Usually, when people think of the procurement process, negative thoughts come to mind: time-intensive forms, uncertainty around procedures, and complex negotiations. Procurement also typically involves pulling and managing data from multiple sources, such as spreadsheets that track contract renewals and document management systems that contain purchase orders. On the whole, it can be tedious.
All these complaints are real. They’re the reason why, in companies of all sizes, it’s not unusual for employees to try bypassing procurement — a reality that poses a detriment to the business over the long term.
But it doesn’t have to be that way. While small and medium-sized businesses (SMBs) may not have the resources to implement and manage the sophisticated systems large companies use for procurement (like SAP or Oracle Financials), other solutions can address many of the most common issues.
Many new technology offerings are relatively economical and easy to configure and deploy. With a bit of knowledge and the right resources, SMBs can design a highly efficient and effective procurement process that takes minimal time and money — and reduces employee complaints.
This guide offers ideas and solutions to help streamline the entire procurement process.
What is the procurement process?
All companies require certain goods and services to operate. Almost every business needs the basics, like pens and printer paper. Others require specialized raw or processed materials, like T-shirts and ink for a T-shirt company, for example.
Retail shops need cash registers and digital payment processing services. And most companies need the various components of employee benefits packages, such as healthcare offerings, life insurance, and payroll systems.
Obtaining the above — and a whole lot more — requires a procurement process.
Procurement covers the entire life cycle of acquiring the goods and services a company needs to operate. There are numerous steps involved in that process, including
Identifying needs
Tracking inventory
Researching, evaluating, and selecting suppliers
Conducting contract negotiations
Establishing supplier relationships
Creating requisitions and purchase orders
Reviewing goods upon receipt
Processing payment
Procurement vs purchasing
Many people confuse procurement with purchasing. Purchasing is a subset of procurement and refers to the specific transactions that surround the buying process, including
Creating requisitions
Submitting purchase orders
Reviewing goods upon receipt
Processing payments
Purchasing is a standard set of activities that take place to buy goods and services, especially for repeat orders, established suppliers, and basic items.
Procurement is more strategic than purchasing. The first step of procurement — identifying needs — is crucial and can have a major impact on a business. Often driven by company strategy, it considers a variety of factors, such as company growth initiatives, cost-cutting mandates, and efforts to streamline processes.
In general, procurement is about more than just transacting for goods or services; it’s about getting the resources a company needs in a way that’s efficient, cost-effective, and timely.
Why is procurement important?
Done right, procurement contributes to business growth in more ways than one.
First, it boosts the bottom line. Companies that have a clearly outlined procurement process and follow it consistently (without any instances of bypassing) enjoy greater bulk order discounts.
They also have better supplier relationships and fewer supplier support issues. And they experience fewer legal challenges related to buying goods and services, such as signing up for an online service without legal review and approval.
A solid procurement process helps avoid critical shortages of necessary goods. When inventory isn’t effectively tracked, for instance, your business could face difficulties fulfilling customer contracts, which in turn could negatively impact customer satisfaction. Ordering the necessary items at the last minute forces you to prioritize delivery speed over cost — a strategy that, employed regularly, could lead to financial losses.
The procurement process helps you make smarter decisions when buying complex products or services. For example, many suppliers provide desktop support services for small and large companies, but finding one that matches your company’s particular requirements takes research.
A well-designed procurement process will involve reaching out to several potential suppliers, evaluating their offerings in detail, meeting with a shortlist of suppliers, and choosing one for contract negotiations. The result is likely to be a product that’s a good fit for your needs and will serve you well in the long run.
For all these reasons, it’s worth your while to put a good procurement process in place.
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