Most organizations worldwide operate a disordered procurement management system that makes the procurement process difficult and tedious to manage. A simple change or reorganization of how procurement management is done can go a long way in making the entire procurement process of an organization straightforward.
- Procurement Management
- Procurement Management Digitization
- Critical Functions of a Procurement Management
- Procurement Management Increases Efficiency
- Frequently Asked Questions – Procurement Management Process
- Benefits of the Procurement Management Process
In simple terms, procurement management involves the use of effective planning strategies to manage and optimize expenditures within an organization. An essential part of procurement management consists of purchasing goods or services directly from a preferred service provider or supplier in a timely fashion and within the agreed budget.
The procurement management’s primary function is to provide a framework that allows an organization the ability to source, request, order, purchase, inspect, and reconcile required goods and services. However, to manage procurement accordingly, some or all of the management processes must be digitized.
Procurement Management Digitization
The use of manual procurement processes leads to inefficiencies, such as lack of accuracy and diminished operation speed. Ultimately, these inefficiencies lead to loss of money. As such, organizations need to improve their procurement processes through digitization. Digitized procurement management procedures translate to smarter ways of sourcing, requesting, purchasing, and invoicing, as each process becomes automatic and trackable.
Critical Functions of a Procurement Management
Although procurement management involves several processes, a handful of functions are important to develop a useful system. These functions are:
- Purchase Requisition,
- Purchase Order,
- Invoice Approval,
- Vendor Management,
- Contact Approval.
Purchase requisition simplifies the requisition process for individuals. It gives a requester a list of preferred and frequently purchased items from the selected vendors. The entire process is done in real-time to prevent mistakes and limit the impact of inaccurate information. This function is best managed using specialized software that captures and routes electronic data for approval in a consistent fashion.
The purchase order helps an organization to articulate to a service provider the quantity and quality of goods or services required. Therefore, the purchase order generation must be done carefully to prevent mistakes. The best way to minimize errors is to use procurement management software applications, which automatically transform purchase requisition into a purchase order.
Before invoice approval, the purchase order is usually checked to ensure that no discrepancies exist. When using procurement management software, the invoice approval process is almost instantaneous. The software verifies the details of each requested item and confirms the service provider’s information based on set information. If no discrepancy is found, the system approves the invoice and forwards it to a human for final payment. If any difference is detected, the system rejects the purchase order, and the initiator reviews their request.
Making use of a procurement management application helps an organization avoid the repetitive nature of vendor management. It allows organizations to check and update the background details and reviews of their suppliers. Additionally, it enriches the relationship between organizations and their vendors by ensuring timelines are met and by improving the accuracy of operation.
The contract approval process usually takes a lot of time before completion. For efficiency, procurement management application allows for smooth organization and storage of all contracts. Contractual templates allow for the management of contracts against standard terms. Also, it allows for continuous monitoring of contracts to ensure the fulfillment of all the agreed terms.
Procurement Management Increases Efficiency
There are several ways in which procurement management increases the performance of an organization. These are:
- Using the latest version of software ensures effective management of all processes, including contract approval.
- Better management of vendors also increases the effectiveness of procurement management. This process involves screening new service providers and assessment of dealings with other vendors.
- The use of procurement management applications can significantly improve the spending of an organization.
- It allows for better compliance with policies and regulations.
- It provides essential reporting features, which improves the general working condition within an organization.
Frequently Asked Questions – Procurement Management Process
What are the elements of a procurement management process?
An organization’s procurement process comprises people, processes, and paperwork elements. Briefly, here is how they all work together.
The number of people in procurement varies from one organization to another and depends on the level of the identified procurement needs.
Every organization must have a well-designed procurement process. The process helps to eliminate delays in purchasing, losses caused by differences in pricing and product quality and ensures the business pays suppliers on time.
Moreover, having a procurement process also ensures the procurement process is transparent at all times.
3. Paperwork or Record-keeping
Record keeping is crucial to make sure the business is compliant with tax and business laws governing procurement in businesses. It also helps to keep the business efficient and prevents wastage of resources, as well as fraud against the business.
What differentiates procurement from purchasing?
The procurement process involves the process of identifying organization needs, acquiring products, and maintaining good collaboration with vendors.
Purchasing is a component of the procurement process. It involves reception of requisitions, evaluation of requests for quotes (RFQs), creation of purchase orders, receiving and verification of products, and final payment.
Procurement KPIs – What are they?
Key Performance Indicators (KPIs) help businesses to keep track of the efficiency, effectiveness, and reliability of an organization’s procurement management process.
These KPIs are important in improving and managing an organization’s spending, quality, and cost.
You can group KPIs into three main categories. These are:
- Quality KPIs; to ensure quality
- Delivery KPIs; to improve delivery
- Cost-saving KPIs; to reduce cost
What is P2P in Procurement?
Also known as procure-to-pay (P2P); it involves the requisition, purchasing, reception, and payment of goods and services. It provides a link between procurement and supply processes. And just like most business processes that include repetitive tasks, you can automate P2P using PDF.co solutions.
What is S2P in Procurement?
Also known as a source to pay, it is a process that starts with strategic sourcing of goods and services, vetting of vendors, contracting, delivery, and eventual payment of the goods and services. It aims to improve operational efficiency, improved contractual compliance, and accuracy in forecasting.
What is Procurement Contract Management?
This process involves developing, managing, and executing agreements with customers, suppliers, vendors, and other purchasing and sourcing establishments.
Best practice contract management process includes:
- Management of service delivery; to ensure delivery of goods and services in time and adherence to KPIs
- Relationship Management; for assured continued communication
- Management of Change; to assure long-term relations despite changes in requirements and terms
- Assured Improvement
- Continuous assessment
Benefits of the Procurement Management Process
Being a process of purchasing goods and services from different service providers, the procurement management process has several benefits. Some of the more important benefits are discussed below.
Getting a Good Price
One of the most important functions of the procurement management process is getting a good price for purchased goods or services. For this to be achieved, the procurement unit or department within an organization combines all the requests from various sections of the institution. By doing this, the time used to process individual requests is reduced as these are handled together. Likewise, procuring goods or services in bulk establishes a decent relationship between the organization and its service providers. Ultimately, a business is assured of always getting the best prices from their vendors.
Knowing Each Service Provider
As the procurement unit of a business conducts everyday basic procurement processes, the personnel develop the ability to judge the quality, price, and delivery time of goods and services between different service providers. This expertise is an invaluable skill that allows the procurement unit to always get the best for the business. To get the best prices and deals, procurement personnel develop the ability to probe service providers to know exactly what they can offer to their business.
Also, they conduct an extensive analysis of proposed prices, contracts, and reports to reach the best conclusions. Many procurement managers now enter into flexible open-ended contracts that allow their businesses to purchase from service providers only when the price is right.
Procurement managers can broker excellent deals for organizations. They do this by collecting together the needs of their organizations and finding the best position to negotiate contracts. In addition, the procurement managers can get decent value on contracts by continuously evaluating and monitoring goods and services to ensure that their business gets the best deals in all situations. Also, the managers make sure the conditions and terms of each contract signed between their company and a service provider reflect the needs of the organizations. During the lifecycle of the contract, the managers ensure the agreement is administered as intended.
Whenever goods or services are delivered to the organization, the processes within the procurement unit ensure each item is consistent with the conditions and terms of the contract. If an inconsistency is discovered, the procurement unit contacts the service provider to ensure the problem is sorted.
The procurement management process is an excellent management tool that helps organize the procurement process to increase efficiency within the operations of an organization.