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 101
Reading time:
5 minutes
Written by
Logan Price
Procurement is a critical step in the supply chain management process that involves sourcing, purchasing, and paying for products or services needed to run your business. Your company’s procurement team will work to find reliable vendors that can supply your business with goods or services that meet quality standards at a reasonable price to ensure maximum profitability. While it may sound like a straightforward process, it isn’t. There are numerous factors that make up procurement or project management, and the key to implementing a successful procurement strategy is understanding exactly what these activities entail. Keep reading this complete guide to finding out important aspects procurement managers and your procurement team need to know.
Procurement processes are not one size fits all. There are several factors that supply chain and procurement professionals need to be aware of to determine the best strategy for your organization. Efficient procurement management follows a logical order that depends on various factors. These factors include your business model, the size of your company, where your business is located, how your business is structured, how you choose to handle your finances, and your available human resources (do you have a full procurement or project team or not).
Furthermore, procurement can be sorted into four main categories (types of procurement).
These three terms are often used interchangeably, especially procurement and purchasing. While the terms may interlink, they are in fact different processes with different purposes as it relates to your overall project and business. In order to ensure the financial success of our business, procurement professionals must be able to distinguish between these processes to implement them successfully:
The 3 P’s of procurement refer to three organizational components that outline the entire process, namely people, paperwork, and process.
2- Paper - This refers to any and all documentation involved in the procurement life cycle from contracts, purchase requests, RFQs (Requests for Quotations), and purchase orders, to any negotiation documents, invoices, and proof of payment. Supply chain professionals should always keep accurate, up-to-date records for every step of the procurement process to ensure transparency and compliance, and to protect themselves and their business from potential legal action.
Having records and documentation can also help ensure that you are only using the best suppliers and that you are getting the services and goods you pay for throughout the project. While the word ‘paper’ may make you think of numerous disorganized piles of paper that are difficult to control, web-based procurement is the perfect solution. Procurement management software provides all the right tools that allow you to capture all paper-based processes required for the project or business with a digital system and also introduce procurement automation essential parts of the supply chain operations.
3- Process - This category refers to the list of rules or steps that need to be followed when reviewing, ordering, obtaining, and paying for goods or services your business needs throughout the procurement lifecycle. An effective procurement process where contract is being followed to the latter and the process is optimized for efficiency will help your business succeed. Procurement management is also concerned with helping you control project costs in line with contract requirements, expediting your procurement process, saving money, ensuring the quality of goods and services needed, and maintaining project quality.
Depending on the complexity of your purchase, the number of steps and management strategies may vary for different parts of the project. When a process is designed and followed methodically, it promotes accuracy and timeliness because everyone knows exactly what needs to be accomplished and how long they have to complete it. Supply chain management allows managers monitor the entire process so work is done properly.
An unorganized project procurement management process, on the other hand, can lead to inefficiencies, excessive procurement spending, and potentially costly errors. To put it in perspective, late requests for quotes or payments negatively affect your supplier relationships and overpayments can be detrimental to your company’s bottom line.
All this project procurement management knowledge may sound very complicated, but there are ways to make procurement easier. Electronic procurement management is a way to manage all of these seamlessly. Utilizing procurement software has several benefits and many organizations now use it to help streamline every aspect of their procurement management system.
Create a free account or request a live demo