Whatever it is your company produces or needs for its operations, you’ve got to get supplies and services from somewhere. And with all the options available in terms of sources, prices, terms, and so on, it’s rarely as easy as simply clicking and buying.
Procurement isn’t just a ten-dollar word that means purchasing. Purchasing is part of it, but the rest of it is the strategy, deciding what to buy, who to buy it from at the best price and with the best terms, negotiating contracts, issuing and keeping track of purchase orders, monitoring deliveries and services provided, and dealing with whatever problems might come up along the line.
Reports show that procurement of goods and services controls 82% of the average business’ spend, so it’s an integral core function that affects every other thing that you want to and are able to achieve, and has a significant impact on your bottom line. It requires a lot more thought than just saying “let purchasing take care of it.”
If you’re at the early stages of starting a business it may seem premature to go with a cloud-based procurement software solution to the process, but setting it up at the outset will keep everything on track and save time and money in the long run as opposed to a scattershot, off the cuff approach that will only get more difficult to handle as time goes by.
Here are the steps in the procurement process:
Determine Company Strategy
Procurement is a key component of the way you run operations and needs to be strategized along with all of the other components. If, for example, you’re determined to do business in an eco-conscious way, then all of your decisions should begin with that consideration in mind. The same thing goes if part of your mission is to contribute in your own way to the community or the greater society. Whatever direction you choose, your strategy should carry through from your employment policies to the supplier you choose for your paper clips.
Follow A Systematic Process
Procurement for airline tickets and hotel rooms for business travel may be different from procurement for the raw materials you need for manufacturing, but they should all follow more or less the same systematic and transparent procedure. You may see these broken out in different ways, but they’re all part of an effective process:
- Identifying the need. Deciding what goods or services are required, and determining whether there are better or alternative options available. Consolidating all similar requests to weed out duplications and see where costs can be minimized by bulk purchasing.
- Authorizing the request. Signing off by the appropriate supervising authority to go forward in the purchasing process.
- Researching suppliers. Comparing costs, quality, warranty, guarantee and return policies, vendor reputations, customer service, and the other metrics that go toward making smart choices among vendors who are all vying for your business. Going ahead with the one who offers the lowest price is not always the best choice.
- Negotiating the contract. Some simple transactions have implied contract terms (buying a coffeemaker for a break room, for example), but most business purchase transactions require negotiation of terms including description of deliverables, scope of work, timeline for delivery of goods or provision of services, timeline for workflow approval and/or payment schedule if appropriate, potential discounting and rebates, and other aspects of the vendor-client relationship.
- The “paperwork”. We’ve got “paperwork” in quotes because in a streamlined business operation, most of these functions should be digitized and part of an organized online system accessible to all relevant personnel involved in the process. These functions include issuing purchase requisitions and subsequent purchase orders, receiving what has been ordered and seeing that it meets expectations of quality and other requirements, approving invoices and making payments, as well as recording, reporting, and storing all records.
Evaluate Routinely
Needs change, markets change, new budgetary considerations might impact decisions. What worked before may not be working now. Procurement procedures should be evaluated on a regular basis to make sure that your supply chain is running at top efficiency and that cost-benefit analyses are in your favor. Consistent re-evaluation is an important part of the dynamic that will keep your business moving forward to reach its goals.
