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Procurement process best practices
All the benefits of procurement can only be realized if your procurement strategy has a strong foundation and clear, defined processes. Below are some procurement process best practices to ensure your approach is optimized and serves the company effectively.
6 procurement process best practices
1. Encourage interdepartmental collaboration
While people naturally associate procurement with external suppliers, internal relations play a role in its success, too.
Not only should you clearly outline and communicate your process to each department, but it’s also essential to encourage information-sharing across departments concerning purchasing needs.
Cross-departmental conversations about product usage could reveal money-saving opportunities; similarly, the introduction of new products may require the help of multiple departments for the effort to go smoothly.
For example, if the sales department is planning on increasing personnel by 30 percent the next calendar year, it will probably require additional laptops and mobile phone services. If the IT department is already in the process of reviewing new software-as-a-service offerings, it should consider this new information in a purchasing decision.
Periodically reviewing requirements and upcoming projects or changes, as well as establishing mutual understanding, is vital for organizational efficiency.
2. Make the process transparent
It’s important to be clear and open about your procurement process. Internally, it increases the likelihood that employees will work within the system, rather than go around it. When everyone knows what to do and why, it creates an environment of trust, and people tend to buy into the process. Plus, making procurement needs more visible helps eliminate duplication and promotes collaboration (see point 1 above).
Transparency is crucial for external supplier relations as well. Making sure qualified suppliers have access to relevant specifications and evaluation criteria simplifies the process for everyone and ensures you connect with vendors who are the best match.
Last, only transparent procurement practices and processes allow for an audit. Using an online tracking system significantly streamlines the process of reviewing purchases and prices.
3. Take a partnership approach to vendor relationships
Browbeating your suppliers to the lowest price isn’t the most effective strategy. While it might create some savings, they are often short-term in nature.
Instead, view the relationship as a partnership — one that will benefit both sides. By helping vendors learn more about your business, you gain a partner who can help find savings, manage risk, and introduce new and useful products. They may also be more responsive during emergencies. In return, suppliers win by gaining your trust — and potentially a long-term client.
These collaborative partnerships evolve in several ways. Account managers should strive to make vendors feel like they’re part of the team, and, if multiple account managers deal with a single vendor, those managers should take a consistent approach to their negotiations.
Suppliers should take an interest in your business. If they don’t, they may not be the right partners for you.
4. Periodically review long-standing relationships
Supplier relations evolve. Companies get acquired; account managers change; new offerings are introduced — any of these situations might prompt a review of a relationship. For critical suppliers, periodic reviews are very valuable.
These discussions provide an opportunity to address issues and upcoming projects, as well as future purchases. Suppliers, in turn, can preview product enhancements, offer product demonstrations, and highlight training opportunities.
Supplier scorecards effectively track various metrics, such as quality, number of returns, and delivery times. It can be particularly effective to implement these scorecards in an online system and then tally the results over time, so you can discuss them with suppliers during those periodic reviews.
5. Use an electronic inventory system
Inventory tracking can be an inefficient, manual, and even inaccurate process. Periodically counting inventory only provides a snapshot in time, which isn’t very useful. Technology can optimize inventory tracking in several ways:
- Bar code scanners or radio-frequency identification (RFID) technology increases accuracy and, in the case of RFID, supports real-time reporting.
- Capturing data with online forms produces a more reliable data source, and makes it easier to manage and order stock.
- An electronic inventory system helps track and report on inventory. Reporting can identify usage trends, such as seasonal requirements during the holidays, or reveal anomalies that may require further investigation.
6. Implement digital procurement systems
The recent concept of modernizing various business functions to remain competitive applies to procurement too. Taking advantage of technology can help maximize savings, reduce risk, and improve efficiency.
Procurement teams are increasingly using technology for contract management. Contracts form the basis of procurement transactions, and, thus, must be managed closely. But it isn’t always easy to keep track of the details associated with multiple contracts, both in terms of time and compliance.
A digital contract management system offers a centralized, secure location for contracts, increasing overall procurement efficiency and accuracy. It helps maintain consistency across agreements and can even automate parts of the contract workflow.
Frequently, these systems track markups from both companies, provide routing for approvals and online signatures, and can even give alerts well in advance of contract expirations. Streamlining these processes enhances the overall efficiency of the contract process.
Another idea is to adopt a full life cycle procurement process technology solution. Not only do these systems provide standardized workflows and forms, but they can also streamline processes in all stages of procurement, such as approvals and supplier payments, making the overall process more efficient.
With new cloud-based offerings, costs are often based on the number of users and potentially the number of forms, instead of traditional, complex hardware and software licensing models.
These cloud-based offerings are equally attractive for both small and medium-sized businesses that currently rely on manual processes and spreadsheets, as well as large companies that would benefit from highly configurable and easy-to-use systems.
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