Companies are not simply independent self-sufficient organizations—they rely on goods and services from third-party vendors. Every business is built on these essential relationships. After all, how else could a company offer their products and services?
The procurement process has quickly become a hot topic for professionals in growing organizations. Better procurement strategies result in a stronger bottom line for the business. It’s that simple. They also lead to better overall supply chain management. Do not underestimate the value of optimizing the procurement process.
Even the fastest runner can’t win the race if he doesn’t know the route to the finish line. Analogies aside, that’s why planning is important when it comes to designing your procurement management protocol.
Let’s find out how to get started with this essential component of business growth.
What is procurement management?
Procurement involves all the activities and strategies for acquiring the goods and services your organization needs to operate. Whether you need office supplies, software, or training services for your staff, there’s a process for finding the right vendor, determining your budget, and completing the purchase.
The ideal procurement cycle is efficient and ideal for your bottom line. By finding ways to streamline it, you can save time and money while ensuring all the needed products arrive at your doorstep with minimal errors and delays. Some key steps are:
- Forward planning. What does your company need, and what does your budget allow? Make a detailed list and associate each item with its price. You are saving a lot of headache later if you stay organized and keep your eye on the ball from the start.
- Find suppliers. Research and identify potential vendors to fulfill your needs. Every option has its own advantages and disadvantages. Analyze factors like cost, delivery times, customer service, and quality assurance.
- Proposals and contracts. Interacting with your list of vendors involves requesting proposals and negotiating contracts. Communicate your needs, including pricing and delivery deadlines. This step ensures the dependability of the vendor and allows you to agree on terms and sign contracts you can be happy with.
- Complete deliveries. Once you sign a contract, it’s time for the purchasing phase, a sub-process of procurement. A purchasing team handles the delivery and payment of the order. This step may vary over time to accommodate your evolving needs.
- Analysis. Use key performance indicators to assess the effectiveness of your procurement. How can you improve the speed and cost? What changes can you make? What’s the feedback from management and the stakeholders?
Procurement management involves all the strategies and tactics you use to approach organizational spending.
When is it time to pay attention?
What are the signs that your procurement management process needs improvement? Procurement matters for several reasons. If you find yourself struggling with any of the following processes, it may be time for an upgrade.
- You have issues maintaining positive relationships with suppliers. For instance, your order details may be inaccurate or you fail to stay organized.
- Your stakeholders are displeased with current procurement methods. The prices may be too high, or the delivery times may be delayed too often.
- Your competitors are adopting new technologies to achieve more efficient procurement. Speed, efficiency, and accuracy are everything today. You need to stay ahead of the curve if you don’t want your business to fall behind.
- Your reliance on manual processes is increasing human error. Mistakes can happen with any system, but human error will always be a threat when employees have to fill out forms and send information manually.
- Your procurement process is simply too time-consuming. It’s important that you use your time as efficiently as possible, so your employees can focus on achieving higher priority business outcomes.
- Visibility into the workings of your procurement is too limited. Many modern procurement solutions integrate with the cloud and IoT devices for this reason.
Staying competitive in today’s business landscape means finding better ways to approach purchasing and procurement. The solution for previously inefficient methods is procurement automation and digitization.
Who are the stakeholders in this process?
The “stakeholders” of procurement include the procurement team itself, the purchasing team, the department heads, and the finance team—among many others. But this will depend on the size and type of organization. Part of setting up a procurement plan is defining who has which roles and responsibilities.
Project managers, executives, and contract teams all have to work together with minimal overlap to achieve the best results.
So, where does automation come into the picture?
Automation greatly improves the workload for all of these stakeholders. Procurement automation impacts anybody who is involved in the following business processes:
- Purchase requisition. When someone in your company requests new materials, the request form contains what needs to be fulfilled, those in charge of purchasing find the vendors and guides the requisition through the process. Automated procurement uses electronic data capture to ensure purchase requests are accurate.
- Purchase orders. Requisitions once approved become purchase orders. Automation tools make sure that all the needs outlined by the stakeholders are listed. They also validate the data by comparing the purchase order to the related id number, order receipt, and invoice. Any discrepancies should be reported to management.
- Invoices. An invoice submitted by a vendor is processed in procurement, where it becomes a digital document. This type of record is easy to search through and find discrepancies. Finally, it is forwarded to the next step of the process, final payout.
- Vendor management. Improving the relationship with your vendors means following up on potential issues like missing information and delays. An automated platform enhances your ability to collaborate with vendors.
- Contracts. Another important task is the collection and processing of contracts throughout the business. The best strategy is to keep everything centralized so that procurement teams can find changes in terms and conditions quickly. A procurement solution additionally monitors the fulfillment of terms and notifies you of upcoming expirations.
The stakeholders are the people you want to please during your procurement management journey, and a digital procurement solution is your key to success.
What does a healthy procurement process look like?
We’ve mentioned that digitization is a significant step forward. Older companies used pen and paper methods, resulting in high costs, continually misplaced documents, costly delays, and reduced trust among suppliers and clients.
Digitization is not only more convenient but also centralized to make spend management much easier.
For example, let’s say a procurement team has all its documentation saved in the same digital space, and the right stakeholders and reviewers can get what they need immediately. This accessibility is perfect for maintaining legal compliance, as it gives you a holistic view into your purchasing activity and a fast way to discover fraudulent activity if it ever occurs.
Digitization also results in a shared workplace where suppliers, employees, and managers can communicate with each other. You have more control over business spending with budget limits and transaction restrictions, which cut down on maverick spend and give you insights into your current procurement process. Finally, digital procurement detects and removes any bottlenecks in the process.
How do you choose a procurement management software?
With so many top-performing procurement management options, how can you choose your ideal solution? Even the best ones don’t all offer the same results in all use cases.
It’s important to compare your options carefully and determine your exact needs before investing in one. Here’s what to look for:
- Feature set. Look at the features first. Management suites give you functions to monitor purchasing performance, onboard new vendors, and handle any other process you need improved.
- Resources. Some have customizable templates that accelerate your transition to a paperless workflow.
- Data analytics. Look for the ability to view your data however you want, and to track important information that will help you make smarter predictions. Analytics will also allow you to gain visibility into your process and achieve regulatory compliance when you need it.
- Integrations. Don’t forget integrations with current business software like enterprise resource planners, contract management systems, and accounting platforms. The better a procurement solution fits into your workflow, the faster you can extract benefits from it.
Smarter procurement management matters in the digital age
Procurement optimization improves the way a company acquires the goods and services it needs to operate. There are many ways to determine needs, find suitable providers, and complete orders. If you can improve these steps, you are strengthening your bottom line in a competitive business environment.
Procurement is a multifaceted process, involving invoices, purchasing teams, requisitions, orders, and vendor management tactics. Conducting all of these steps by pen and paper is an obsolete strategy. More and more businesses are finding ways to improve procurement.
Automation and digitization are leading the charge, enabling centralized data storage, automatic processing, and vital error checking. Are you ready to discover the immense business value you can create with an automated procurement solution?