Procurement Management: Process of Sourcing and Acquiring Goods and Services

Procurement Management: Process of Sourcing and Acquiring Goods and Services

The process of sourcing goods and services is often overlooked, but it’s an essential part to running a business.

You might not be familiar with the term procurement management, but you’ve definitely been involved in the process if you’ve ever purchased any products or services that have been provided by third parties. In fact, procurement management takes place every time you buy anything from office supplies to big-ticket items like machinery and vehicles, and it’s important to the success of any business from its earliest days to its continued growth and expansion.

Businesses of all sizes have to manage the procurement of their products and services to ensure quality, efficiency, and compliance with all internal and external standards, while getting the best deal they can on price. Every business needs to source goods and services from outside at some point. The practice of purchasing required services and products is called procurement. For some companies, procurement is a continuous demand that is part of daily operations. Others only buy specific elements periodically. Whatever the case, procurement is a critical aspect of any organisation. 

It ensures that employees have the resources they need to meet their duties and work towards the bottom line. Procurement management is especially crucial during a project. For this reason, managers and other executives must plan accordingly, which is where procurement management comes in. The process schedules the timely acquisition of goods and services.

What is Procurement Management?

Procurement is the term used referring to the process of obtaining and sourcing goods or services so projects will be successful.

Procurement is a management technique that focuses on the sourcing, ordering, requisitioning, inspection, expediting of goods and services and reconciliation of procurement. 

Ensuring all products and services are available so that projects and processes can be carried out efficiently and successfully.

What is the purpose of procurement?

Outsourcing has become an popular ever increasing business strategy. Procurement is not just about acquiring the necessary elements but the process allows businesses to optimise their expenditure. 

A company has to consider where it buys from, how much it spends and the timeframe. Efficient procurement management allows an organisation to facilitate procurement successfully. Poor planning during procurement can lead to costly mistakes. 

 

Various factors, such as organisational structure, industry and human resources can affect a company’s procurement process. So, having a strategic approach creates a solid foundation that ensures everything turns out as it should.

What is Procurement management process?

What are the steps in the procurement process?

The procurement process is the steps and tasks that enables success.

Procurement process follows a logical order:

  • Planning: Plan for purchases and acquisitions. What will you need to contract out or purchase? 
    Planning: How you’ll do it and objectives.
  • Identify Requirements: Establish what the business needs to procure whether a service or product.
  • Budget: Set out a clear budget and what must be achieved from this. Looking for fixed price or cost-reimbursable contract?
  • Research Contactors: Identify suitable and potential suppliers. Call and send requirements to potential providers so they bid for the work opportunity.
  • Selection Process: Create a shortlist. Selecting the best candidate / business for the job. Looking at examples, recommendations, costs, and conformity to standards and regulations.
  • Pricing & Contract: Confirm pricing and sign the contracts with defined specifications, payment schedule and timescale. Who else needs to sign off the contract internally?
  • Monitoring: Monitor to make sure the contract is being followed to your requirements. Identify metrics that you will use to identify progress and success. 
  • Receiving Goods or Service: Inspection of goods or services, identify issues and make the supplier aware and work out a plan to resolve to both parties satisfaction.
  • Signing Off: When work is complete, sign off the contract is complete, gather documentation and paperwork required and release final payment.
  • Supplier List: Update a supplier list with full contact details, what they supplied, how the whole process when and any recommendation moving forward. Also note if bad experience and would not like to use again because could always be useful in the future.

Procurement Planning

First step in any project is to make a plan. Procurement plan should detail how the procurement management process will function and be managed.

A procurement plan has to incorporate certain elements if it is to work. These include:

  • Contracts – What work will you need to contract out for the project? What are all the products and services will be required? What specifications or minimum quality requirements. 
  • Delivery – Planned delivery dates for product or service required.
  • Suppliers and contractors – How will they be used and managed? Do they require certification? 
  • Problems: Challenges to expect during the procurement process and purchasing lead times. Determine how changes will be handled once the contract is in progress. What will happen if the contractor can no longer deliver on time?

Proper management involves monitoring suppliers to guarantee that the required goods and services are delivered on time. The digitisation of procurement planning has contributed to more efficient processes that help eliminate bottlenecks. A digitised system is easy to track, which gives companies more control over their procurement processes.

The exact steps used in Procurement depend on the size of the business, its specific needs, and industry standards which change over time.

Why is procurement management important?

Why should a company invest in the management of the procurement process? Properly managing your procurement process, you will be able to minimise costs while ensuring a high-quality product or service for your customers. The first step in a successful procurement management process is establishing a need for a product or service. If you already have a need, then it’s time to start identifying potential suppliers based on price, quality, location and schedule requirements.

Well, effective procurement management planning provides several benefits.

Budgeting: Cost efficiency is the most obvious advantage to expect. Companies can lose a lot of money during procurement if done poorly. One way it happens is by buying the wrong items. Lack of planning might mean that there is no communication between the involved parties. If a project manager doesn’t indicate the specific goods or services needed, then the procurement manager can end up with the wrong purchases. 

Sourcing from vendors without considering your budget might mean spending more than necessary. Buying more than required, delayed purchases and second-grade products can all inflate procurement costs. Management helps control expenditure without compromising the quality of purchases.

Supplier Management: Another benefit of managing procurement. Before an organisation can spend money, it has to ensure that the chosen vendors satisfy particular requirements. Effective management requires you to check a supplier’s viability, capabilities, reliability, and compliance with the company’s code of practice. You have to assess vendors’ risks and certification if necessary. This process provides a hands-on approach to client-supplier relationships.

Keep Project on Track: Without the product or service the project may come to a grinding stop. Making sure the the required resources are available when needed can keep the project on track and on time.

Reduce Waste: One best practice of managing procurement is to optimise inventory to reduce waste. Companies must also keep purchasing processes transparent. Using a central platform for vendor monitoring, purchases and invoices helps with this.

Procurement Process Automation

Every company must have quality procurement management solutions if it’s to take charge of purchasing processes. Regardless of company size, you should ensure that procurement processes are conducted properly if employees are to have the right resources at their disposal.

Finding the right solutions to manage procurement streamlines the purchasing process. Businesses have numerous tools and systems that they can use for procurement planning. So, traditionally manual tasks can now be automated. Therefore, companies don’t spend a lot of time on different procurement processes, which frees up resources for other use. Automation also helps with the standardisation of various elements in procurement. So, an business guarantees uniformity across different areas.

Checkify can help manage the procurement process by allowing you to set out how the process should be performed every time. The procurement checklist would guarantee how it is done every time and over time can be improved and add to for even better efficiency. Checkify allows you to allocate each task to the right person and automating tasks that can be performed without the need of  human being.

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