Procurement Management is a key factor to running a successful company because it
helps you meet business goals and live up to stakeholders’ expectations.
Procurement management in the digital age
Since the Internet has become all encompassing and information now moves extremely fast, procurement management can be done far more efficiently than in the past when it was mainly done through a combination of phone calls, snail mail, email and fax.
This doesn’t mean that skilled buyers are no longer as valuable; it just means these digital tools help them complete their tasks much more quickly. Now it takes less time to find suppliers, negotiate, contract, deliver and analyze the outcome.
The graphic interpretation
In the image at the top, the first four actions – Plan, Align, Procure and Manage – are the actions that procurement management needs throughout the process in order to guarantee the best results, the results seen under Enjoy.
These main actions are described below to help you better understand which details to focus on and what tools you need to help your company develop a successful procurement management process.
What is Procurement Management?
Procurement management is the systematic approach used for buying all the goods and services needed for a company to stay sustainable. Manage your procurement well, and it will add value to all your business practices and save you both time and money.
Buy the products and services your company needs
Buying the goods and services your company needs on time, of the best quality and at the best price.
That’s procurement management your company will value.
The Four Procurement Management Actions
Procurement management starts with figuring what your company needs to achieve its long-term business goals.
To do this, start by meeting with company executives and stakeholders (i.e. finance, company owners, marketing, production, suppliers, customers of the procurement department customers, etc.) All of these stakeholders usually have specific needs with regards to procurement management.
The procurement team should be aware of what is needed to satisfy the needs of internal, as well as external, customers.
Once this is done, formulate your findings into one document. These guidelines will become your procurement policy, which will help you execute the processes.
Business goals and objectives – The primary goal of a smooth procurement management process is to help the company achieve its business goals. Once these goals are defined, you find ways to help meet them through better procurement management.
Stakeholder needs – Our stakeholders usually have specific expectations and needs with regards to procurement. The best way to define them is by meeting with these stakeholders, using surveys or hiring external research providers. This should be an ongoing process since needs and expectations may change frequently.
Current capability – Analyzing your team and current procurement process capabilities will help you understand where you are today and what kinds of skills, resources and tools are needed to execute plans in the future.
Procurement policy – Formulate all your findings and plans into one document. These guidelines, which can now be called your procurement policy, declare how all processes have to be carried out.
The policy should be presented to all parties involved. Then the company board signs it, and the company begins to follow it for all procurement processes.
Value your procurement team and work to keep them highly motivated, informed and trained.
At the same time, ask yourselves if your current team has all the necessary skills, motivation and resources to carry out the processes defined in the procurement policy. You may find that you need to train team members, increase their motivation or supplement their resources. Make sure the team has deep knowledge of the specific industry areas required to procure the needed goods and services for the company.
If you need to hire new team members, look first inside your company and then look at external options.
Skilled Team – Procurement is in a constant state of flux. The industry you operate in as well as modern procurement methods, software and big data are changing the procurement landscape. You need keep your team on top of the latest developments through training and participating in professional organizations and industry conferences.
Motivational Work Environment – Your team should participate in analyzing and planning procurement processes, ensuring they are aware of the steps required to document and complete the processes without delays or confrontations leading to discontentment and subpar productivity. You should run regular employee satisfaction surveys and use the results to keep the work environment as motivational as possible.
Strategic partners – They are suppliers with whom you have a close relationship and your wellbeing depends on the products and services they deliver. You need to develop your long-term plans and strategies together with your strategic partners, treating them as if they were team members you can’t afford to lose.
Centralized, decentralized and central-led procurement process – You should decide what is the best way to set up the procurement management processes in your company. It could be centralized, where all the activities are run by the procurement department, or decentralized, where every department is in charge of their own activities, or center-led, which is a combination of the two.
Now you need to set up a streamlined and efficient process to support your highly motivated, skilled team. This way you make sure they focus on satisfying the needs of their internal customers and don’t waste time dealing with bureaucracy.
Selecting the right tools will make it easy to follow the procurement process, get a real-time overview and reduce manual work, saving buyers’ valuable time.
The following methods should be part of your communication with suppliers. When dealing with strategic partners, the process can be even more personalized.
Finding suppliers – You should constantly refresh your supplier list by looking for new ones online, at trade fairs, etc. Doing that ensures you keep bidding competition high and find vendors that can give you a competitive advantage over your rivals.
Tender and RFP processes – You should use tendering methods like RFPs, RFIs, RFQs and reverse auctions to qualify suppliers and ask for bids. Based on their bids you can filter out the suppliers that will help you acquire the highest quality and cost standard products and services on the market.
High and low value requests – For running strategic and high value requests you can use more qualitative methods. Running these requests requires skills, tools, attention to detail, and more resources. Your low value requests may be run by more quantitative ways: for example, by selecting the best of three received bids.
Negotiations – You should use qualitative procurement methods to determine if suppliers are trustworthy and their products/services are of top quality, to negotiate price, and to minimize delivery risks.
Contracting and delivery – Once you select the best product/service provider, sign a contract with the terms that both parties have agreed to. After starting to work together, constantly be on the look out to make sure the products/services are delivered on time and with the expected quality.
To keep the procurement processes transparent for buyers, suppliers and stakeholders, it’s essential for the executives (procurement managers) to have a full overview of the process. This ensures accountability, helps improve procurement processes and allows them to coordinate the team’s workload.
You need a clear chain of command in order to achieve accountability and define measurable objectives for the team. Then you should consistently and transparently follow up on those objectives.
Keep all involved parties well informed about the processes, including benchmarking and reporting. This means they should be clearly visible and not done behind someone’s back.
Supervising procurement – Make sure all the processes are run according to the procurement policy and best practices for eliminating the risk of fraud and maverick spend. All involved parties should be well aware of the processes being supervised.
Analyzing processes – To improve your activities, periodically analyze your ongoing procurement activities, like RFP processes, spend across different categories, low value- vs. high-value requests, team performance, etc. You should have all this information on one central procurement dashboard.
Benchmarking and KPIs – Measure your success by consistently monitoring the performance of KPIs and set up a benchmarking process. These are the metrics that reveal the success of procurement management.
Reporting – The procurement manager reports at set intervals to company management, to other stakeholders and to the procurement team. By keeping the process transparent, you can make sure all involved parties are on the same page.
Ongoing procurement improvement – To deliver top performance, refine our procurement processes when necessary, but also understand that this is an ongoing task. For example, some improvements may require rewriting the policy, others may require better coordination of team resources.
Successful procurement management has a lucrative impact on a company’s processes. It helps stakeholders meet their goals. It also helps minimize supply chain risks by better collaborating with strategic partners and providing added value to all business practices.
The positive impact on your business processes can be seen in higher quality product/service inflow, on-time deliveries and cost savings, which keeps your supply chain sustainable.
By streamlining these processes, you will notice fewer business risks and hold those involved in the processes accountable, which will guarantee quantifiable results.
Helping meet business goals and stakeholder expectations – Procurement management helps you rise to meet stakeholders’ expectations and meet their needs. It helps them perform on higher level and also helps them meet business goals in the long run.
Savings – Savings can be achieved in a variety of ways, like reducing delivery errors or increasing quality of products and services. You can also measure the direct cost and the team timesaving achieved through better procurement management.
Higher value and lower supply chain risks – Building closer relations with your strategic partners will minimize supply chain risks. Combining your strengths with partners’ helps find new innovative solutions to stay ahead of the competition.
Streamlined and easy to follow processes – You should value a full overview of simplified, standardized processes that are easy to follow for both management and buyers.