Procurement is important, and you know that, getting all the materials your business needs, dealing with suppliers, payments, and records-keeping procedures along with finding ways to not lose efficiency, is what every business must do if they want to maintain its operations running without problems, or worse, delays.
That doesn’t mean however that procurement is a simple task.
If we are honest, it’s quite the opposite of simple.
Fortunately, some good practices can help you and your procurement team to not lose their minds.
And it’s part of something called procurement management.
What’s Procurement Management?
In theory, procurement management it’s a pretty straightforward action, it focuses on acquiring high-quality and cost-effective goods, like office supplies and raw materials, to meet your organization’s needs. This process typically includes four main stages: strategic planning, sourcing, execution, and ongoing management. We’ll see those in more detail in a bit.
Why Procurement Management Matters?
When done right procurement management helps you optimize spending, improve efficiency, and build better supplier relationships. If done with a solid strategy in motion, procurement management can achieve significant cost savings and enhance the quality of goods and services.
The Four Main Stages
Strategic planning
In the strategic planning phase, your company identifies its needs and sets clear procurement goals. Using procurement tools can make this process something more feasible, helping you outline the procurement lifecycle and prepare necessary documents like purchase requisitions and requests for proposals (RFPs).
Sourcing
During the sourcing phase, procurement professionals select suppliers based on factors such as price, quality, and reliability. This involves issuing RFPs to solicit bids, ensuring you find the best options for your needs.
Execution
The execution phase is where the actual purchasing happens. Here, automation can simplify tasks like order processing and delivery tracking, making sure everything runs as it should and arrives on time.
Ongoing management
Finally, ongoing management involves monitoring supplier performance and ensuring contract compliance. This phase is essential for optimizing future procurement strategies and ensuring everything aligns with your procurement plan.
Okay, now that we have covered the basics, let’s see more about the benefits procurement management brings to businesses.
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Benefits of Procurement Management
Cost savings
When you negotiate better terms and find the most cost-effective suppliers, you can significantly cut down on purchasing expenses, directing money where it’s actually needed.
Efficiency
This benefit applies especially to automated procurement processes as it means less time spent on paperwork and more time for strategic initiatives. With efficient procurement management, you can speed up acquisition cycles, boost productivity, and focus on what really matters.
Good supplier relationships
Building good relationships with your suppliers can lead to better terms, improved service, and access to innovations. Strong partnerships promote collaboration, something that becomes very useful to keep your supply chain working even in the face of challenges.
Risk management
A not-so-popular benefit but definitely a relevant one, procurement management is also useful when it comes to risk management. How? Because once you establish a good workflow in your procurement operations, you can protect your company from out stock issues with suppliers, have a better management of your inventory and even develop backup plans.
Strategic sourcing
Finding suppliers that align with your long-term goals, allows you to support your organization’s success and sustainability. Strategic sourcing allows you to take advantage of your supplier capabilities, giving your company the best of the best.
Steps in the Procurement Process
Identify needs:
Start by clearly defining what you need to buy. Involve relevant stakeholders to gather input and ensure that you capture all requirements. This helps prevent confusion and ensures that you acquire exactly what your organization needs.
Select the right supplier
Research and evaluate potential suppliers who can deliver what you need at a good price. Consider factors such as reputation, reliability, and delivery timelines. Comparing multiple options can help you make an informed choice and establish a strong foundation for your procurement.
Negotiate contracts
Once you’ve chosen a supplier, engage in discussions to agree on the best terms, including price, delivery schedules, and payment conditions. Make sure to document everything clearly to avoid misunderstandings later on.
Place orders
After finalizing the contract, place your order. Keep track of it using procurement management tools to monitor progress. This ensures that you stay updated on delivery timelines and learn of any possible issues.
Process payments
After confirming that the received items match the order and contract terms, handle the payment promptly. Ensure that invoices are accurate and reflect any agreed-upon discounts or terms.
Maintain relationships
Keep an ongoing communication with your suppliers. Schedule regular reviews to assess performance and provide feedback. Building a strong relationship can lead to better terms, priority service, and well, make everyone happier.
Record, record, record.
Keep thorough records of all procurement activities, including contracts, communications, and performance evaluations. Doing this will provide you with invaluable documentation that you might need in the future for compliance purposes
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