once they’re sent to their approvers. The best do not add friction but transparency to the processes. An employee submitting a purchase can do so in a few minutes; through category and price routed cut and dry by rules determined by other professionals in charge (without taking up all their time) – once approved, it automatically gets approved in real-time as finance can see what’s going on without having to wait until month-end for everything to be compiled.

Some systems integrate with vendors directly so that approved purchases turn into products without someone having to put an actual work order in manually. Others integrate with financial systems so that there is no duplicate data entry or reconciliation work required. The key is to make controlled purchasing better than uncontrolled purchasing – otherwise? It’s not worth it for anyone.

Common Pushbacks and How to Surmount Them

The biggest pushback revolves around autonomy – people could buy what they want when they wanted and now they have to ask permission? This is legitimate and should be called out head-on.

Set expectations – that’s what’s going to happen. If someone tries to beat the system by reducing larger sums of money into smaller purchases to avoid any approvals, this defeats the purpose. Make those thresholds good enough so that no one ever feels the need to play with numbers because it’s sensical enough (and explain if it’s sensical enough). Make consequences clear should anyone try to skirt the process intentionally.

Getting buy-in from department heads matters, too; if stakeholders believe that procurement controls are a finance department power grab, they’ll undermine it from the onset. Bring them into designing it up – them setting thresholds for their teams will help equity emerge as department-specific spending will be visible to those heads so they can manage it accordingly.

What This Looks Like After It’s Instituted

Companies with controlled purchasing know exactly what they spent last quarter – itemized by category/by department – and why. They see patterns emerging; if software expenses are on the rise consecutively month over month, that needs to be assessed – and if marketing is always going over budget month over month on office supplies, this must be discussed.

They get better deals – vendors know they’re competing against consolidated work from a one-off purchase; prices drop; 10-15% reductions across big categories can make a financial bottom line difference.

Additionally, compliance matters in highly-regulated industries; if there’s ever a question where an audit takes place or something goes wrong from a regulatory standpoint, there’s a clear cut paper trail showing who approved what when. It eliminates anyone trying to slide anything under the radar.

Getting Started Without Overwhelming People

Companies don’t need to implement controlled purchasing from day one – there’s no way it will work better in stages instead.

Start with the bigger categories – what represents the majority? If professional services/software subscriptions make up discretionary spending, this is where employees should start.

Then pick approval thresholds that make sense at this time – a company can always adjust them later – but find the ones that catch the greatest impact but don’t annoy anyone – the goal isn’t to create bureaucracy across every transaction but catch what purchases matter financially.

Get appropriate people involved – from the finance team at the table facilitating it to department heads who will actually utilize it – the input should suffice enough so that everyone’s on board with what thresholds make sense, too.

Most importantly? Communicate why it’s happening – people don’t mind new systems when they understand why there’s a problem being solved; show them duplicate software subscriptions attempted/potential volume discounts missed/budget overruns that no one saw coming before it’s too late; it’s not about restricting spending – all controlled purchasing does is make spending smarter.

When purchasing is controlled properly, it doesn’t seem restrictive; it feels much more organized; people know what they can buy freely and how they can approved bigger purchases and where they can get information if they ever have questions for themselves or other companies.

If companies can save money, reduce risks and make better decisions based on accountability, then it’s worth it from jump.