Over the past few years or so, companies have struggled with a procurement crisis. From trade wars with China to shipping gridlocks, companies are struggling to get the materials and products they rely on. To address this problem, managers first need to go back to the basics, such as addressing what is procurement in business and the role it plays.
Procurement refers to the process of sourcing and purchasing goods and services for the business. In today’s supply chain crisis, procurement also involves actually getting these products and services to the place of business for operations to flow seamlessly. Several components must work together to achieve the desired outcome.
Project procurement involves three main components. Managers must address all three to achieve long-term results when seeking optimization options.
Procurement optimization refers to the process of improving procurement performance. Each company faces its own unique challenges when it comes to procurement, so optimization can manifest in several ways:
Before tackling any project in business management, you need to assess what the current situation is vs. what the goals are. Then, determine what impediments are blocking the way in between.
To achieve procurement optimization, companies need an established procurement process. This requires ownership of the process and proper management. It also requires the leveraging of technology to facilitate a smooth process. These are effective e procurement steps that business owners take to ensure smooth operations.
The procurement process begins with someone making a request from the purchasing department. For example, the IT team might determine that it’s time for a computer upgrade because the older computers can no longer support the upcoming OS upgrades.
In some cases, you might already have established partnerships or vendor agreements with existing companies. In these instances, sourcing what you need is fairly easy. If you need to find a new supplier, this could require some research. These are some of the most important considerations when making a decision:
For example, after reviewing the IT needs, you might determine that your employees mostly use web apps and don’t need expensive Mac or Windows computers. Instead, you decide to purchase Chromebooks. You follow the rule of thumb of getting at least three quotes, so you reach out to Samsung, HP and Best Buy for bids.
After you’ve secured a few bids and negotiated terms with the vendor of your choice, you need to seek approval from the finance team. In some organizations, the person responsible for procurement might need to seek approval before looking for vendors. However, that approach makes it difficult to make a strong case for what you intend to purchase because you won’t have all the information.
Most organizations require procurement to submit the following information for purchase approval:
Typically, the finance department generates the purchase order, which tells the vendor that an order has been approved. This may or may not be the original amount you requested. If the finance department plans to build a long-term relationship, this step might also include an onboarding process. In some cases, your company might need to be onboarded as a bulk purchaser as well.
The vendor submits an invoice for payment and an order description. This provides you with the opportunity to review the order and determine whether there is an error or you plan to change the order for other reasons. For example, the finance department might decide to purchase five Android tablets alongside the initial Chromebook orders.
Vendors generally determine the terms of payment, but if you would like to pay by a method not offered, don’t be afraid to ask. Sometimes, vendors don’t include all payment options on an invoice because they want to keep it simple or prefer a specific method over others. The finance department usually sends the payment on behalf of the company.
One of the biggest causes of waste and damage is that companies do not always make adequate preparations for delivery. Consider, for instance, that your company ordered 50 Chromebooks, but it also ordered 50 new desks and chairs. The weather forecast also predicts rain, so storing them temporarily outside is not an option. Your company would need proper measures to eliminate the risk of damage to the brand-new items.
Procurement approval sometimes involves a long wait time, which also affects the purchasing team. Delayed improvements cost businesses lost productivity and time is money. So, what can you do to ensure things move at a faster pace?
The more bureaucracy a workplace has, the less agile it is and the more cumbersome it is to get simple things done. Not all items require purchase approval from the finance department. For example, while the finance department needs to approve purchasing 50 Chromebooks, it might not need to approve $50 on stationery for the office.
Organizations often do not have a formal procurement process in place. This can create confusion about who to ask for what when needs arise. Creating a formal process makes it easier for employers to report problems and make requests.
The best way to formalize procurement and track progress is to digitize the entire process. When workers can complete the entire thing online, it simplifies the process of submitting the information and receiving approval. Technology can also make it easier to create visuals that represent the process during optimization efforts. At Fluix, we provide the technology our clients leverage to streamline their purchasing and procurement processes.