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Standard Operating Procedures (SOP) Manual for Purchase Department

Standard Operating Procedures (SOP) Manual for Purchase Department

Purchase Department SOPs

The role of a purchase department is to manage the procurement of the materials required for business operations or production from vendors and suppliers. However, such a narrowed-down description hardly reflects the complexities of managing the purchase function of a company. Behind ensuring a steady flow of materials, a purchase department needs to run several processes flawlessly. If these processes are faulty it could lead to many undesirable circumstances like the selection of ineligible suppliers, misunderstandings about expected results, over-purchase or under purchasing, failing to order on time, etc.

From selecting the right suppliers to managing returns, every key activity of a purchase department can be made process-driven with SOPs.

Vendor Shortlisting and Selection

‘Who is eligible to supply’ is the question we answer in vendor selection. There should always be a planned and systematic process for shortlisting and selecting vendors and suppliers. For micro and small businesses, even a checklist can fulfil the same purpose.

The vendor shortlisting process can be mapped in the form of SOPs. There could be multiple procedures involved but the end result is to have on-board an eligible vendor.

Different businesses will have different strategic requirements in terms of past experiences of the vendors, quality of materials, quantity of supply, transit time, logistical priorities, regulatory factors, pricing and financial terms, and so on. These considerations need to find a place in the vendor selection process.  Secondly, this process needs to be carried out in a phased and systematic manner. For example, the company will have to first place advertisements inviting interested vendors. Then, the vendors who showed an interest may have to submit their offers. These applications are then required to be evaluated as per established criteria. And the process shall continue till a vendor is finalized.

These SOPs shall also serve as a working map for the employees of the company who shall be involved in the process. Once the vendor shortlisting SOPs are defined, there will hardly be any scope for misjudgements or favouritism.

New Supplier Onboarding Process

The process of on-boarding a new supplier entails completing the documentation and regulatory formalities and acquainting the supplier about the related policies of the company and chalking out a detailed operational roadmap. Different companies may have different approaches to how they carry out this onboarding process. Bigger enterprises have lengthy procedures running into days or even weeks.

Having SOPs can simplify a complex and lengthy onboarding process. A well-planned, systematic, and process-oriented approach will ensure that all the required areas of work are duly undertaken and finished on time. These areas of work could be documentation formalities, supplier details integration with the company’s IT systems, fulfilling applicable regulatory compliances, meetings between company officials and new suppliers etc.

Procurement Process

Procurement is probably the heart of a purchase department which involves the considerations and permissions involved in a company before making a purchase. This is where requisitions surface, approvals do the rounds, and procurement orders are placed.

To place a procurement order, a purchase department needs to observe certain rules. It cannot place an order just because there is a requisition from another department or division. There are rules here to ensure that purchases to be made are justified, are controlled, and are within the confines of operational planning.

There will be approvals and clearances involved from concerned authorities. There needs to be transparency in how a company is making its purchases. Even the private sector is not free from corrupt practices. It is strongly advisable to have procurement SOPs or purchase SOPs to define this process and how it should be carried out. This can serve as a manual for the procurement of goods. Having a purchasing policy manual, also expressed in SOP format, will make it easier for employees to proceed systematically following the rules.

Reorder Decisions (ROL Management)

Managing the required inventory levels, which can also be dynamic, is a critical job of a purchase department. This stresses on how decisions are made on reordering and ensuring that adequate stock levels are always maintained and business operations are not affected. There are three basic questions which a purchase department needs to answer on a routine basis.

  • What to order?
  • When to order?
  • How much to order?

Wrong decisions here could lead to operations coming to a halt when there is no or insufficient inventory left affecting production, operations, and sales.

SOPs can play a saviour here. If the specific parameters related to reorder levels, reorder quantities, and reorder items are defined in the SOPs then this decision-making will become easier and more accurate.

The direct impact of prudent reordering per SOPs is on the liquidity and the bottom line (profit). With optimized purchasing via effective ROL management, higher profits will be recorded even with the same level of sales.

Logistics Management

Logistics is that part of the supply chain management where the physical movement or transportation of materials takes place. It can refer to movement of goods from supplier to company, supplier to factory, supplier to the warehouse, company to the customer, one warehouse to another, and so on. Logistics can be of five types or stages of logistics:

  • Procurement Logistics
  • Production Logistics
  • Sales Logistics
  • Recovery Logistics
  • Recycling Logistics

The logistical activities are carried out by a company’s logistics team or hired logistic partners. Transportation can take place between states or even countries. The geographical spread of the supply chain network and the number of intermediaries involved defines the complexity of the logistics activities of a company.

At every stage of logistics, a company needs to ensure several aspects concerning the materials being received, processed, and forwarded (next stage).

  • Right source
  • Right place
  • Right time
  • Right materials
  • Right quantity
  • Right quality and condition
  • Right documentation, system entries
  • Right inventory/storage
  • Processing and dispatching
  • Right destination

These parameters need to be incorporated into the working mechanism of the team involved at every stage. And it could be done with SOPs.

Purchase Return Process

Purchase returns are undesirable but with agreed terms of purchase and process being followed, it should be a smooth operation for the parties involved. Following the due process is important here on several grounds. For example, the purchase return decision must also clearly convey why materials are being returned. And this information, in case of defects, will be provided by the QC team. Purchase return could also take place if consignment arrives beyond the acceptable time frame. All the conditions and procedures of purchase return can be expressed and mapped with SOPs making it easier for a purchase department to make the functional decisions.

YRC Methodology

With SOP design as one of our flagship services, our experience tells us to make procedures look simpler and easier in practice and implementation.

We also emphasise that if businesses have to become truly process-oriented in a competitive sense they must not only incorporate SOPs but also ride on digital processes.  We go beyond designing SOPs on pen and paper and seek to achieve SOP-ERP integration.

Easy-to-use Purchase SOP templates (SOPs for Purchase Department) shall be defined to ensure that being process-driven is not an uphill task for the purchase department of any business enterprise.

Benefits of Standard Operating Procedures (SOPs)

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We work only for Visionaries.

PROCESS AUTOMATION

The idea of having Ecommerce Consultants on-board from the beginning itself points towards reducing the involvement of the promoters in daily operations. Ecommerce Businesses willing to be a brand reaping profits & sustaining the competition must ensure that most of their processes should be automated. The more the manual intervention, the more would be the errors.

In Ecommerce business, you get only 1 chance to impress the customer & if you mess up there, you lose the customer for long.

Process automation in respect to all the activities pertaining to customers from order receiving to order fulfilment is a must for a seamless experience for the customers.

Task Management is another grey area where most deadlines fail as 90% of the tasks are assigned manually & are forgotten, unheard, misunderstood or mistaken.

YRC Team of Ecommerce Management Consultants helps to make maximum of the processes system-driven to ensure minimalistic manual intervention.

VIDEOGRAPHY & PHOTOGRAPHY

No matter how good your product is, the customer would know only if it looks good.

Photography includes the following steps:

  • Cataloguing your products
  • Cataloguing your images
  • Backup your images (A few cloud storage solutions include Dropbox, Google Drive, Bitcasa, Apple’s Cloud Storage etc.)
  • Choose the right camera & lens (You may also outsource the photography to a third party agency)

DIGITAL MARKETING

Digital Marketing includes SEO & SMM. SEO i.e. Search Engine Optimization includes activities like back-linking, meta tags, blog-writing etc. to ensure your website ranks on the 1st page on Google Search.

Next comes SMM i.e. “Social Media Marketing” which as the name suggests including promoting your products on all the social media sites, email marketing, influencer marketing & several other BTL activities.

These activities are going to be recurring & would decide the traffic on the website, the conversions, whether the right target market is tapped, the likes, the views, the orders, the reviews & much more. YRCs Ecommerce Consultants create a budget for digital marketing right from pre-launch to launch & for each month thereafter.

Building digital marketing strategies in coordination with the agency, selecting them to signing them off would be the role of YRC.

This ensures seamless coordination, detailed interactions & desired execution as it is always advisable to work with a single agency than multiple of them.

IT INTEGRATION

Selection of the right software for smooth functioning of back-end operations right from production to webstore display would be suggested and integrated by YRC Team.

YRC’s Team defines SOPs of Product Movement, maps it with the locations & people. They then create a blueprint of all the features required in the software & help in shortlisting & selection.

IT Integration involves connecting your offline inventories with real-time online webstore so when a sale occurs, inventories get deducted real time across offline as well as online platforms.

This helps in accurate inventory management, maintaining the MOQs, re-order levels & achieving the optimum inventory levels.

Some popular software include unicommerce, viniculum for your front-end website management & Genisys for your entire back-end Purchase, Production, Accounting, Invoicing etc. management.

WAREHOUSE & LOGISTICS PLANNING

  • How many cities or countries you wish to sell in?
  • Where should your Warehouse be located?
  • Should you have one warehouse in each country or city?
  • Should you be having your own delivery team in your base city?
  • Would the 3rd party vendors be reliable? What happens when they lose or misplace your product during delivery?
  • How should I manage the logistics if my goods are coming from different countries?
  • How should the goods be stored and barcoded?
  • How much space do I require for warehouse?
  • I am sure several such questions must be haunting you while you think of starting your own fashion ecommerce brand.

 

At YRC, our warehousing and logistics experts can help you devise a strategy for all of the above mentioned queries and much more.

We design the layout of the Warehouse considering the inward, goods processing, software entry, barcoding, outward, goods return, scrap storage, goods stacking & much more.

Logistics route plan is devised considering the manufacturer to your warehouse and from there to last mile delivery locations.

UI & UX DESIGNING

This Step involves 03 distinct parts:

Part 1: Choosing the right Platform:

From several platforms available in the market right from Shopify to magento, woocommerce, prestoshop, wordpress etc. you must choose the one that fits best for your business

Part 2: UX Designing:

“UX” denotes User Experience, which if put in simple language is building the functional requirements of the website.

UX Designing includes designing the features required in the website, customer journey map, website features, the browsing features, navigation features, ecommerce order management process flow, checkout cart features, catalogue management, ecommerce payment system, cross selling features & much more.

“As per statistics, 68% of the customers abandon the carts before payment”

An interesting UX ensures the customer sticks on to the website for a longer time.

Part 3: UI Designing:

UI stands for User Interface, which means designing the look and feel of the website. UI includes using the right colours, elements and the entire aesthetics of the website.

A good User Interface ensures the user completes the task that he has come for. It navigates the user through the journey of the brand in the simplest but most effective way.

The UX designer maps out the bare bones of the user journey; the UI designer then fills it in with visual and interactive elements.

If User experience is the bare bone, user interface wraps it up with an attractive cape.

At YRC, our team if experts can help you develop the entire User Journey to ensure it is engaging!

SAMPLING & PRODUCTION

This step follows the “Designing” Phase, whether you have an in-house design team, freelance designers or an outsourced design company. It is one of the most exciting phases, as here you see your designs turning into products & your ideas turning into reality.

In most start-up cases, production is outsourced i.e. brands tie-up with the established manufacturers/ job-workers to get their products manufactured.

Sampling involves multiple 04 Stages, Fit-Sample, Prototype Sample, Pre-Production Sample & the Production Sample.

Prototype Sample is the first sample provided to the buyer. It can be in any fabric/ colour. This sample is just to understand whether the product design looks equally great in reality.

Fit Sample, as the name suggests is prepared to check the fit of the garment i.e. the various sizes, length, width etc.

Pre-production is made by the actual production line. Here the stitching quality and other aspects related to manufacturing are checked. This is the last stage where rejection can be accepted.

Production Sample is made before the production which is the replica of what is going to be finally produced.

Once you are through with all this, you are good to go ahead & get your goods manufactured.

PRODUCT DESIGNING / SOURCING

Product Designing or Sourcing is the heart of the Ecommerce Fashion Brand.

Product Designing / Sourcing can be done in several ways, as follows:

  • In-house Design Team
  • Freelance Designers
  • Outsourced Design Team
  • Ready Product Sourcing (From Manufacturer or Wholesaler)

At YRC, we evaluate your business strategy & business model to arrive at the decision, which of the above ways would be best-fit for your business. In certain cases, product sourcing may be a combination of the above.

These are the people who are going to build your brand! Whether they are the designers or merchandiser, your brand look is going to be in their hands.

If you are designing each garment from the scratch, the sourcing would play crucial role in developing design identity of your brand.

Sourcing includes fabric, trims, lining & all the raw material required to build the garment.

BRANDING

Branding is the “Look of the Brand”, right from logo to tagline, the colours used, the brand story, the brand communications on social media, the packaging & all the other aspects which speak directly or indirectly to the customers. Branding constitutes the look & feel of the brand & hence must be thoughtfully planned to match with the product that we are selling.

Branding must appeal to our target audience. Example : A golden colour logo depicting finesse, art, richness, premium, however beautiful it may be individually cannot go with a brand selling affordable kids wear products. So, your logo must be in-line with your brand positioning, whether you are an expensive brand or a luxury brand or a value for money brand, it must be depicted from your “Branding”.

It is an integral part to attract the target audience.

ORGANOGRAMS & SOP’s

Organogram is the “HR Blueprint” of the business which is created at the onset, to map out the team required across each function at various stages of the business. At the launch, only key people need to be got on board to ensure the project gets started & at this stage, all of them need to multi-task. Similarly, certain financial as well as operational goals are set for addition of the further team. Example, for the operations team, we hire 1 operations manager during the pre-launch phase & we add 1 more only when the business kicks-off & we reach a volume of selling more than 1000 pcs/ month or a turnover of more than 0.1 million USD.

SOPs are Standard Operating Procedures, a bible to run the entire organization right from Sales, Purchase, HR, Order receiving to Order fulfilment, Inventory Management, Accounts, Warehouse, Logistics, Supply Chain, Production & all the other relevant functions for the business. Business must be organized from its first day of operations; only then the tasks can be delegated.

At YRC, we design the organization structure, the processes, and approximate time taken to execute each process, job profile of every member within the organization, their KRAs, KPIs & the Reporting Structure.

CRITICAL PATHWAY

Critical Pathway Analysis (CPA), is a project management technique which cannot be overlooked while launching an ecommerce fashion brand. Brand launch process is cumbersome with multiple inter-dependent & time-bound tasks involved, which need to be tracked to ensure the project remains on track.

CPA outlines key tasks across the project, their turnaround time (TAT) & the dependencies of tasks upon each other. It identifies the sequence of tasks, their interdependent steps from inception to completion, their criticalities, and their dates of onset, target dates of completion along with the key responsible person for the respective activities. Critical Pathway helps in understanding the unimportant & not urgent tasks which may jeopardize the execution of the project because of an unexpected snag! It also maps out the potential bottlenecks which might be posed because of the dependencies of tasks upon each other & cases where the next task cannot be commenced before the completion of the previous one.

CPA detects the minimum & the maximum time involvement of a particular individual or team to execute the task, thereby arriving at the overall deadlines associated with the project.

At Your Retail Coach, we design the Critical Pathway & review it periodically to ensure the project is on track & the progress is measurable.

BUSINESS STRATEGY & BUSINESS PLAN

Business Strategy includes the vision, mission, goals, business model, business plan & strategy for all the functions within the organization.

Business Strategy is a well-defined plan that outlines who, what, where, why, how & when for the company; for example, who would be the target market, how to attract the target audience, when to launch new products, where to operate from, how to handle competitors, what would be the USP, what would be long term goal of the organization & several other answers to the 5Ws of Strategy.

Business Strategy aligns the organization towards a common goal. Business SWOT helps company to identify & overcome their weaknesses & focus to sharpen the strengths. Business strategy forecasts future risks and helps business in building skillsets to overcome the potential threats.

YRC’s Business Plan focuses on creating a “Blueprint” of the business, thereby deriving the feasibility of the concept & gauge whether the opportunity is lucrative to invest time, energy & effort. Business Plan creates cash flow understanding i.e. building inflow & outflow cash projections from Week zero to week 60 i.e. 05 year projection. Business Plan calculates the capital investment, operating costs, one-time costs, recurring costs & all the other numbers relevant to obtain the breakeven sales, return on investment, return on capital, internal rate of return & several other ratios. Business Plan is also one of the important requirements if you are targeting the “Investor Route”. Fund raising becomes extremely transparent & channelized. With business plan panned out clearly, the business will know until what point must it be stretched & where to stop, which reduces the probability of unplanned investments.

MARKET RESEARCH

Starting the concept of Ecommerce Fashion brand with Market Research ensures we get detailed understanding of the industry & this research report also acts as a social confirmation for your concept. Market Research helps in understanding the target locations, their population, potential online buyers for your product, competitors for each category, and top selling products of the competitors, competitors’ price range, offers & their responses & much more. Market Research helps in thorough understanding of your brand position as compared to our competitors. It helps in identifying gaps in the market, in your category along with the scope of the said product in the desired market. This will help in validation of your concept & prevents you from making the same mistakes as your fellow brands, eventually saving your time, energy & efforts. This phase is also a make or a break phase, as the market research study may at-times come up with some eye-popping numbers & statistics which might compel you to re-think on your product or category that you are planning to sell or alter your entire concept itself!! Market Research Reports analyse the competitors’ webstore for their traffic, conversion & sales. This is extremely valuable information to derive our inventory budgets & projections, which takes us to our next phase.