13 ways sustainable sourcing and procurement drive ESG efforts
The strategic sourcing process is a cycle, so it cannot be done once and forgotten about. A cycle approach to […]
Procurement Industries
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5 minute read
Written by
Logan Price
If you hope to grow your business and improve your day-to-day operations, your procurement process is the foundation on which you should build your strategy. It is an essential operational component for all businesses, no matter what industry.
This blog covers important aspects of the procurement management process, including critical points you need to know, the stages and steps of procurement, and how to implement and improve your procurement strategy.
The procurement process is essential for every company that hopes to expand and optimize its performance and operations. It is the acquisition of goods or services needed for the company to operate daily. This, however, goes far beyond just purchasing; procurement is a process that requires constant admin, monitoring, and assessment.
Procurement makes up a large portion of your company’s overall supply chain process. The procurement teams, headed by Chief Procurement Officers (CPOs), work to ensure that the entire process of acquiring goods and services for the company runs smoothly. This includes identifying reliable suppliers, vendors, or manufacturers, negotiating the most affordable price possible, negotiating mutually beneficial terms, making purchases, tracking orders, contract management, and maintaining records (and that is just scratching the surface). This process plays a significant role in the company’s profitability and cost-savings capabilities, which can directly impact your bottom line.
The types of procurement can be sorted into several categories, with even more subcategories beyond that. But, the two main niches it is usually divided into are direct procurement and indirect procurement. The most distinctive difference between these two categories is the function they address.
Direct Procurement focuses on securing the core supplies needed to produce an end-product that will be sold to your customers. This usually includes raw materials,
Indirect Procurement refers to expenditure on services and goods that drive profitability. These purchases support day-to-day operations but have no effect on your company’s bottom line. Expenses falling under this category include subscriptions, maintenance, office supplies, and travel expenses.
Furthermore, direct and indirect procurement can also be split into goods and services procurement. Goods procurement refers to the acquisition of physical items like your inventory and software subscriptions, while services procurement refers to all people-based services. This includes services such as law firms, contractors, temporary laborers, and on-site security personnel.Exploring the Difference Between Procurement, Purchasing, and Supply Chain Management
As mentioned above, procurement is much more than just purchasing, but what is the difference between supply chain, procurement, and purchasing?
The Procurement Process can be split into three stages: the sourcing, purchasing, and payment stages. These stages are sometimes referred to as the procurement life cycle and encompass the procurement steps from beginning to end. If you are looking for a bit more information, keep an eye on our page for an in-depth explanation of the steps and stages of the procurement process. The Sourcing Stage:
The Purchasing Stage
The Payment Stage
Keep in mind, not all companies use all nine of these steps; they can vary depending on several factors. Some businesses only need a simple purchase process, while others will need to utilize all three stages of the procurement process. The steps your company will use depend on the following factors:
The effectiveness and efficiency of the procurement process determine your company’s profit margins and quality of services and goods. To begin the procurement process, the need must be identified. The next step is to find the right vendor. Following the identification of a vendor, the purchase order is prepared, including all the specifications and terms and conditions. The vendor then begins processing the purchase order. Following an inspection of the goods and services, the procurement team accepts or rejects the order. After the order is accepted by the team, the next step would be to pay the invoice. For auditing and compliance purposes, all procurement steps must be documented. Be sure to keep track of the purchase requisition, purchase order, and vendor invoice especially.
Everything evolves and changes, and you can either adapt or fall behind. Despite how many years of experience you may have as a procurement specialist if you are not constantly learning, you are going to fall behind when it comes to newer, simpler, more efficient ways to do your job. This means that your business will ultimately suffer due to the fact that its procurement methods are out of date.
There are so many ways to improve your procurement process, increase your profitability, and save money and time for your business. The three simplest ways are improving your procurement efficiency, implementing e-procurement software, and using KPIs for an evaluation of your current strategy so you know which target areas require improvement.
The first step in improving any aspect of your work or home life is to identify problem areas. The easiest way to do this in procurement is to evaluate your current procurement strategy while keeping in mind the relevant Key Performance Indicators (KPIs). KPIs are vital metrics used to measure performance, monitor progress, and share progress information in an objective way. Procurement managers can use KPIs to make data-driven process improvement decisions and organize, optimize and regulate their purchase expenses, quality, cost, and time.
Here are some KPIs you can use to evaluate and improve your procurement function:
Additional KPIs to take note of:
Analog procurement methods are quickly becoming obsolete. To stay relevant and competitive in today’s marketplace, irrespective of industry, an organization needs to stay ahead of the trends and adapt to technological advances. e-Procurement is the use of cloud-based procurement software, and the benefits it can have on your procurement process are almost incomparable.
When looking for procurement software, there are a few features to keep in mind for the most comprehensive solution to any challenges in your current strategy:
Be sure to keep an eye on the Tradogram blogs page for more information about how you can improve your procurement activities, effectively manage your risks, and implement changes that will improve your procurement strategy in the long term.
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