The Ultimate Guide To Procurement Management
What complexifies your procedures, slows the efficiency of your employees and hinders your growth?
Obsolete and unsuitable procurement management policies and processes, of course!
And yet, few entrepreneurs spontaneously think about it, as the procurement function is considered as a simple support function.
However, for several years, the procurement profession and therefore procurement management have acquired their letters of nobility and today take on a real strategic dimension.
The growth of a company goes hand in hand with a more complex procurement management, inevitably leading it to disrupt its functioning.
Improving the performance of the procurement management process is one of the top priorities for CEOs and CFOs.
Strategic procurement management policies, definition of processes, steps and implementation tools are all key issues to encourage the growth of your business.
Follow the guide, step by step, and get your business off the ground with optimal procurement management.
What is Procurement Management?
In a nutshell, Procurement Management is based on how a procurement department organizes Spend all the way from choosing the right vendors to invoice matching, in order to improve Compliance, Reduce Costs and get a better visibility on Spend.
1- The importance of the procurement department
What is the procurement function of a company for?
Concretely, it allows the company to obtain all the goods or services necessary for the smooth running of its activity.
From raw materials to small office supplies, the procurement function covers a wide range of missions.
The opening of markets, increased competition and the financial crisis have all led managers to reconsider the place of the procurement function in improving business performance.
Its effectiveness is based on an efficient procurement management policy and processes.
This allows employees to limit the time allocated to this task to focus on missions with higher added value.
To know and understand the role of procurement teams is a real asset for the company.
On the one hand, the procurement department will directly target the products most useful for the production of goods or services.
On the other hand, it centralizes the purchase of operational supplies, necessary for the proper functioning of the business.
You will be much more efficient and save more money by establishing a decentralized procurement management policy, that is to say managed independently by each team.
However, purchases of small administrative supplies common to all departments of the company can be centralized. By pooling costs, you will achieve economies of scale for the entire company.
2- What is a procurement process?
Setting up efficient procurement processes requires that they be defined, tested and simplified as much as possible beforehand, so that they do not become time-consuming for employees.
In order to facilitate procurement and clearly identify internal needs through procurement management, it is important that the procurement policy is known to all.
Using specification documents can also greatly facilitate the task.
Before starting from scratch in the creation of your procurement process, do not hesitate to start from what has already been put in place, from the various data available.
This will allow you to establish a complete comparison of all the solutions available at your disposal.
Once these different solutions have been identified, get in touch with them by launching a call for tenders. The latter must contain:
- Specification documents to be completed
- The terms and conditions of your procurement client
- The conditions governing the organization of the invitation to tender
- A questionnaire to learn more about the company
Once the providers have responded to the invitation to tender, you will be able to choose the one or ones that bring you:
- A quality product
- The best total cost
- Compliant manufacturing and delivery times according to the needs of your customers
- The sustainability and financial security of your business
Once you have made your choice, you will enter into direct negotiation on all of the administrative and technical clauses which will govern the case. Once the contract is signed, the commercial relationship is sealed until it is broken.
3- Create a procurement policy
Adopting a global procurement policy generally occurs when the company’s activities develop, and when purchases become more complex.
- Be as informed as possible about the realities of the market and its changes
- Make sure of the legal framework framing the exchanges and its development prospects
- Clearly identify the procurement processes at your disposal
You will then be in full possession of all the information necessary to establish a global, concrete and operational action plan. For this it will be necessary to:
- Define a schedule of actions to be carried out with objectives over time
- Distribute responsibilities within the hierarchy for optimal implementation
- Inform your suppliers of your new procurement management policy in order to convey a dynamic and responsible image of your business
- Regularly evaluate your plan in order to always improve it
The last step is to put your action plan into practice.
All that is left is to:
- Integrate your new procurement policy into the general conditions of your contracts
- Explain your approach to your suppliers
- Concretely deploy your new provisions in your company’s dashboard
Many companies take the opportunity to add a CSR approach, integrating ethical issues in relation to their employees and sustainable development.
It consists of making responsible purchases that meet several social standards, in accordance with values and an ethical code.
The manufacturing process, the materials used, the energy consumed during use or the recycling conditions, must be as favorable as possible for the preservation of the planet.
Indeed, a responsible procurement policy must take into account the entire life cycle of the product.
Standards also help guide businesses in defining and implementing their policies.
4- Set up procurement strategies
Different procurement strategies can be applied depending on the procurement categories and the maturity of your business. To find the one that best suits you, you can follow the following method:
- Collect raw market data
- Target the best contacts and select the best suppliers
- Map out and compare the selected options
- Segment the payable accounts for clear and transparent information
You will be able to analyze each of the expenses and classify them according to the family of purchases in order to estimate the distribution of your budget.
The proper management of your strategies requires relying on appropriate scientific analysis tools. Experts generally remember:
- The Pareto chart, which considers that 20% of the causes are responsible for 80% of the occurrences in a company. Concretely, this translates by the organization of priorities in your purchases by distinguishing several categories, listing them according to the savings that their optimization can bring.
- Kraljic’s strategic matrix is used to map the company’s procurement portfolio. It parallels the importance of each procurement family and the complexity of the supplier market. A distinction is made between simple purchases such as office supplies, heavy purchases, critical purchases and strategic purchases. Good procurement processes allow the company to differentiate itself from its competitors.
Heavy, critical and strategic purchases require special attention. It is essential to secure their supply, to ensure the good flow of information, to constantly seek to improve the processes governing them, and to be informed of developments in competing offers on the market.
As you can see, there is no single strategy applicable to all purchases. But there are several methods and strategies to use depending on the categories of purchases. The Krajlik matrix makes it possible to deduce the appropriate strategy from three possibilities: aggressive, balanced or defensive. You may therefore prefer either a centralized or decentralized strategy, or on a case-by-case basis.
5- Use a procurement management software
Today there are many SaaS and IT solutions that automate low value-added tasks. The gain in productivity is immense!
Over 82% of buyers use Excel to design their order tracking tables and plan their needs. This format is suitable for very small businesses whose purchases are simple to manage. Unfortunately this becomes a real handicap when your activities develop.
Procurement management software provides many advantages:
- Reduced time spent identifying the right suppliers
- Reduced time spent creating tenders
- Reduction of the time of administrative and commercial procedures
- Reduced time spent tracking orders
Today, 32% of companies say they use procurement management software according to our internal data.
A figure that has risen sharply for several years.
All companies that have opted for these procurement management solutions see many advantages:
- Employees can focus on other things (missions, advice or even improving procurement policies)
- There is an increase in margins, without an increase in prices
- And therefore a direct increase in profits
Procurement management softwares allow you to follow: the list of all your products, their recipients, the current stock, the supply status, the performance of buyers, etc. It will also allow you to locate items that can be improved in your procurement management process.
Some procurement management solutions even offer to automatically collect information about your supplier, or to launch online tenders.
In addition, procurement management tools now allow your customers to order the products they want directly online.
Choosing your procurement management software is no simple task, and several parameters must be taken into account:
- The ease of transition with your old management tools, and the coexistence of your new software with your other working tools
- Alignment with your business features and needs
- The quality of the information transmitted by the software to facilitate the evaluation of your procurement policies
Many SaaS solutions, such as Sourcing Force, offer a simple enterprise procurement management tool.
Take advantage of real-time monitoring, automatic reconciliation and categorization of expenses by client, by project or according to their nature, as well as an accounting integration of all orders placed.