To streamline procurement process is an important aspect of every company. Every company needs to acquire numerous goods and services from third-party vendors in order to operate effectively and develop its own goods and services.
Procurement practises that are effective save money, help with compliance, guarantee you work with trustworthy vendors, and avoid delays and mistakes. Procurement also aids modern businesses in achieving non-financial objectives such as sustainability, lowering their environmental imprint, and enhancing their green credentials.
Metrics that are mutually agreed upon can be used to evaluate digital procurement processes. Procurement becomes a strategic role for the firm as a result of the alignment with corporate priorities.
What is a Procurement Process?
Procurement process, procurement cycle, and procurement process flow are all generic words for one of the various internal procedures connected to the acquisition of goods and services within an organisation.
Some examples of a procurement process are:
- Purchase requisition – an internal document that a manager or finance team can evaluate in order to approve a purchase.
- Purchase order – an external document that the company sends to the vendor it has chosen. The PO specifies the goods and services to be ordered, as well as the payment terms and delivery dates.
- Invoice Management — a request for payment from a supplier that the organisation receives.
- Sales or Work Order – while not directly tied to the procurement cycle, sales or work orders are closely related. In circumstances where an order is fulfilled in phases, suppliers issue sales orders to the buyer.
Procurement management plays a critical role, particularly for businesses of a certain size. A centralised procurement function with its own workers and procedures is common in larger firms. Yale University Procurement, for example, uses the purchasing power of the entire university to achieve the cheapest price and to make the acquisition of needed goods and services as simple as possible.
Steps to Streamline Procurement Process
A procurement procedure usually has nine steps. Depending on your specific business environment and requirements, some or all of these steps may be included in your procurement process flow.
Step 1: Determine the Internal Requirement
This initiates the procurement procedure within the company. In order for a department or business unit to function, it needs certain goods and services. If different departments have the same request, procurement will combine them to save money and improve visibility.
Step 2: Assess and Choose a Supplier
The purpose of this stage is to compile a list of probable suppliers for the required products. The evaluation procedure might be as easy as a quick internet search or as complex as a months-long organised RFP or RFI.
This stage’s objectives are simple: assess vendors based on pricing, quality, reputation, reliability, customer service, and any other relevant factors.
Procurement selects the best supplier after it has completed an analysis.
Step 3: Work Out Contracts with the Vendor You’ve Chosen
The contracting procedure begins at this moment. This can be straightforward or involve a lot of back-and-forths. In rare situations, buyers may elect to forego contracting entirely and instead depend on a legally enforceable purchase order.
Your contracts team will then review the End User License Agreement, payment terms, warranties, any indemnification agreements, and other legal aspects of your acquisition. If the contract includes implementation services, they’ll want to make sure timetables, delivery schedules, and scope of work are all clear upfront.
Step 4: Approve an Internal Purchase Requisition
The following step simply entails obtaining approval from the organisation (department or business unit) that will be responsible for paying for the purchased items.
You can use a purchase requisition (PR) for this process. This way you aren’t actually placing an order at this time but are seeking internal approval to do so. The PR contains pertinent information, such as buyer and supplier information, a list of desired items, pricing, and terms, so that the department can accept or reject the purchase.
Step 5: Issue a Purchase Order
The procurement (or finance) department will then generate and release a purchase order (PO). This is the point where the actual purchase is made. They’ll send the purchase order to the designated vendor. It includes a PO number, detailed terms and conditions, and delivery dates, among other things.
The PO serves as a legally binding document in the absence of a formal contract.
Step 6: You will be Sent an Invoice
The supplier will send you an invoice that includes a list of the things you ordered, as well as prices and payment deadlines. The aforementioned PO number is normally listed on the invoice.
To maintain consistency and correctness, the procurement team will match the invoice with the purchase order. Payment may be made before or after order completion, depending on the terms of the agreement. Partially upfront payment, such as a 50% deposit for implementation services, is very common.
Step 7: Accept and Inspect the Package
The supplier will fulfil the order for goods and services in accordance with the contract’s terms. The receiving organisation typically has a limited amount of time to inspect the delivery and tell the supplier of any inconsistencies, such as missing items or poor quality.
For online purchases, fulfilment could entail the supplier activating an account, after which a selected representative in the HR department must log in and confirm that it is active.
Step 8: Make the Final Payment
The finance department will deliver payment according to the contract terms, such as net 30 days, once the order has been verified.
Step 9: Keep Accurate Records
Finally, storing all documents in a single centralised area, from the original requisition to bills, is a simple but smart business practice. It will help you in navigating any future audits. The analysis of this data aids in the tracking and optimization of spend management.
What are the Top Challenges in Procurement?
Consider the issues that procurement managers confront as a result of the numerous procurement stages listed above. They must deal with everything from identifying needs to selecting and managing suppliers to processing invoices.
Despite this, procurement is frequently managed using a patchwork of technologies rather than a comprehensive digital procurement strategy.
Some factors that influence the procurement team’s ability to solve the following difficulties are:
- Tactical vs Strategic Procurement — Rather than being an operational function, procurement has evolved into a strategic one. It’s difficult to conceive strategically, let alone implement a strategy across many functional areas, without consistent procurement methods.
- Managing suppliers — Even at technologically advanced organisations like Adidas, supply chain concerns can stymie progress. A fragmented procurement strategy makes it difficult to find dependable vendors that can supply high-quality goods and services on schedule.
- Maverick purchasing – Employees who are required to cope with time-consuming internal procedures are more likely to make purchases outside of the traditional procurement channel. Not only is this costly for the company (it’s difficult to get the best price), but the lack of control it creates exposes it to compliance and other unneeded procurement concerns.
- Talent management – No one enjoys spending their time at work hunting down piles of paperwork. With a proper talent management strategy in place you can divide tasks in a porper manner so that your business works like a well-oiled machine.
These are only some of the most prominent challenges you can face in procurement. However, these obstacles are easy to overcome if you employ the right methods.
How Digital Procurement Helps Streamline the Process
If procurement officials truly want to solve these issues and bring procurement into the twenty-first century, they should develop a comprehensive digital strategy. Technology enables:
- Efficiency — Digital procurement processes are faster, more accurate, and assure compliance with organisational requirements. Project managers will receive needed products on time, employees will spend less time deciphering and fixing errors, and maverick purchasing will be decreased.
- Data analytics – Data from digital procurement is reliable. It’s easier to optimise inventory levels and have an instant beneficial influence on the bottom line when you have correct data. More importantly, clean digital data opens the door to analytics, machine learning, and a slew of other possibilities, such as using machine learning to automatically recognise demand and requisition delivery.
- Improved talent management – In the end, people make the difference between success and failure. It’s difficult to discover good people, but you can make the most of the ones you have. Because your staff is now spending less time on paperwork and more time on the things that count, digital procurement is a direct investment in their overall satisfaction.
- Reduced risk — Automation increases pricing transparency, supplier relationships, and inventory levels. Transparency, by its very nature, decreases compliance and supply chain risks, as well as the business risk of fraud.
- Strategic procurement – Procurement becomes a strategic partner only when it is aligned with key corporate initiatives and measured using objective performance indicators. This basis is built on digital procedures.
If you want to streamline your procurement process, digital procurement is the best way to do so. With a technologically advanced and properly managed procurement process, you can achieve your goals more effectively.