What does the word procurement mean to you? Simply put, it’s a transaction between a buyer and a consumer. However, to achieve efficient operational excellence, organizations resort to procurement management. It helps boost productivity and minimize spend.
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What This Guide Covers:
What Is Procurement Management?
Procurement management is the acquisition of supplies and services based on careful evaluation and selection within an economical budget.
It takes a strategic approach to optimize organizational expenses, conduct business operations and accomplish consumer demand. From sourcing to vetting and acquiring quality vendors, their products and resources, procurement management helps execute supply chain management processes within a stipulated time frame.
What do you do after supplier sourcing and acquisition? You try to manage these supplier/vendor relationships and make them work. This is where we get introduced to project procurement management. But what is it? Let’s take a deeper look:
Project Procurement Management
Emphasizing short-term goals more, project procurement management primarily manages vendor-buyer relationships. It’s an effective strategy that helps meet your project goal by expediting the sourcing, ordering, renting or purchasing of external resources. From construction to finance, health care and manufacturing, project procurement management gets used in various industries of all sizes.
Let’s break project procurement management down into for key processes:
- Plan: For smooth project execution, the first phase is planning. Create your statement of work (SOW) that covers the scope, budget, time and quality required to finish the project. Eliminate the risk of approval process bottlenecks by implementing a practical workflow.
- Conduct: Once the planning and paperwork are over, you move on to the next phase. With the assistance of project procurement managers, you review and assess vendor bids and negotiate contracts with approved suppliers.
- Control: The role of a project procurement manager isn’t over once the contracts get signed. Some aspects of control procurement include assessing work orders, conducting frequent audits, and reviewing daily status updates and contractor agreements.
- Close: The final step in the project procurement management process, the purpose of this phase is to ensure successful contract fulfillment. With a formal release of liability, there are no outstanding duties or charges incurred by the vendor.
Key Steps
Now that we have a procurement management definition, we can look at what it’s composed of.
Sourcing products and services requires involvement throughout the procurement life cycle, from vendor management to cost control.
Let’s take a look at some of the procurement management steps that help optimize the process:
Know the Purchase Portfolio
How will you develop an effective procurement strategy if you fail to comprehend the nature and value of your vendors and purchases? This is precisely why you should have a basic understanding of your purchasing portfolio functions.
Organize Purchases
Are your purchase orders and data centralized? They better be!
Streamline data by managing and calculating the purchase process using ERP software or MRP systems. This grants a complete overview of your portfolio and helps combine procurement processes. It also includes negotiating higher supplier discounts to acquire more business and prevent stock-outs.
Control Spend
Cost control is an important aspect of procurement management, whether for purchased goods or warehousing. Ensure accurate spend data compilation to understand the changes during the procurement life cycle.
Mitigate Risks
Having trouble with inconsistent quality from single-source products and delayed delivery? Don’t worry; leveraging KPIs will help you manage risk by conducting quality and cost control along with an on-time tracking system.
Identify Customer Needs
Identifying what your customer needs based on a product’s functionality, price, design or convenience can be daunting. If you are using CRM solutions, diving into existing customer data and feedback to gain detailed insights is the best place to start.
Manage Supplier Relationships
Managing supplier relationships and contracts is an important facet of procurement management. You help maintain partnerships by developing an agreement that complies with the needs of both parties, e.g., buyers and suppliers.
Negotiate Contracts
Setting clear expectations and boundaries before you start the negotiation process allows you to take control of it. Contract negotiation helps you understand the workings of a supplier’s business process and lets you decide if you want to choose their services.
Functions
Whether it’s order reconciliation, resource planning or supplier sourcing, there are various functions related to the procurement management process.
Let’s look at the top five primary functions of procurement management:
- Purchase Requisition: Signifying the start of the procurement process, a purchase requisition is an internally created document to request goods purchases. Based on the requirement of the particular project, it can be either direct or indirect spending.
- Purchase Order: Once your requisition gets approved, you are free to create a purchase order. With a unique identification number for tracking, description of the item and its quantity, purchase order management ensures that each purchase is relevant and cost-optimized.
- Invoice Approval: Prior to payment processing comes the task of reviewing and approving supplier invoices. Streamline your accounts payable department and make invoice approval an uncomplicated affair.
- Vendor Management: Identifying, sourcing and screening suppliers and negotiating terms with them is what essentially encompasses vendor management. It’s another important function of procurement management.
- Contract Management: Creating, executing and analyzing contracts to minimize risks and improve financial performance, contract management helps monitor the administration of vendor contracts.
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Primary Benefits
Implementing a consistent and structured procurement management system yields positive results in the workplace. Maximized efficiency, productivity and reduced costs are some of the benefits of procurement management.
Here we have curated a list of some of its other key benefits:
Source Strategically
Analyze supplier trends to identify and source top suppliers based on your business requirements. Curate a list of vendors and pre-vet them before you finalize. Use methods like a request for proposal (RFP) and request for quote (RFQ) while sending a request for information (RFI) to automate RFI/RFP creation.
Control Costs
From re-evaluating supplier agreements to reviewing purchasing needs and preventing maverick spend, procurement management implements actionable strategies to implement cost control on multiple fronts.
Reduce Risk
A standardized procurement process allows for mitigating potential stock-outs and stabilizing inventory levels. With enhanced transparency in the workings of the buyer/supplier relationships and their associated contracts, the chances of any potential risks get averted.
Streamline Purchasing
Implement automation for a streamlined purchasing policy to save time, reduce human errors and minimize processing costs. This helps in weeding out inefficiencies and combating possible bottlenecks in the workflow.
Final Thoughts
In the contemporary world of procurement management, where automation plays a vital role, digital procurement has gained immense popularity. Gone are the days of sluggish approval series’ and messy management practices. If you are planning to invest in a procurement management solution, definitely check out our procurement requirements template for more information.
How do you execute procurement management in your company? Let us know in the comments below!