‍A Definitive Guide To Procurement Management

September 2, 2022
Alok Suman
Procurement Management

Just like you cannot cook a perfect dish without the right ingredients, you cannot build a brilliant product without procuring the right supplies.

So all you need to do is procure supplies from the right place and at the right time?

Not really. 

Manual procurement management is riddled with high processing costs, delayed approval cycles, and reduced workflow visibility.

If you are running an enterprise looking to streamline your procurement process and save thousands of dollars going to waste, knowing the best practices and trends in procurement management can benefit you significantly. 

This guide covers everything you need to know about procurement management and how to optimize the process for a better ROI. Let's get started. 

What is Procurement Management?

Procurement management is a strategic approach businesses adopt to manage, track, and optimize organizational spending on supplies and services. 

You have to oversee all the processes involved in acquiring the materials, goods, and products your organization needs for the production process. 

Procurement management involves four primary steps, which include: 

  • Procurement Planning
  • Vendor Management
  • Administrating the Process
  • Evaluation and Optimization

By creating a well-documented and structured procurement process, you can increase your revenue streams and create better opportunities for saving and growth. 

What is the Importance of Procurement Management?

We have briefly talked about the benefits of having a robust procurement process. Recent disruptions, such as COVID-19, have made businesses more aware of managing their procurement process efficiently.

To provide clarity, let's have an in-depth discussion about the benefits of procurement management.

  • Improving Profitability 

A recent study has stated that procurement alone comprises 50% of total business costs. It can impact your cash flows. Following a traditional, siloed approach can create cost leakages, taking more time to process things.

With the pandemic already putting a financial strain on the company's resources, automating your procurement management process can boost productivity and accelerate the time to market your product. 

  • Making Procurement a Collaborating Process

No business function can succeed without collaborating. The same applies here as well.

Procurement is a process that requires constant communication with multiple participants, including vendors, suppliers, stakeholders, and even customers. With procurement management, you can combine customers, technology, operations, and insights to create successful relationships with your suppliers and vendors.

With rising customer expectations, you need the complete support of all the parties involved to facilitate a smooth exchange and improve the deliverability process. 

  • Develop a Competitive Advantage

Here's something that won't surprise business owners: The competition in the retail industry is heating up. It's time to find new ways to fuel your value chain.

By designing an agile procurement process, you can meet your future needs and deliver maximum impact on supplier-vendor relationships. This will also help you minimize delays in the production process and reduce inspection time.

In a market that demands flexibility, you can leverage procurement as a competitive advantage to generate value pools. 

Steps Involved in Procurement Management

Let's discuss the steps involved in procurement management to help you establish one for your business:

1. Procurement Planning

Procurement planning has a lot to do with how you will proceed with the process and mitigate the risks that come with it. 

It involves outlining the following things: 

  • Considering current inventory stock and Identifying which good or service you will need
  • Gathering a team and creating a budget
  • Defining key performance metrics
  • Evaluating potential vendors and suppliers
  • Determining contract types and terms
  • Developing plans to mitigate potential risks

2. Vendor Management

Vendor and supplier management has much to do with selecting them, negotiating purchase orders, reducing vendor-related risks, processing payments, and optimizing costs.

This process is often regarded as one of the most critical steps in procurement management as it helps you make your supply chain resilient to disruptions.

You can improve this process by strengthening your communication flow, automating invoice processing, tracking KPIs, and constantly gathering vendor feedback. 

3. Administrating the Process

Aside from selecting vendors and defining purchase order contracts, you also need to establish a process on how you will move forward in a way that raises ROI and restricts variable costs.

One way to do this is by creating high-quality standards and performing strict inspections. You will also have to document the entire process and ensure that vendors deliver within the stipulated time, and if this does not happen, you should revoke or renew the contract. 

Once it's over, you need to focus on invoice processing and settlement of accounts. Automating your procure-to-pay processes can help you speed up the process immensely. 

4. Evaluating and Optimizing

Sometimes, although your team has done its best to streamline the procurement process, you can still experience setbacks. Such difficulties may arise due to external business factors or even internal conflicts.

This is why it makes sense to evaluate the entire process by doing proper data analysis and deciding whether or not it meets your KPIs. If you find anomalies, it's time to optimize some steps to ensure that it doesn't happen again. 

Top 6 Trends About Procurement Management You Should Know in 2022

So far, we have covered the basic foundation of procurement management at length. Let's move on to the top trends and practices that most successful businesses follow so that your organization can thrive:

1. Focusing on Tools That Boost Agility

The new normal of businesses is digital. Procurement is no different. Today, most enterprises want to focus on working with tools and technologies that can boost agility and facilitate real-time visibility.

Paper-driven procurement has a cascading effect on your organization. They do not provide visibility into your workflow, and manual errors lead to the depletion of precious resources. 

Procurement management software eliminates paper-based processes and helps you stay on top of future emergencies. The software has advanced capabilities that make order processes a breeze. 

2. Finding Suppliers in New Regions

According to a recent study by Mckinsey, enterprises are looking for suppliers and vendors in different regions who can offer them varied cost structures.

With the rise of economic shakedowns like inflation, businesses want to prioritize cost savings, and the best way to do this is by looking for pricing improvements from new suppliers.

For instance, if you are currently operating in America and want to cut down your procurement costs, you can look at suppliers in China and Vietnam for better saving opportunities.

However, it helps to ask suppliers how they will overcome logistics challenges first. Negotiating contract terms is also a good way to handle cost pressures. 

3. Emphasizing Ethical Sourcing

Today, customers want to transact with companies that follow ethical practices. This includes ethical sourcing, social responsibilities, and being more sustainable.

Many successful companies like Nike, Zara, and others have come under fire for following unethical procurement and production practices to cut costs. This has affected their reputation drastically and made other market players more aware of keeping up with customer expectations and changing their company policies accordingly. 

When creating a procurement management roadmap for your company, you should consider sourcing strategies that make your supply chain more transparent. 

4. Optimizing Inventory Management

Most people don't know that inventory and procurement management are closely related. You cannot forecast demand unless you have done a proper inventory analysis. Knowing your current inventory levels will help you draft your procurement plan more efficiently. 

For instance, cutting back on inventory purchases can be problematic because it can lead to stock shortages. On the other hand, having a lot in stock increases warehouse and storage costs. Furthermore, the complexity of procurement has increased in sectors like food and beverage because of regulatory compliances and shelf life issues. 

With procurement management software, you can get details about your current stock to help you make informed decisions about purchasing in the future.

5. Integrating Cloud Technologies

The availability of subscription-based SaaS solutions has made business functions more efficient. Procurement management is no exception.

Companies can lower initial investments, cut costs, and improve real-time information sharing thanks to cloud-based platforms. Moreover, you can integrate APIs and cutting-edge technologies like AI and Big Data to find patterns in your workflow and make logistics tracking easier. 

With the right talent and the right set of technology, you can manage multiple purchase orders, enabling the scalability of operations. 

6. Using Data Analytics

Data analytics for procurement involves more than tracking and record keeping.

Analyzing data related to your purchase cycle can be compared to polishing a rough diamond. The goal is to get actionable insights by gathering and applying algorithms to massive data sets from various systems.

The ability to measure how procurement affects the bottom line and make adjustments to the entire process for better accuracy and timeliness is what adds value.

You can use analytics to describe, forecast, or enhance business performance. It can help automate repetitive procurement tasks to free up the time and attention of supply chain leaders to help them focus on other critical functions.  

Automation in Procurement Management 

Automation is the most discussed topic in the supply chain world, and for a good reason. According to studies, businesses can save $749 billion by automating 64% of manufacturing tasks. 

But most businesses fear automation in any form because it comes with a lot of upfront investment costs. While this is true in theory, it is a valuable investment for the future.

From supplier onboarding to improving collaboration between internal and external teams, automating procurement functions makes a lot of sense. Let's discuss the benefits of automation in procurement management briefly:

1. Better Risk Management

Since the pandemic in 2020, the list of risk factors that can affect your procurement process keeps growing. Furthermore, climate change concerns and geopolitical conflicts have put more pressure on businesses. So how do you anticipate risks?

For one thing, you can analyze past data and keep up with the changes in the business environment. 

Automation can help you focus on mitigating risks by collecting and storing data across multiple systems. It will also help you identify high-risk areas and non-performing suppliers. With such insights, you can focus on creating impactful strategies. 

2. Maximize Efficiency

When the procurement function is automated, the order process moves more quickly, reducing wait times and greatly increasing efficiency. You can also allocate your recourses better.

Research by Gartner has stated that 43% of supply chain leaders are increasingly adopting digital platforms and leveraging automation to build agility in their supply chain.

By automating repetitive tasks, project managers can focus on their team members and the challenges they are facing rather than assigning them mundane low-priority tasks. Additionally, it enhances communication with internal stakeholders and suppliers.

For instance, you can send crucial reports to suppliers quickly and come to a resolution faster. It gives you and the suppliers a snapshot of what's happening and how to move forward smoothly and rapidly. 

3. Increased Transparency and Security

Your purchase orders are a critical legal document that can help you determine delivery terms with the suppliers. But imagine managing 100 purchase orders daily. 

It can certainly overwhelm you and decrease transparency across the supply chain. It also puts you at risk of data manipulation and theft.

With cloud solutions and automation, you can achieve increased transparency and enjoy enhanced security. Since everything is available at your fingertips and protected by an unbreakable security system, you can streamline the procure-to-pay cycle easily.

For instance, companies like Nike are using automated technologies like radio frequency identification to track products flowing through their manufacturing operations. 

Final Thoughts

Uncertainty is the reality we are living in today. With so many disruptions, it makes sense to prepare for the unexpected. 

Research has shown that only 39% of businesses have the skills and resources to create a robust procurement strategy. If you are still looking for the right time to level up yours, you should stop looking for signs and act now. 

At Hubler, we help businesses automate their unique business processes and build a customized solution that is meant for your business needs. From tracking your inventory to automating your procure-to-pay function, we can accelerate your business growth. Our company believes in offering solutions that give you a competitive edge and achieve results on targeted efforts.

Want to know more? Feel free to get in touch with us anytime!

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