The procurement process for every business is one of the more important operations that take place. It can be a convoluted process taking up a significant amount of revenue and manpower on a daily basis. Therefore, all procurement teams and their leaders look to streamline the process as much as they can with certain practices. This can involve anything from implementing automation or evaluating their vendors and contracted prices on goods and services.
Best Purchasing Practices That Revamp Procurement
The exact practices that a company follows differ on the basis of the industry the business may belong to. However, there are 6 basic best practices that every company should look to implement in their purchasing procedure:
- Contract Creation
The contract is one of the first aspects that have to be created in the procurement process. A procurement contract is usually made between two parties, the client company, and the vendor. Depending on the needs or preferences of the company, a procurement team can draw up one of three contracts. A contract will possess details regarding the number of goods, the price for said number, and the quality standards that need to be met.
To ensure that the vendor is capable of meeting all the standards, companies can ask for samples or trials. These offers must be utilized as the procurement team should rely on base assumptions. In addition to this, it would also be advisable to obtain certain discounts if possible. This is especially true if the company has a certain degree of buying power which they could use to obtain better prices. Thus, drawing up the right contract will require deliberation and negotiation.
To make this process easier, procurement teams can utilize software known as Contract Lifecycle Management or CLM, which will essentially automate the management of a contract once it is created.
In a situation that is as complicated as a procurement system, transparency can do wonders for all the people involved in the supply chain. A typical procurement process may involve a significant number of employees and several locations, especially if the business is based on a franchise.
Requisitions will be coming in from every one of the stores under the same brand at around the same time. Therefore, to ensure that the right inventory is delivered in the right quantities, it is essential that the company create a visible supply chain. This can be done by implementing accountability through the following steps:
- The creation of procurement policies should protect the company against unauthorized spending and introduce proper inventory tracking.
- Carrying out proper documentation like collecting invoices and approval slips.
- Issues orders for inventory to a specific list of suppliers.
- Cloud Databases
Legacy or outdated systems tend to store all their information on paper which then go into files and cabinets. However, this system proved to be extremely counter-intuitive and outdated as a business grows. In fact, some research found that procurement teams spend around 40 to 60% of their time searching for certain documents they need at the time. For this reason, procurement teams have looked to implement more data collection systems that are more convenient than before. This led to data being stored in centralized locations like the cloud.
By doing so, companies are capable of accessing all the data they need regarding the procurement process. Every aspect of the process is documented and stored on the cloud, which is on display for all the members involved in the procurement process. Aspects like requisitioning, approval, and more can be monitored on a single platform. Thus, all transactions or spending occurs in a single place.
- Setting a Budget
Procurement is plagued by several risks that mostly cause financial strain on the company’s assets. These risks include a harmful activity known as rogue spending. This form of spending is said to take place when a procurement team makes purchases that do not align with the predetermined protocols. In other words, the terms and conditions of the contract are breached when these purchases take place.
Therefore, companies need to protect themselves from these purchases taking place by creating a comprehensive budget. This budget will not only cover the expenses of the required inventory but also account for certain inevitable risks that may come along the way. By doing so, a company will also be able to determine how much revenue is going towards the procurement process and may also work towards reducing the costs of the process.
- Supplier Management
Communication or collaboration can also make or break the efficiency of the procurement process. This is especially true for the relationship between a client company and the vendor. As mentioned before, approved supplier lists can help to make the collaboration between the supplier and the client company smoother as the company needs to focus on only a set number of suppliers.
In addition to this, it can also reduce the burden that comes with onboarding new vendors. In addition to the onboarding process, there are also activities like invoice generation and carrying out quality control tests that add to the complexity of a client company and supplier relationship.
For this reason, a company can look to manage its suppliers by utilizing certain practices. For example, the key to a good company-supplier relationship is drawing up a proper contract at the time of purchasing. There should also be a certain level of collaboration between the two parties to ensure that no miscommunication takes place. Finally, a company can monitor the quality of the supplier by utilizing key performance indicators or KPIs.
The procurement process can involve in-house employees and vendors or suppliers. The in-house employees are generally from more than one department, especially when it comes to the procurement system of larger establishments. Therefore, it would be advisable to train the in-house employees, especially about the various standards that need to be implemented and other protocols.
Common aspects of the procurement process include:
- Evaluating requisitions.
- Sending out orders, approval procedures.
- Being familiar with all the employees.
In case the company has opted to utilize software to assist in the procurement process, employees should familiarize themselves with it.
In addition to this, businesses should clearly outline the standards at which the goods and services from the supplier should be coming in. Therefore, training the workforce involved in procurement can help reduce mistakes and bring in good quality inventory.
The Introduction of Automation in Purchasing
The concept of streamlining the procurement process with automation has been around since the beginning of the 21st century. Since then, many companies in America, especially, utilize procurement to overcome the monotony of the procurement process. Automation is now present in these five aspects of the procurement or purchasing system:
- Generation of e-invoices
- Creation of requisitions
- Obtaining purchase orders
- Management and conflict resolution between the company and the vendor
- Requirements for approvals
Companies are capable of purchasing the best goods possible while keeping track of all spending and other procurement activities. Therefore, this visibility will help to streamline the process more and subsequently save more as well. Thus, the implementation of automation is one of the best purchasing practices that a company can implement to ensure maximum savings at maximum productivity.