Businesses face a number of challenges with the procurement process. Be it needs identification, suppliers management, reconciliations, payment processing, or even economic factors, procurement managers are trying to save money, time, and effort. Whether your business is small or large, procurement has a direct impact on your profitability.
With that being said, businesses still rely on manual processes that may slow down the entire purchase cycle, lead to transactional issues, or result in missing out on the best deals and discounts. What you need are smart, end-to-end automation tools to streamline your procurement management process for continued growth. Here’s your quick guide to staying a step ahead.
Why Do You Need a Procurement Management Process
Effective procurement helps businesses acquire products or services. However, there is a shift—procurement is not just about saving costs but also about adopting digital transformation and next-gen tools. In a recent survey, it was revealed that only 18% of procurement leaders were doing a risk assessment of their direct supplier directory and just 15% had visibility beyond that supplier’s base. This underlines the importance of an effective procurement management process for reducing risk and managing other challenges.
A procurement management process, thus, helps with the following.
- Cost savings
- Operational efficiency
- Supplier relationships and performance
- Compliance and contract utilization
- Risk management
- Sourcing cycle time or purchase order cycle
Procurement Management Process Flow
Every organization has its own procurement process depending on its size, industry, location, and budget. This means that one approach does not fit all. However, the 3Ps of procurement management—process, people, and paperwork remain the same.
- Process: The complexity increases with the increase in the number of checkpoints or steps.
- People: As each stakeholder has a role to play, increasing the number of stakeholders has a direct impact on risk and cost.
- Paperwork: The documentation especially helps in auditing requirements.
Below are a few basic steps that can summarise the procurement management process flow.
- Needs identification: Identify your business requirements and create a detailed plan to procure products or services at a suitable cost and at the right time. You can also consider previous proposals or growth targets to assess the needs. Spend analysis is also an effective way to get insights on where you can save cost whilst acquiring products or services.
- Purchase requisition review: Usually, heads of the department review the requisition for approval to verify the needs and available budget. Approved requisitions are in turn processed as purchase orders (PO). In this step, purchase order tools or software can help automate the process.
- Solicitation (RFQ process): Based on the approved PO and the budget, a custom procurement plan, and solicitation process are designed. The complexity of the plan increases with the complexity of the need even though this step is more structured. That is why to choose the best vendor, the team then sends out requests for quotation (RFQ) for bidding proposals. Moreover, vendor evaluation depends on reputation, pricing, recognition, customer service, guarantees offered, and quality.
- Contract: Some organizations may involve an evaluation or procurement team to assess the seller and its proposal. The main objective here is to have a win-win situation for both the buyer and seller. Effective negotiation can help you define the scope of work, delivery timelines, and cost savings. It also ensures you make the most out of dynamic discounting! Following contract negotiation and finalization, the PO is shared with the seller for the fulfillment, which may be legally binding in most cases.
- Quality check and order management: Once the product or service is delivered on time, the procurement or purchase team will evaluate the quality and respond to the vendor if anything is amiss. The objective here is to assess if the vendor has completed the contractual obligations and is hence a critical part of the delivery stage. This is also known as three-way matching—GRN (goods received note), PO, and supplier invoice are cross-checked to protect the interest of the buyer.
- Invoicing and dispute management: Once three-way matching is approved, the invoices are processed for payments. Maintaining invoices digitally translates to easy access, accountability, and spending optimization. In case any transaction disputes are encountered, they are settled as per the legal contract or agreement.
- Documentation: Record keeping is an important part of the purchase cycle. This helps in referencing and auditing.
How to Streamline Your Procurement Management Process
An effective procurement management solution is what businesses need to streamline this critical process. Investing in a cloud-based, end-to-end procurement software can make your tasks easier including
- vendor management
- Inventory management
- Procure-to-pay process
- Contract management and much more
Moreover, quick adoption and employee training can help you go live with an effective solution in just a few weeks.
Induzbuy has helped businesses script success stories with its proven procurement management solution. To know how you can seamlessly integrate our solution with your existing ERP system, get in touch with us today!