What is Operational Procurement? : The ultimate guide

What keeps a business running? Depending on your perspective, the answer might be the money, the customers, or perhaps the market. 

While those are valid answers, you are forgetting a very important factor. 

Operations 

Or rather procurement operations. Think about it, without procurement, your company wouldn’t be able to keep  its operations in sync with market demands. So, yes, you can bet that operational procurement is 100% decisive for the success of any business. 

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Ready to learn more about it?

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What’s operational procurement?

Basically, operational procurement involves the active sourcing of those materials that companies need to keep their daily operations running. Whatever that might be, operational procurement works to get the right supplies at the right time. 

Time is a factor that has special importance here, given that these materials are needed to carry out daily activities so there’s a heavy reliance on a real-time inventory system. 

To make it clearer, let’s say that you run a hospitality business, would you be able to satisfy your client's basic expectations, if suddenly there were no food in the dining rooms or no light bulbs? 

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That’s how important operational procurement is 

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How does it work?

Identify Needs

The first step in the procurement process is identifying the needs of the organization. This involves a lot of communication with different departments and teams as you’ll need to have the full picture of what they need.  Clear understanding is essential to ensure that the right goods or services are procured. 

These are some questions you will need to ask:

• What are the gaps in our current solution?
• Which features should we focus on for this purchase?
• What functions are essential for us?
• How will we measure success in our procurement for this situation?

Set a procurement strategy

Once needs are identified, a procurement strategy is developed. You might know now what do you need, but you are still missing the how. How will your company  source the required goods or services? Take in consideration, factors  like budget, timelines, and supplier capabilities.

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Sourcing suppliers

Next, comes the moment to research potential suppliers. At first, you can do a cross match between what the business needs and what the vendor offers. If your team has some non-negotiable features, use them to filter the right choices. After you have a decent number of options, move on to looking at past performance, financial stability, and capabilities. 

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Requesting proposals (RFPs)

So have you found some suppliers with good potential? Great, now you’ll need to issue either requests for proposals (RFPs) or requests for quotations (RFQs). These documents outline the organization’s needs and invite suppliers to submit proposals detailing how they can meet those needs.

Evaluating proposals

After receiving proposals, it’s decision time, to find the best match, go beyond just the price, and consider other important factors like quality, and delivery time.

Negotiation

Once a supplier is selected, the next step is negotiating the contract. Again, getting a competitive price is always wonderful news, but don’t forget to set clear expectations for delivery schedules, payment terms, and quality standards.

Keep your relationship positive

Yes, you have chosen a supplier and your company is already working with them, but as with any professional relationship, it needs to be cultivated. This includes regular communication, performance evaluations, and addressing any issues that arise.

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Why operational procurement is important?

Beyond the obvious reason that operational procurement keeps businesses functioning on a daily basis, there are some extra benefits. 

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Cost-effectiveness 

Starting from the point that every single thing operational procurement buys is, without question, indispensable for your business, you can be sure that any possible decrease in pricing will have a huge impact on your profitability. 

Continuity is guaranteed 

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As we have already learned, operational procurement plays a significant role in keeping operations running as they should.  When companies efficiently source the materials and services they need, they can minimize the risks  of disruptions caused by stockouts or delays

Reduce risks 

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Every vendor relationship comes with its own set of risks, like financial or reputational concerns. For instance, there’s the possibility that a supplier might go bankrupt, which poses a financial risk. On the other hand, reputational risks could arise from a public relations issue involving a vendor. These risks can become even more serious for operational procurement, as you will depend on them for your business’s everyday operations. 

You will want to invest the right amount of time and awareness into choosing the most reliable suppliers. 

Supplier diversity 

The formula is simple, the more suppliers you have, the more resilient your supply chain will be. But it’s not just about quantity, diversity also matters, you have a diverse range of suppliers, you create a more resilient supply chain that can adapt to unplanned challenges, like natural disasters, financial crises, or political unrest. 

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Better quality

The quality of products and services you obtain through operational procurement has a direct effect on your company’s success. It all revolves around building strong relationships with your chosen suppliers and putting quality control measures in place, this way you can be sure that you are getting the right materials and that your standards are met. 

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Challenges 

Supply chain disruptions

Global events like natural disasters, pandemics, or geopolitical conflicts can really shake up supply chains.  This becomes a serious problem as they happen from one moment to another, ruining your operations in the blink of an eye. That’s why businesses need to stay flexible and ready to adjust their strategies to handle these disruptions in the best way possible. 

Price fluctuations 

If there’s something we have learned from the COVID-19 crisis is that prices can shift unexpectedly because of market trends, economic changes, or availability of resources, and while we are well ahead on the recovery road, there’s still a long way to go back to previous pandemic levels, this turns budgeting and forecasting into quite the challenge. If you’re not ready for these ups and downs, they can really affect your procurement budget and project schedules.

A lot of contracts in the way

Every contract comes with its own specific details, deadlines, and requirements, which can feel a bit too much given the wide range and number of them. To no overload your procurement team and reduce the possibility of making mistakes, it’s a good idea to consider automating as much as you can of your procurement processes. 

Poor communication

Communication is probably the most simplest way to prevent a problem. For procurement in large companies, this can feel like a challenge.  Many stakeholders are involved and a constant flow of information, could lead to misunderstanding and mistakes. Open lines of communication are essential for ensuring that everyone is on the same page, fortunately relying on automated systems helps to bring everyone together. 

Skills gap 

Another big challenge for procurement is that there’s just not sufficient skilled people willing to work in the industry. Something that definitely has a negative impact on the operations pace and business profitability. 

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Best practices for operational procurement

Strong supplier relationships

If one of the main goals of operational procurement is to find the most trustworthy suppliers, then it makes sense that building strong relationships with the people who keep your business operating leads to better communication, reliability, and collaboration. Regularly engaging with suppliers, providing feedback, and addressing any concerns can help strengthen these partnerships.

Procurement software

Using procurement software can change for the better your complete operational procurement process. Technology can automate tasks such as order management, invoicing, and supplier evaluations, reducing administrative burdens and enhancing efficiency.

Here are three key processes you should consider automating:

• Payment reconciliation

Automating bank and sales reconciliation gives your team the freedom to focus on more strategic initiatives instead of manually processing each transaction. With reconciliation automation, your accounting records are compared to your payments to ensure everything aligns. This makes it easier to maintain a healthy cash flow.

• Accounts Payable (AP)

AP automation works with machine learning and artificial intelligence to simplify your invoice processes. These platforms take care of everything from issuing invoices to managing purchase orders and ensuring that all the information matches up. As a result, you can handle most of the AP tasks with minimal human intervention.

• Invoicing

Invoice automation brings invoice data into your accounts payable system for processing. These platforms take care of tasks like price matching, approvals, data entry, purchase order management, and overall invoice processing, helping your teams to be more efficient. 

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Inventory management 

Somewhere in the beginning we highlighted the importance of knowing with precision the needs of your business. Effective inventory management is a key aspect of operational procurement. Techniques such as just-in-time (JIT) inventory or safety stock levels can help you maintain optimal inventory levels while minimizing holding costs.

Training and development

Investing in training and development for procurement staff can lead to better decision-making and improved processes. Regular workshops, seminars, and certification programs can guide procurement professionals to acquire the skills they need to succeed.

Market trends

Staying informed about market trends and changes can provide procurement teams with valuable insights. This knowledge can inform sourcing strategies, help anticipate price fluctuations, and identify potential risks.

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 Be sustainable 

Sustainable procurement practices not only benefit the environment but are becoming more and more of a necessity, as customers behavior show an increasing interest in choosing businesses that do not cause any sort of harm, to the planer or the people Turning your operations into an eco-friendly approach also enhances your company’s reputation. Organizations should consider sustainable suppliers and products, as well as ethical sourcing practices, to align their procurement strategies with broader social responsibility goals.

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Top trends to look out for

Rising costs 

Yeah, probably not the best news out there but it's certainly part of our current reality. Labor, materials and energy all have things in common, higher prices.  It was that way in 2023 and nothing seems to indicate that this year and the upcoming 2025 will be any different.  

So businesses are going to be fully focused on finding ways to optimize their procurement processes.

Spend management, category management and cost savings seem to be at the forefront of the many strategies, businesses will implement to adapt to a more expensive reality. 

Digital tools 

As we are constantly saying, there’s a myriad of advantages to the use of automation for procurement operations, and with a world that’s plagued by changes and challenges, this is the right time to level up your results by minimizing manual intervention. According to the latest findings from the Procurement Leaders’ Strategic Planning Guide 2024, organizations that excel in procurement not only secure greater savings but also surpass their competitors in procurement Return on Investment (ROI) and operational costs. This highlights their capability to generate exceptional commercial value while also enhancing efficiency.

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Sustainable and ethical sourcing

There’s an increasing focus on sustainability in procurement. Many companies are now prioritizing suppliers who are environmentally friendly and adopting ethical sourcing practices. This focus not only uplifts your brand reputation but also aligns with what today’s consumers are looking for, responsible and conscientious brands.  How can you do that? Well, you can start by seeking ways to reduce your carbon footprint, for example by working with suppliers close to your working location. 

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Data, data, and more data 

The use of data analytics in procurement decisions is becoming increasingly popular, as it should be.  We have just seen at the beginning of this section that spend management is a top priority for businesses this year, so why not use relevant insights to make the right decisions? 

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