Procurement is inevitable for businesses. It is needed for the acquisition of necessary goods and services for seamless operations. Yet, subpar practices and inefficient processes can lead to sluggish approval cycles, payment oversights, increased expenses, and susceptibility to fraudulent activities.
A robust procurement management system serves as a remedy to these issues. This article digs deeper into procurement management, revealing its significance and defining its core components. Furthermore, it outlines the steps integral to the procurement process and throws awareness on how automation software can streamline your operations.
Contents
- What is procurement management?
- Why is procurement management important?
- What are the steps of the procurement process?
- Benefits of procurement management
- How does procurement management work?
- Key responsibilities of the procurement team
- Functions of procurement management
- How to improve existing procurement management?
- Why you should automate procurement management?
- How can Gofrugal help in procurement management?
What is procurement management?
Procurement management includes the processes, strategies, and activities involved in acquiring goods, services, or works from external sources to fulfill organizational needs. It's a systematic approach that involves planning, sourcing, purchasing, and managing resources efficiently and effectively to achieve business objectives.
Why is procurement management important?
Procurement management is important for several reasons.
Cost efficiency: Procurement management optimizes spending, negotiates favorable terms, and identifies cost-saving opportunities, improving financial performance.
Risk mitigation: It assesses and manages risks associated with sourcing goods and services, minimizing disruptions, and protecting operations.
Quality assurance: Through diligent supplier selection and monitoring, it ensures the receipt of quality goods and services, improving customer satisfaction and brand reputation.
Innovation and competitive advantage: Strategic procurement enables innovation, collaboration with suppliers, and exploration of new technologies, giving you a competitive edge.
Compliance and ethics: Procurement management ensures adherence to legal, regulatory, and ethical standards, reducing legal and reputational risks while promoting sustainability and fair practices.
Procurement management also holds paramount importance in ensuring supply assurance, a critical challenge encountered by Chief Procurement Officers (CPOs) in recent times. Statistics prove that as well.
- 56% of CPOs reported instances where key suppliers faced bankruptcy.
- 41% had to expedite shipping to ensure timely delivery of goods.
- 36% encountered challenges with suppliers failing to meet new requirements.
- 32% suffered revenue losses due to supply shortages.
- 11% experienced brand damage attributed to supplier issues.
What are the steps of the procurement process?
The procurement management process involves several essential steps, each crucial for the efficient management of goods, services, materials, and products. While specific processes may vary based on organizational needs and industry, the following steps provide a comprehensive overview.
Identifying and planning
Establish the need for a product or service and define its specifications. Conduct planning and forecasting based on existing data to determine when and how the product will be ordered and reordered.
Choosing and selecting suppliers
Select a supplier that aligns with the product requirements. Identify potential suppliers through existing relationships or research, and request information, proposals, or quotations.
Negotiating the contract
Negotiate the best price and terms for the product through competitive bidding. Communicate requirements and expectations, finalize terms, and sign the contract once agreements are reached.
Placing the purchase order
Issue a purchase order specifying the price, product specifications, terms, and conditions. Ensure all details of the purchase process are clearly outlined in the document.
Accelerating the order
Expedite product orders as necessary due to schedule changes or unexpected obsolescence. Review delivery schedules, payment dates, and work completion to address any issues promptly.
Receipt and inspection of purchase
Review received orders against established specifications and quality standards. Ensure purchase orders match invoices and receiving documents; complete a receiving discrepancy report if necessary.
Clearing the invoice and payment
Align purchasing and accounts payable processes to complete invoice clearance and payment.
Maintaining relationships and records
Maintain thorough records for audit and tax purposes, including product warranties. Provide feedback to suppliers based on key performance indicators to identify areas for process improvement.
Check out this link to learn more about the procurement lifecycle.
Benefits of procurement management
A well-executed procurement management process offers several invaluable benefits, improving operational efficiency and mitigating risks.
Increased certainty and quality
Through meticulous planning and negotiation of detailed contracts, procurement management instills confidence in the quality of procured services and products.
Cost control
In the corporate landscape, cost control is still supreme. Procurement management plays a pivotal role in meticulously managing costs through strategic negotiation of procurement pricing and careful oversight of other related expenses.
Reduced risk
Clear visibility into vendors, contract terms, and product and service quality minimizes potential procurement risks.
How does procurement management work?
A robust procurement management process relies on a well-defined procurement strategy that harmonizes with the organization's overarching business objectives.
This strategic framework equips the procurement team with a systematic approach to acquiring goods or services from external suppliers in a cost-effective manner. Central to this strategy is the cultivation of strong vendor relationships, which are instrumental in ensuring the smooth and budget-conscious operation of the procurement process.
Key responsibilities of the procurement team
Supplier identification
Identifying and evaluating potential suppliers based on criteria such as reliability, quality, pricing, and capacity to meet organizational needs.
Order tracking
Monitoring and managing orders throughout the procurement lifecycle, from requisition to delivery, to ensure timely and accurate fulfillment.
Supplier diversification
Proactively seeking and engaging with a diverse pool of suppliers to mitigate risks associated with dependence on a single source and to foster competition and innovation.
Contract management
Defining contract terms, conditions, and costs in collaboration with suppliers to establish clear expectations and ensure compliance with regulatory and organizational requirements.
Vendor relationship management
Cultivating and nurturing relationships with suppliers to foster mutual trust, transparency, and collaboration.
Approved vendor list development
Creating and maintaining a list of approved vendors based on performance, reliability, and alignment with organizational standards and requirements.
Obligation fulfillment
Ensuring all parties involved in the procurement process fulfill their respective obligations, including timely delivery, quality assurance, and adherence to contractual terms.
Functions of procurement management
The function of procurement management in a business is multifaceted, encompassing various tasks and responsibilities crucial for the efficient acquisition of goods and services. Here is an overview of it.
Vendor management
Procurement management involves identifying, screening, sourcing, and negotiating contracts with suppliers. It ensures vendors align with the organization's standards and requirements, fostering mutually beneficial relationships.
Purchasing strategy enforcement
Procurement management ensures purchasing practices align with the needs of internal stakeholders and overarching business strategies. It develops and enforces purchasing strategies to optimize procurement processes and outcomes.
Purchase requisition
Purchase requisitions, which are internal documents requesting the purchase of goods or services, are created to outline the specifics of the purchase, such as quantity, quality, and delivery requirements. They are forwarded to the procurement department for processing.
Purchase order (PO) management
The issuance of purchase orders to vendors, detailing the goods or services to be procured, quantities, and delivery terms, serve as formal agreements between the organization and vendors, facilitating smooth transactions and order tracking.
Invoice approval and payment processing
Reviewing and approving vendor invoices ensures accuracy and compliance with purchase orders and contractual terms. Procurement management oversees the invoice approval process, routing invoices to relevant stakeholders for authorization before payment.
Vendor and contract management
Procurement management also deals with the identification and selection of vendors based on performance, reliability, and adherence to contractual obligations. Negotiation and management of contracts, including terms, timelines, and payment conditions also fall under this umbrella.
Contract administration
Administrating and monitoring vendor contracts throughout their lifecycle, from drafting to execution ensures adherence to contractual terms, regulatory requirements, and quality standards to mitigate risks and maximize value for the organization.
How to improve existing procurement management?
The transition from traditional, paper-based processes to digital procurement management brings forth a multitude of advantages, increasing efficiency and accessibility across various stages of the procurement lifecycle.
Approvals
Digital forms streamline approval processes, eliminating delays inherent in physical document circulation. Stakeholders can conveniently approve and sign documents remotely, expediting decision-making and workflow progression.
Invoice matching
Manual matching of invoices to purchase orders and receipts is labor-intensive and time-consuming. Digital procurement management software automates this process, swiftly comparing information against relevant supporting documents to ensure accuracy and efficiency.
Notifications
Paper-based workflows often entail prolonged waiting periods for updates on contract statuses, leading to potential delays in critical actions. Digital processes provide real-time status updates, keeping stakeholders promptly informed and facilitating timely decision-making.
Integration
Physically creating procurement documents involves significant time and coordination efforts, particularly when multiple teams are involved. Integrated digital procurement processes enable real-time document creation, reviews, and approvals, fostering seamless collaboration and eliminating bottlenecks.
Data storage
Paper-based record-keeping poses challenges in data storage and accessibility, impeding workflow efficiency and consuming physical space. Digital storage solutions leverage cloud technology, providing secure, centralized access to information from anywhere globally, thereby enhancing data accessibility and streamlining workflow processes.
Why you should automate procurement management?
Automating your procurement process offers a plethora of benefits that enhance operational efficiency and drive organizational success. Here are some compelling reasons why you should consider automating your procurement processes.
Increased productivity
Automation streamlines repetitive tasks, freeing up valuable time for employees to focus on more strategic activities. This boosts overall productivity and accelerates process completion timelines.
Eliminating manual errors
Human error is inevitable in manual processes but can be significantly reduced through automation. By standardizing processes and minimizing manual intervention, automation enhances accuracy and consistency in procurement operations.
Visibility into spend
Automated procurement systems provide real-time visibility into spending patterns, enabling organizations to track expenditures more effectively. This insight facilitates informed decision-making, cost optimization, and budgetary control.
Centralized repository
Automation consolidates procurement-related data and documentation into a centralized repository, promoting easy access, retrieval, and management of information. This centralized approach enhances data security, compliance, and auditability.
Improved collaboration
Automation fosters seamless collaboration between internal stakeholders and external partners throughout the procurement lifecycle. By facilitating communication, information sharing, and task coordination, automation enhances teamwork and efficiency.
Removal of approval bottlenecks
Manual approval processes can cause bottlenecks, leading to delays in procurement activities. Automation streamlines approval workflows by routing tasks efficiently, ensuring timely approvals, and smoother process execution.
How can Gofrugal help in procurement management?
There are practical solutions to address common procurement challenges and that's what Gofrugal provides. Gofrugal offers a comprehensive suite of features to streamline your procurement operations and drive efficiency throughout the procurement lifecycle.
Centralized procurement
Seamlessly manage the procurement process from requisition to payment to reduce errors and maximize accuracy.
Supplier management
Build strong supplier relationships by accessing supplier reviews and facilitating transparent communication, ensuring seamless collaboration and trust.
Standard policies
Define and enforce standard procurement policies to ensure clarity and consistency, foster compliance, and mitigate risks.
Advanced planning
Leverage Gofrugal's ERP system to plan and procure in advance based on insightful reports and stock audits, enabling proactive decision-making and efficient resource allocation.
Automation
Automate procurement touchpoints to minimize manual errors and streamline processes, enhancing operational efficiency and reducing costs.
Digitized purchase system
Digitize the entire purchase process to make informed purchasing decisions, ensuring the right products are sourced at the right time and price, driving profitability and growth.
With Gofrugal's comprehensive procurement solution, businesses can optimize their procurement operations, improve supplier relationships, and achieve sustainable success in today's competitive market landscape. To learn more about procurement challenges and the solutions to overcome purchasing problems, click here! To avoid confusion and learn the difference between purchasing and procurement, click here.
Want to find out more about procurement management strategies? Want to create your own procurement management plan? Stay tuned! Our upcoming blog posts will educate you on these. Keep checking back here!
