Effective procurement process practices will help businesses increase their efficiency and profitability. The procurement department can create a powerful value center that supports corporate growth through strategic outsourcing, continuous supply chain improvement, and informed expenditure control.
However, using outdated methods to manage every aspect of procurement is time-consuming and costly.
In a modern business, advanced procurement solutions automate most of these procedures and help firms simplify their whole procurement process.
Supply chain software makes it easier for your company to purchase the goods it needs to conduct its day-to-day operations. This safeguards your supply chain from miscommunications, makes your company nimbler, and cuts down on the time and energy it takes to provide goods and services.
What Does the Procurement Process Entail?
In our own process flow charts, procurement is broken down into the various steps with facilitators along the way that produce data for accountability, planning, and optimization of procurement processes. Our cloud-based (SaaS) offering covers all phases of procurement, including:
The planning phase
Issuance of a purchase (service) order
By Line item
Order changes and revisions
These processes are often data-dense, which can be challenging for a person to track simultaneously on a 2-dimensional space like excel. That is where we come in. On paper, a standard procurement process can be quite complex. Here is just one page from a standard bidding and purchasing strategy. Documents like these can be extremely helpful when planning, monitoring, and executing your procurement strategy. If you'd like to learn from the experts, you can get a procurement process flowchart from us for free.
Challenges of Technical / Project Based Procurement
Typically unique and complex specifications
Each procurement project is unique, which means flexibility is not just a feature of good procurement, it's a necessity. Both a flowchart like the one above, or a fully integrated software are fast becoming essential for even small businesses to handle supply chain management.
Supply chains all over the world are becoming notoriously unpredictable. This means timelines for effective procurement are becoming shorter. Procurement teams are now forced to fulfill purchases and inventory requirements in less time than ever before.
Purchase Orders (PO's)often require other PO's or may feed into subsequent Orders
Any given procurement operation is likely to have numerous PO's which will need to be effectively tracked and communicated within the team and third-party supplier. As supply chains speed up and digitize, the need for up-to-date and synchronous information means that PO's must also be digital when possible. Teams must be able to manage different PO's across the supply chain with little to no issues to remain competitive.
Large documentation requirements.[ reference technical specifications ] [back and forth]
Globalization, international trade, and the general complexity of assembly and parts sourcing all create an abundance of documentation. To effectively manage such a wide array of paperwork, detailed planning and digitization must take place. Having a singe-source-of-truth for any project is critical.
Quality inspection requirements
Each order has multiple stage-gates which requires quality checks; from product classification to on-site tests. Each quality check has detailed documentation and checklists which must be followed. To manage such quality requirements is a large undertaking. Not only is it important for day-to-day operations, it involves huge amounts of time and effort by procurement inspection teams.
Material management requirements
Material requirements planning (MRP) is a system for calculating the materials and components needed to manufacture a product. With projects, products, and distribution becoming more complex there is now a race to digitize and speed up these processes to keep up with the demands of a modern market.
Long lead inputs,
The longer the lead times are on a project or supply chain, the more it is affected by disruptions in supply or logistics. Anticipating and reacting to shocks can help reduce the bullwhip effect and requires more robust procurement tools and procedures than ever before. For procurement teams, inputs and orders are often required before final designs are complete to offset these lead times, leading to increased risks should plans change or supply chains fail.
Setting the Stage for Procurement
Before the flow of procurement starts a requisition process has typically been completed to validate the requirement to purchase. The above flowchart includes these processes which involve everything from finalizing a product with a client, to confirming a bid for the product. Once a project is approved, it is scaffolded and measured by milestones for completion. Bid ranges and cost codes are assigned, and contracts with the client are penned. Below we will be walking through a general procurement strategy which follows the steps from our flowchart.
Diving into the Process in Broad Strokes.
The main goals of each stage in the process:
The planning phase
Before the flow of procurement starts, a requisition process has typically been completed to validate the requirement to purchase. The above flowchart includes these processes which involve everything from finalizing the project scope with a client, to confirming a bid for that product. Once a project is approved, it is scaffolded and measured by milestones for completion. Bid ranges and cost codes are assigned, and contracts with the client are penned.
Requirements from the planning phase are set. Project requisitions are then added. The team then decides whether the requisition can be fulfilled from internal inventories. If not, a bid is created to invite suppliers to provide offers
Once the bid is reviewed and evaluated and the recommended offer is accepted, the procurement team gathers the required approvals to proceed with developing a PO. These group approvals can be automated through the system
Issuance of a purchase (service) order
Once the order is created by the buyer it is issued for review , and approval according to the designated workflow once approved a purchase order is generated and it is committed to the system.
At this stage the procurement process team will map out the details of the supply chain which will carry the order from the third-party provider to the orders final destination. A monitoring system will also be put in place to ensure that delays or damages are handled immediately.
Expediting will handle the tracking and follow up of the order including material, documentation and any services.
The Logistics coordinator will ensure a logistics plan is in place. There can be multiple ship-to destinations and warehouses. The coordinator will insure the approved carriers have secured all permits and approved travelling routes p
Shipment releases are generated upon readiness to ship that mustpass requirements laid out in the purchase order. Releases get generated and issued to the supplier, the carrier, and the receiver of the final destinations
6 Receiving takes place after the Receiver confirms acceptance of shipment
Invoices will be received throughout the life of the project and will depend on the negotiated terms agreed to in the bid stage
PO closeouts will take place after all goods are received and all invoices have been verified and paid
The Current Global State Of Procurement
According to Procurement Leaders' research, digitizing procurement may save the Global 5000 up to $86 billion each year. This equates to $12 million in yearly procurement efficiencies for organizations with a purchasing base of $1 billion to $3 billion.
Those that spend $3 billion or more on manpower save an average of $27 million. (See PDF by Bain & Company).
For practically every industry, the year 2021 marked a watershed moment. The COVID pandemic underlined the need for digitalization and automation of core corporate activities.
To be relevant and competitive, the procurement department needed to reinvent itself by embracing sophisticated technologies. In 2022, here's what's driving procurement software development and adoption.
Data analytics- Product innovation requires a data-driven approach to procurement. Businesses will place a high focus on data analytics. Businesses prefer procurement management software that includes data analytics and business intelligence features.
Cloud-based offerings- Many company operations, including procurement, have been changed by SaaS and cloud-based solutions. Companies reduce their overheads and upfront expenditures by using cloud-based procurement automation tools and boosting real-time information exchange. SaaS procurement software has the benefit of being accessible safely on the go from a variety of supported devices.
Artificial Intelligence (AI) and Machine Learning (ML) technologies- Procurement management with advanced capabilities is enabled by AI and machine learning technologies, which boost overall company performance.
Micro-services and no-code/low-code platforms- Companies favor procurement automation systems that do not need coding knowledge. Such platforms decrease the need for software installation to be handled by the IT department. Low-code and no-code software enable users to pick it up quickly and access most of the functionality and features without struggling.
Free up company time and money by optimizing your procurement process workflow today! Visit Current SCM to discuss your company’s needs and discover what our state-of-the-art system can do for you.