When buying medical supplies and equipment, many healthcare providers rely on standard means of consolidated buying. Methods like group purchasing organizations (GPOs) and volume buying agreements may save a little money, but they often leave total value considerations and sourcing flexibility on the table. Software solutions in healthcare procurement make it easier for buyers to get high-quality, compliant consumable items and medical equipment at competitive prices, distribute it more effectively, and track spending to uncover more opportunities.

This article covers the information you’ll need to understand traditional versus modern forms of healthcare procurement: 

• What is a healthcare procurement strategy? 
• Why is healthcare procurement important? 
• How does the healthcare procurement process work? 
• The top five healthcare procurement challenges
• Best practices for healthcare procurement
• How Order.co helps healthcare buyers succeed

Download the free ebook: Choose the Right Procurement Technology With This Decision Matrix

What is a healthcare procurement strategy?

Healthcare providers such as hospitals, doctor’s offices, dentists, and other health-focused businesses use large volumes of consumables and single-use medical equipment. Keeping supplies in stock and getting the best prices presents a considerable challenge. These healthcare businesses use procurement strategies to secure the medical goods and services they need for patient care. 

Healthcare procurement activities include tasks like: 

• Selecting suppliers
• Ensuring product quality
• Managing supplier relationships
• Negotiating prices

With an effective healthcare procurement strategy, organizations maximize spend efficiency while maintaining a high standard of care. 

Healthcare procurement strategy refers to the practices and tactics healthcare providers use to achieve the most cost-effective purchases of medical supplies and services. It includes practices such as: 

• Researching and analyzing the marketplace 
• Developing relationships with vendors
• Establishing negotiation strategies
• Using technology to automate purchasing 

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Why is healthcare procurement important?

Cost reduction is a major driver of procurement strategy. But beyond the dollar cost, practicing strategic procurement in the healthcare industry provides a wide range of benefits, from quality to organizational improvements. 

Healthcare buyers focus on these seven benefits to ensure the best outcomes:

Better quality control: High-quality products are essential for the integrity of patient care. In strategic buying, buyers research the marketplace, identify potential opportunities, review delivered goods’ quality and damage rates, and create vendor scoring. Technology is sometimes used to automate and track supplier performance management. These strategies ensure strong pricing while maintaining quality standards.

Lower operational costs: Healthcare procurement lowers operational costs by reducing waste and inefficiencies. This includes streamlining processes, controlling inventory levels, negotiating better prices and terms with suppliers, and utilizing technology for automation. By taking steps to reduce costs while maintaining quality standards, healthcare providers can achieve greater savings over time. Additionally, healthcare providers can use data analytics to gain insights into their spending patterns and streamline spending further.

Improved patient outcomes: Cost is irrelevant if patient care lags. Strategic procurement improves access to quality, cost-effective consumables and equipment. Using buying groups or procurement platforms, healthcare providers take advantage of economies of scale to negotiate better terms and pricing. This gives practitioners and healthcare providers more time to focus on their most important mandate: patient care.

Stronger vendor relationships: Healthcare procurement strategies set buyers up to collaborate closely with vendor partners and identify opportunities for cost savings. In this way, proactive procurement is mutually beneficial, with buyers and vendors developing stronger relationships through better communication and planning. Buyers who use vendor data and industry benchmarking can also improve decision-making regarding pricing and terms. 

Streamlined logistics: Using procurement tools for healthcare buying enhances operational efficiency and delivery tracking. These software solutions also help buyers and administrators improve demand forecasting for consumable purchases to create consistent availability of critical items without oversupply, storage issues, or expiry concerns.

Better resource allocation: The pricing and control aspects of procurement strategy improve budget management. By leveraging data-driven insights, buyers pinpoint the type and volume of goods needed to run departments effectively. This reduces unnecessary spend without compromising patient care. Analytics tools help assess total healthcare supply chain costs and free up resources for other areas.

Reduced risk: Healthcare organizations practice risk management through selective, well-vetted procurement relationships. Buyers who conduct due diligence when seeking suppliers (by verifying reliable quality, fair pricing, and regulatory compliance) see their risk profile decrease. Vetting vendors helps buyers avoid unexpected costs due to poor customer service, quality issues, or fraud. Setting clear expectations and performing background research on vendors minimizes the likelihood of litigation and disputes.

How does the healthcare procurement process work?

Unlike standalone businesses, many healthcare organizations procure goods through a traditional GPO — a 100-year-old model for consolidating buying activities among member organizations. Depending on the parameters of the GPO, buyers may have access to certain in-contract goods to save money and keep quality consistent. 

These are the general steps for a healthcare organization purchasing goods through a GPO: 

Needs identification

The business or organization conducts a needs assessment to determine which supplies and equipment they need. The assessment looks at the types of products or services, quantities, quality requirements, and delivery deadlines necessary.

Contract review

Based on the needs assessment, the business reaches out to its GPO for help securing goods. Often, a GPO’s administrator or procurement rep will research options through multiple negotiated contracts to find what they need. 

Purchase order

The healthcare organization then puts in an order for the requested goods. The vendor processes the purchase at the negotiated rate and fulfills the order. Quality review checks ensure that the correct items arrived per the purchase order. The GPO deals with any issues or concerns regarding the order. 

Payment

Finally, the buyer pays for purchased goods. Depending on the specifics of the GPO agreement, the buyer might pay the vendor directly. The GPO often receives compensation through either a flat fee paid by the buyer or a percentage of the contract value ordered through the vendor. 

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Top 5 healthcare procurement challenges

While the benefits of healthcare procurement strategy are many, the practice isn’t without challenges. In many cases, leaders should carefully consider whether procurement strategies like a GPO membership will alleviate procurement obstacles while remaining competitive. 

Inconsistent quality: Healthcare organizations often face variability in product quality when sourcing supplies from a GPO contract or a new, unvetted vendor. These fluctuations may seriously impact patient safety and quality of care. Quality issues also increase costs by replacing medical supplies that don't meet expectations, rushing replacement items to maintain supply, and resolving contract issues over defective items. 

Unknown vendors may not always provide accurate product information, which increases the risk of receiving low-quality items. GPOs aren’t immune to these fluctuations, as they may lack visibility into the quality of their vendor's goods. This makes it difficult for buyers to ensure they’re purchasing the appropriate high-quality supplies. 

Unclear contract terms: GPOs and vendors sometimes have vague contract parameters that make it difficult for buyers to find in-contract goods. The buying contracts that govern most GPO purchasing are meant to serve a majority of its members. While this may work for general consumable goods (such as bandages, linens, or other common items), specialty items may be out of the scope of buying contracts. This lack of clarity and availability causes friction in the order and fulfillment process, such as pricing issues, miscommunications about in-contract goods, or lack of supply. 

Without accurate information on supply availability or pricing, hospitals may not be able to secure their desired products in time. It can lead to poor pricing outcomes (spending more for specialty items) and spur out-of-contract buying that reduces the effectiveness of GPO membership.

Out-of-contract buying: Though participating in a GPO can save money, those procurement savings only materialize if the vendor supplies needed goods within the contract and if those goods are easily available. Frustration, friction, or lack of availability greatly increase the chance that internal stakeholders will circumvent the process and buy goods outside the expected procurement channels. 

Vague fee structures: The fee structures supporting a GPO can be vague or, in the worst case, misleading. Before signing with a GPO, be sure you understand the intended fee structure and expected order cadence for participation. Ask if the fees come in the form of buyers’ membership fees or if the GPO earns money through a percentage of vendor sales. There are multiple ways for a GPO to monetize their business, so ask up front what business model they use.

No in-contract options: Sometimes, there are no good options for purchasing what you need within a GPO contract. If the GPO doesn’t secure contracts for high-quality goods from reputable vendors, a GPO membership may not be worth it. Before entering into an agreement, be sure you know the vendors within the GPO will be able to serve your needs. Estimate the amount of in-contract versus tactical procurement your business will need to do, and evaluate whether the relationship will be beneficial enough for partnership. 

Best practices for the healthcare procurement process

Healthcare procurement is rife with potential pitfalls. One of the most important keys to success is employing established best practices. By staying up-to-date on industry developments, you ensure your procurement efforts yield the best results. 

1. Estimate expected in-contract versus tactical procurement. Looking at expected in-contract versus tactical procurement with a GPO requires careful analysis of the contract terms and conditions. This includes evaluating the quality and reputation of vendors already contracted with the GPO and researching whether or not the vendors involved can supply the goods essential to your business. Potential members should also evaluate volume expectations to determine whether or not the savings from making purchases within a contracted price outweigh membership costs. 

2. Research the savings of a GPO membership before signing up. Although some GPOs may offer ten to 25 percent savings, those estimates are often inconsistent with real-life results. Take time to understand the percentage of savings the GPO reports, the conditions members must meet to realize that level of savings, and whether your organization meets those minimums at the time of evaluation. Spending more to secure savings is rarely a winning formula for cost control. 

3. Educate team members on the purchasing policies. Team members must understand the method and importance of in-contract buying when joining a GPO. This education should help them understand expected savings from using the membership, the restrictions or limitations on usage, and the consequences of off-contract buying. It’s important to set expectations for contract compliance within the organization.

Educating stakeholders on these policies helps create an internal culture that values cost control and understands its importance. A well-used GPO can create a more efficient organization where everyone understands their role in realizing targeted savings goals and quality requirements.

4. Take a look at the numbers to keep costs down. Data analytics provide a more accurate picture of where an organization spends money and whether it’s saving on purchases with its GPO membership. Organizations should be able to effectively measure their savings from the GPO by comparing cost data before and after joining the group purchasing organization. This enables organizations to identify missed savings opportunities, costly procedures, and areas for improvement to justify membership use.

5. Consider alternatives to traditional healthcare procurement models. GPOs aren’t the only viable option for healthcare buying. Other solutions, such as procurement management software, allow organizations to automate processes to purchase the products and services they need while helping them save time and money. Software often provides powerful analytics and reporting capabilities that make it easier to understand purchasing habits and trends and can give insight into which channels offer the best savings opportunities. 

How Order.co improves healthcare procurement

GPOs have always been the most recognizable solution to the challenges of healthcare buying, but in many ways, technology has surpassed the GPO model. Order.co’s spend efficiency platform offers better options for healthcare procurement.

Using the platform, healthcare buyers realize the benefits of healthcare procurement strategy with better pricing, service, and flexibility through features such as: 

• A curated catalog that simplifies and streamlines the purchasing process through buyer guidelines, spend limits, and automated purchase order processing
• The ability to use any vendor within Order.co, which gives buyers more opportunities to secure competitive pricing with no minimums, hidden fees, or restrictive contracts 
• Invoice consolidation and payment features to reduce volume and simplify multiple vendor payments into a single action

To learn more about using the power of spend efficiency to improve healthcare procurement outcomes, schedule a demo of Order.co.

For decades, healthcare providers like clinics and hospitals have struggled with ineffective and expensive procurement barriers that can drive up patient costs and affect healthcare outcomes. Healthcare procurement faces specific challenges that, until recently, have been almost universally answered by group purchasing organizations (GPOs). 

These purchasing programs offer some benefits in cost savings, contract management, and access to supplies. But healthcare procurement is long overdue for alternative options that specifically address its unique challenges. 

Today we’ll discuss the challenges healthcare organizations face in procuring needed goods and equipment and the solutions technology provides to the millions of healthcare organizations buying items every day. 

Read on to learn more about healthcare procurement and its challenges, including: 

• What is healthcare procurement? 
• How is healthcare procurement different?
• What are the top 10 challenges of healthcare procurement?
• How does spend efficiency software solve healthcare procurement challenges?

Download the free ebook: Choose the Right Procurement Technology With This Decision Matrix

What is healthcare procurement?

Healthcare procurement is the process of sourcing goods and equipment for clinicians, hospitals, and other healthcare settings. It involves identifying the right suppliers, negotiating pricing and terms, tracking procurement activities, and managing the supply chain. Healthcare procurement professionals also ensure vendors comply with all laws and regulations for purchasing goods and services. Procurement in the healthcare setting is an essential part of running a successful organization.

How is healthcare procurement different?

While procurement in most companies is an independent, self-directed activity, healthcare buying is somewhat more complex. Healthcare procurement differs from other types of procurement management in the following ways:

Regulatory environment: Healthcare products and purchasing activity are subject to different standards than most types of procurement. Purchases made on behalf of healthcare organizations must meet certain standards and follow regulatory rules and guidelines applied to healthcare finance. Vendors, therefore, must be able to work within these requirements. 

Decision-making: Clinical staff is instrumental in the decision-making process for healthcare procurement contracts. Buyers must have the expertise to discuss requirements, vet potential suppliers, and negotiate acceptable rates and contract terms. This type of procurement requires special oversight to ensure compliance and optimal pricing outcomes. 

Product requirements: The products and equipment used in the healthcare setting must meet the specific needs of a healthcare organization, including quality thresholds, volume needs, shipping and logistical requirements, and safety standards. Vendors must be able to certify product quality and availability to fulfill the demands of the procurement contracts they sign.

Procurement structure: Supply chain management requires coordination among various stakeholders and departments, as many healthcare organizations use collective procurement methods. This means vendors must be able to route bulk orders to the appropriate places, track shipment and inventory levels across multiple locations, and serve the common needs of buying groups (called group purchasing organizations). 

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Top 10 challenges of healthcare procurement (and how to solve them)

Buyers and suppliers face many challenges specific to the healthcare industry. These challenges can create time and access obstacles, especially for smaller healthcare providers like local clinics. But there are ways to overcome these issues and make healthcare buying faster, more efficient, and less costly. 

1. Manual procurement management

Managing healthcare procurement manually is costly, time-consuming, and resource-intensive. A common example of manual procurement management is the entry of purchase orders.  When administrators or floor staff enter and transmit individual orders manually, it creates a delay between ordering and fulfillment, potentially costing healthcare organizations additional money.

Procurement automation eliminates manual tasks, saving clinic staff and administrators money, time, and frustration. 

2. Inventory fluctuations

Logistics issues and manual procurement management may also lead to mismanaged inventory levels, shortages, and inaccurate shipment tracking — all of which cause further fulfillment delays or wasted resources. Floor staff must scramble to find necessary supplies or make do with insufficient resources during times of high need. 

Stabilizing inventory levels within the healthcare setting results in better patient care and lower stress for clinical staff. It gives workers the confidence that the items they need will be there when they reach for them. 

3. Procurement waste

Poor inventory management can also lead to excess stock of certain items. While access to plentiful supplies doesn’t seem negative, many consumable items in the healthcare setting have storage requirements or expiry dates. When these items sit on shelves unused, they present the potential for wasted procurement dollars or, worse, expired goods that aren’t usable when needed.

Trying to put these items to use through trade creates an internal logistical issue and draws staff attention away from patient care. Procurement software brings visibility to spending and inventory to reduce waste.

4. Individual, decentralized buying

Group purchasing and leveraged buying help healthcare organizations save money by creating access to volume discounts. When organizations leverage buying this way, they benefit from better prices and increased buying power. Large orders of high-use items also enable faster delivery times and enhanced ordering accuracy.

Individual buying, however, reduces the ability of a hospital or health system to access these price and volume discounts. When each department buys separately, the organization loses its purchasing power due to smaller order sizes. The result is higher prices and longer delivery times for vital items. Organizations that go it alone in traditional healthcare procurement face increased costs and reduced flexibility when responding to change. Procurement software eliminates buying barriers that make individual buying less competitive.

5. Poor delivery logistics

When healthcare organizations buy in bulk, they face different delivery challenges. Large orders can overwhelm hospitals with too much inventory and overstock on particular items or create situations where staff must spend resources tracking and placing inventory where it’s needed. 

Additionally, products may not be shipped in the right quantities or arrive at their destination on time, leading to further headaches for staff. All these logistical issues create additional costs for the organization and reduce procurement efficiency. Automated order tracking and fulfillment reports improve logistics and delivery times to keep staff well-supplied and focused on higher-priority tasks. 

6. Productivity losses

In addition to the increased costs of manual tracking and placing of inventory, healthcare workers can also spend too much time looking for what they need — up to 40 hours a month, by some estimates. All this time getting the right items to individual clinicians, searching for needed supplies, or shuffling items between different healthcare locations or departments costs money and productivity. These lengthy manual processes pull staff members away from important work. If procurement is delayed, it puts stress on the entire system. 

Issues in procurement also reduce efficiencies in treatment and prevent workers from providing optimal patient care. These productivity and quality losses can lead to an overall decrease in performance for the organization. Automation and tracking create visibility for staff while reducing their time spent managing inventory.

7. Fraud risk

Manual procurement processes are vulnerable to fraud and misconduct since it can be difficult to detect errors or wrongdoing if procedures are not standardized and documented. The lack of oversight makes it easier for internal actors to engage in fraudulent activities and abuse their access to medical supplies.

Improved procurement software ensures more transparency because procured inventory is tracked and monitored. This reduces the risk of mismanagement that costs healthcare organizations millions due to unintentional errors, internal bad actors, and third-party fraud activities. Software creates visibility that makes fraud and errors far less likely to occur. 

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8. Regulatory management

Healthcare organizations face significant regulatory management challenges in their procurement practices. Manual procurement makes it difficult to comply with changing requirements for patient safety and quality standards. Manually maintaining accurate records is especially challenging, as providers must document the origin of each item they procure and ensure they meet the necessary regulations. 

Errors in documentation can lead to costly fines or sanctions from regulatory bodies, meaning healthcare organizations must always have complete oversight of their procurement activities. They must keep up with changing regulations and laws to remain compliant and protect against financial losses. Software makes it easier to administer purchasing and ensure it remains compliant.

9. Supplier restrictions

Supplier restrictions further complicate healthcare procurement. Many healthcare organizations are limited to a select group of suppliers who may not offer the best prices or terms, leading to more expensive purchases. Additionally, some regulations require organizations to source particular supplies from pre-approved vendors, driving up internal costs and potentially affecting patient premiums. This forces healthcare organizations to carefully assess and manage supplier relationships to verify they meet all necessary regulations. Procurement software makes vendor management easier, enabling compliance management and benchmarking efforts while keeping costs as low as possible.

10. Poor procurement visibility

Poor visibility into procurement practices affects healthcare organizations in multiple ways. Without a comprehensive view of procurement operations, organizations cannot accurately benchmark prices, measure profitability, or optimize cash flow. This leads to higher costs and less successful negotiations with suppliers. It also limits the ability to see and access savings opportunities.

In some cases, this lack of effective visibility into the organization’s procurement activities may result in non-compliance with external regulations and laws. By implementing better approaches to data management and analytics, healthcare organizations gain greater transparency in their procurement practices, pricing, and cash flow management.

How spend efficiency software solves healthcare procurement’s biggest challenges

Procurement technology is one of the most effective tools for reducing costs and complications related to healthcare procurement. A platform that works effectively with regulated procurement environments will greatly improve procurement outcomes, compliance, visibility, and patient care. 

Spend efficiency software provides the following key benefits to healthcare buyers in need of more effective solutions:

• Improved visibility into pricing, budgeting, and cash flow management
• Ability to access preferred and pre-approved vendors
• Enhanced reporting for compliance with external regulations and laws
• Streamlined processes that enable faster decision-making and reduced costs
• Robust data management capabilities for better insights into procurement activities

Get Order.co to modernize your healthcare procurement strategy

Spend efficiency specifically designed for high-regulatory settings combines flexibility with full support for the needs of healthcare. Order.co offers all the procurement and security features needed to streamline pricing and practices for clinical buyers of all kinds, including: 

• Regulation-compliant, secure data handling to meet healthcare regulations 
• Ability to access vendors in a curated, permission-based catalog of items to ensure compliant purchasing and high-quality goods
• Automated workflows and purchase order building to place orders quickly and get clinicians back in front of patients 
• Reporting capabilities to track purchasing and provide data for regulatory audits

If you need procurement solutions that keep the needs of healthcare organizations in mind, request a demo of Order.co today. 

Initially, inefficiencies in procurement are merely a nuisance. But gradually, these simple manual processes compound to consume time, productivity, and money. Faster than most organizations realize, the pace of growth outstrips the ability of the accounting and procurement teams to keep up.

Automation is the best source of relief from these common business problems. Automation removes mundane tasks and leaves more time for accounts payable (AP) to tackle the problems that truly make an impact.

This article covers many aspects of procurement automation:

• What is procurement automation?
• The benefits of automating the procurement process
• The top five areas vital for procurement automation
• How Order.co helps companies achieve procurement automation

What is procurement automation?

Procurement automation uses technology to streamline traditional procurement processes such as approvals, accounting tasks, and payments. It helps procurement teams take control of their supply chain by optimizing every step of the procurement process, from requisitioning to ordering, fulfillment, and invoice processing. 

The process works by digitizing data during invoice intake and using that information to create a centralized transaction history and processing database. The system performs checks, routes approvals, and streamlines payment, all within a single platform.

Streamlining purchasing through automation benefits businesses with complex procurement needs because it avoids bottlenecks caused by manual processes. It provides a reliable platform that reduces risks and costs while improving supplier management and eliminating repetitive tasks.

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Why should you automate your procurement process?

Automating your company’s procurement process saves time and money. From invoice processing to spend management and sourcing, automation improves cost savings and reduces the overall amount of time it takes to manage the entire process. The time and money saved by automating can fuel growth and give team members the bandwidth to tackle more important tasks.

Here are the top benefits of procurement automation:

Increased accuracy

Process automation streamlines invoice processing and avoids costly errors. Human error or miscommunications lead to delays in payment, incorrect data entry, duplicate payments, or misplaced paper invoices. Automated processes reduce the risk of these issues by eliminating manual data entry and creating standardized workflows for every purchase.

Reduced risk

Automation increases the transparency of the procurement process. This can ensure that all suppliers are evaluated consistently. It enables strategic sourcing and the use of known vendors that present a lower risk of fraud. Additionally, procurement automation software tracks performance over time to help mitigate risks.

Faster processing

Using procurement automation, stakeholders can:

• Quickly and accurately compare prices from different vendors for the best value
• Track approvals across multiple departments
• Automate the backend processes of ordering, reconciliation, payment, and spend management reporting 

This streamlines the entire process to save time and reduce cycle times and burden on accounts payable.

Optimized costs

Procurement automation software improves cost efficiency by reducing manual labor and associated employee wages. Rather than expanding the department to handle increased procurement volume, the system scales to handle more procurement activity as the company grows and expands. Automation also improves communication between buyers and suppliers, leading to more efficient buying.

Ebook

Choose the Right Procurement Technology With This Decision Matrix

There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.

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Top 5 procurement processes every company must automate

End-to-end procurement automation is the gold standard for delivering more value within the procurement process while using fewer resources and less time. 

These top five business processes to automate are a great place to begin:

1. Purchase requisition and approval

Manual purchase requisitions and approvals result in inefficient purchasing workflows and a weak security review process. But when you introduce an automated system for intake, stakeholders route requests through the appropriate form or a curated supply catalog. They no longer need procurement or finance help. 

The automated request proceeds through the appropriate departmental reviews: 

• Department head
• Legal
• Security
• Finance 

Each departmental approver sees and responds to the request within the system, moving to the next stakeholder on the list without cumbersome emailed requests, time-consuming back-and-forth, or requests caught in limbo somewhere within the process. 

Automating the approval process cuts days or weeks off time-to-close, allowing teams to request and receive the supplies and products they need more efficiently. 

2. Sourcing

If organizations don’t create a streamlined sourcing process, stakeholders will select suppliers themselves. Automating the sourcing process for the organization enables buyers to get what they need while staying within the procurement policy. 

Software helps this process by centralizing the list of preferred vendors for every type of purchase. It also creates necessary guardrails for self-service buying, including spending limits based on role, user, department, spend category, and more. It allows budgetary controls while reducing instances of maverick spending. 

3. Invoice management

Invoices are one of the most common logjams in procurement. Manual processing creeps along at a rate of only a few dozen per day since each error and issue takes time to research and amend. 

Automating invoice processing allows organizations to handle hundreds or even thousands of invoices per day. The automation process digitizes paper invoices, centralizes data for every vendor and purchase, automatically checks and reconciles invoices against the database, and codes them accurately to ensure your accounting system is a single source of truth.

With invoice management, there are no missed payments, redundant invoices, miscoded purchases, or mysteries lurking within your accounting system. The system automatically processes, reconciles, and codes documents to set them up for successful payment.

4. Payments

Processing manual payments, as with invoices, creates logjams and data entry errors. It also increases the potential for vendor fraud.

Automating the payment process enables accounts payable to quickly and accurately process payments, record the transactions, and store the data for later reporting activity, such as month-end close and financial reporting. A software solution gives AP real-time visibility into payments to reduce issues and reap benefits like early payment discounts. 

5. Contract management

Contract execution for purchases is only the beginning of the journey. Once a contract is signed, the work of monitoring and upholding the contract begins. 

Effective contract management ensures pricing and terms remain competitive. It bolsters supplier relationships and ensures consistent quality in procured supplies. 

Manual contract management is expensive and low-visibility. Manual or poorly organized storage of contracts prevents companies from examining contract compliance. 

Automating the contract management process through a central repository for documents is the most effective way to achieve effective contract management. Doing so enables notifications and updates, allowing stakeholders to know when contracts renew and creating suitable lead time to evaluate and negotiate for new contract terms. 

The best software tools for procurement automation

The procurement system you choose significantly impacts your results. Look for a software tool with the flexibility to meet your individual business needs but structured enough to create a highly effective workflow that reduces costs while increasing productivity.

Select for these features when choosing a procurement software solution:

• Flexible setup to create ideal workflows and customization for your business
• Automatic general ledger (GL) coding for accuracy in accounting 
• Access to thousands of vendors within the system, with features like favorite orders and order history 
• Dynamic permissions for a variety of user tiers, roles, and needs 
• Centralized contract information for vendor management and reporting

Order.co is equipped with all the features that provide end-to-end procurement automation for businesses of all sizes. To free your team from repetitive tasks and unnecessary rounds of account research, start by scheduling a demo of Order.co. 

Stakeholders need to move quickly to keep up with business demands. But how fast is too fast? When it comes to procurement, tactical sourcing offers speed—but it may leave more on the table than you realize.

Today we examine the tactical approach to sourcing and explore whether the speed advantages of this transactional approach outweigh the long-term benefits of strategic sourcing.

• What tactical sourcing is
• How tactical sourcing differs from strategic sourcing
• The pros and cons of tactical sourcing practices
• The benefits of adopting a strategic sourcing approach
• How technology helps businesses (even small businesses) source goods strategically

What is tactical sourcing?

Tactical sourcing is the practice of purchasing supplies or services quickly, with a minimal process focused on speed rather than on guidance from an organizational sourcing strategy or process. 

In many organizations, tactical sourcing is the standard, relying on short-term fulfillment for most orders. While tactical sourcing has its place within an organization and is sometimes appropriate, exclusively leaning on transactional activity leaves money and leverage on the table when more strategic opportunities exist. 

Differences between tactical vs. strategic sourcing

In tactical sourcing, purchasing decisions are based on the immediate need of the stakeholder or team. These individuals drive the procurement process by researching a supplier and arranging for a purchase order and delivery. 

This type of sourcing occurs more frequently in startups or small organizations, as they don’t have a procurement team charged with conducting the necessary market research and spending analysis that lead to an established order process.

Strategic sourcing, on the other hand, takes the broader needs of the organization into account. It has a more detailed research and review process, usually involving an RFP and competitive analysis of several potential vendors. Strategic sourcing considers the development of strong supplier relationships and long-term contracts with volume pricing to achieve better results. It also typically involves departmental due diligence and approvals for Finance, Legal, and Security needs. 

Instead of merely getting goods delivered quickly, strategic sourcing takes the time to meet both stakeholder and organizational needs more thoroughly and effectively.

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Pros and cons of tactical sourcing

Tactical sourcing can be a valuable tool for certain situations. However, using it as the sole procurement method leaves much to be desired for the company's long-term financial health. Often, too much tactical spend emerges out of a reactive approach to supply chain demands, so being aware of the larger implications of spot buys and transactional buying is crucial to long-term success. 

Here are a few factors to consider when deciding on an approach for making a new purchase. They may also be helpful for determining procurement policies.

Pros of tactical sourcing:

• Fast: Transactional purchasing has a shorter due diligence timeline than strategic sourcing. Buyers find a supplier who offers the goods they need, research the product and pricing, arrive at an arrangement that works for both parties, and submit a purchase order. These purchases may not go through a Legal or Security review, which reduces closing time.

• Targeted: The buyer gets the specific product they want from their selected vendor. This form of purchasing may or may not include research on similar solutions. Often, stakeholders conduct research themselves and submit the chosen solution to a manager for sign-off. 

• Agile: Transactional buying has fewer constraints than a strategic approach. Therefore it may be seen as more flexible than sourced procurement. While transactional buying offers no vendor guarantees about availability, many stakeholders simply move on to other known or new vendors if the original vendor can’t meet demand.

Cons of tactical sourcing:

• Higher cost: The transactional nature of tactical sourcing leaves out opportunities to negotiate for the best price. Because purchasing is a single event versus a long-term negotiated relationship, stakeholders often pay the list price for supplies, even when use patterns offer opportunities to negotiate on volume.

• Less stable: Transactional buying opens the possibility that goods will not be available when you need them. This forces stakeholders to look elsewhere to get supply needs met. While this may not be an issue depending on the type of supplies you’re purchasing, tactical sourcing for mission-critical or difficult-to-source supplies may introduce friction into your supply chain.

• Increased risks: The tactical sourcing approach often means stakeholders engage with unknown senders. The speed preference in tactical sourcing also means legal and security review and may take a backseat to transactional speed. These conditions make third-party risk more likely. Working with known and established vendors reduces this risk.

Questions to ask before conducting a tactical purchase

Understanding the urgency and motivation behind a transactional purchase can help stakeholders decide if a self-service, tactical procurement approach is best for a given scenario. 

• What is the urgency of this purchase?
• Are there policies in place for tail spend or a spot-sourcing process?
• Is Procurement/Finance aware of the purchase? Has the spending been approved? 
• Is this a direct (project-related) or indirect (overhead) spending request?
• Is there a larger total cost of ownership to consider in this purchase?
• How specialized is the needed supply or service? 
• Why is the purchase coming up now? Is there a mitigating circumstance, such as a supplier shortfall with your regular supplier?
• What are the normal lead times for these supplies?
• How confident are you in contract negotiation for these items?

Taking time to contextualize the purchase in this way avoids taking a tactical approach when a more thorough, long-term strategy may yield better overall results.

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The Complete Guide to Procurement Management KPIs

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5 Reasons to choose strategic sourcing over tactical sourcing

There are instances where tactical sourcing is a useful tool. It may help stakeholders respond to an unanticipated need or supply chain issue. However, on the whole, the strategic approach to sourcing offers organizations more benefits that make the longer timeframe worth the effort.

1. Strong supplier relationships

Building mutually beneficial relationships with vendors offers many advantages over a transactional approach. Committing to a supplier with a one-year or multi-year contract guarantees a certain level of service for buyers and an expected level of revenue for the vendor. Quality vendors who contract with an organization often go above and beyond to maintain the account by ensuring high-quality products and services.

2. More buying leverage

The strategic sourcing approach requires stakeholders to give up a bit of agility. In return for consolidating purchases with a single vendor, stakeholders take advantage of better-negotiated pricing based on contract length, purchasing volume, logo recognition, and other factors. Strategic sourcing, therefore, offers better cash performance than transactional procurement approaches.

3. Streamlined process

The transactional approach to buying requires you to start over for every purchase. With a strategic sourcing approach, stakeholders find many opportunities to streamline the purchasing process. This may look like a more in-depth Legal and Security review that only has to occur once or an integrated payment process to automate accounts payable activities. 

4. Lower third-party risk 

Strategic sourcing creates strong relationships with known vendors. This reduces procurement risks such as item quality issues, delivery delays, security concerns, or procurement fraud. Strategic procurement offers organizations the chance to conduct supply chain management that secures the supply base and enables supplier performance analysis. 

5. Inventory guarantees

Building a strategic supplier relationship management approach avoids some pitfalls of supply procurement. It reduces lead times for critical supplies and ensures the items you need are there when you need them. Contracting with a preferred supplier for procurement gives your vendors visibility into demand, allowing them to balance inventory with anticipated needs and ensure quick availability. 

How Order.co enables strategic sourcing

Even if your organization doesn’t currently have a procurement department or a supply chain management process, procurement software creates opportunities for more strategic partnerships and purchasing automation.

Procurement software like Order.co allows stakeholders flexibility in sourcing and purchasing supplies while providing better visibility and pre-negotiated pricing from a list of approved vendors. Using Order.co, organizations begin their journey to better procurement without starting from scratch. Order.co offers: 

• Centralized buying features that allow stakeholders across the organization to get the supplies they need from a preferred list of vendors
• Purchase automation and workflows that enable fast approval and processing for requisitions
• Back office capabilities to take the burden off accounts payable and automate many activities in the purchase-to-pay process 
• Real-time spend data to help contextualize tail spent and optimize cash efficiency

These features are delivered within a central platform that benefits organizations of every size and stage.
If your organization is ready to leave behind the drawbacks of tactical sourcing and reap the benefits of the strategic sourcing approach, schedule a demo of the Order.co platform to learn more.

A solid, repeatable procurement process is essential for optimal financial and operational function. The right approach speeds projects along and provides everyone with the tools they need while keeping budgets in check. 

But what are the vital steps in a well-managed procurement process? How can you track the performance of your procurement practice to know you’re getting the best outcomes?

Let’s look at the stages and steps necessary to establish an effective procurement process. We’ll also cover different types of procurement and share the most effective KPIs to track your process and ensure your process adequately meets business needs. 

What is procurement?

Procurement is the process of sourcing, buying, and paying for materials and services within a company. It’s a critical business function that allows companies to run more efficiently while ensuring everyone has the tools, materials, and software to be productive and effective.

Good procurement management enables the company to realize cost savings through strategic buying, improve supply chain management, and shorten manufacturing timelines.

Difference between indirect, direct, and service procurement

Though all purchasing moves through the same procurement process, several distinct categories exist. Each requires different methods of cost control and management.

The three main procurement types are direct, indirect, and service procurement.

1. Direct Procurement: Purchasing goods or software tied to the production of a specific product. Examples include raw materials, equipment, resale items, machines, or other supplies.
2. Indirect: Purchasing goods or software for overhead purposes (not tied to a specific product). Examples include office supplies, fixed assets such as desks, computers, and facilities-related items. It may also include software tools for general use (i.e. Slack or Zoom).  
3. Service: Procurement of non-employee consulting for either direct or indirect applications. Examples include legal services, contract-based and freelance services, and managed services like security and facilities, etc. 

Ebook

The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

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Stages in the procurement process

Procurement is a continuous process, but each purchase goes through three phases: 

1. Sourcing: The organization identifies the needed goods or services, begins the purchase request and approval process, and evaluates potential suppliers.
2. Purchasing: Procurement negotiates with the chosen supplier, creates and transmits the order, receives the goods or services, evaluates goods received and supplier performance on the delivery, and accepts (or rejects) the order.  
3. Payment: Accounting performs three-way matching between invoice, PO, and requisition, approves and submits an invoice for payment, and completes post-close record-keeping. 

Steps in the Procurement Process

1.  Identify a need: The stakeholder or department head realizes the need for a product, software tool, or service. This purchase may fulfill an ongoing need (for instance, restocking consumables like office supplies) or a single purchase that supports a new project. These may be planned as part of the annual budget and procurement planning process or a spot buy of an unanticipated need. Once the stakeholder identifies a need, they outline the requirements to fill it, documenting it in a request. 

2. Issue a Purchase Requisition: Using the information surfaced during the identification step, the stakeholder creates a purchase requisition or intake form. This is the formal request to procure the goods or services and includes all necessary information for ordering and payment. Depending on the type of procurement, the purchase req offers suggested solutions. For example, in a software purchase, the stakeholder may include three tools for evaluation. 

3. Departmental Review: Once the purchase request is made, several departments may sign off on the purchasing decision. Often, the department head, legal, security, and IT departments have particular requirements to mitigate risk and ensure compliance for purchases. This review is especially important when engaging with new suppliers.

4. Budget Allocation: Once the necessary approvers complete their review, deals proceed to the finance team for approval and budget allocation. For small or one-off purchases, finance may approve a spot buy and direct the stakeholder to complete the purchase. From this point, finance or procurement may take over the negotiation for larger, contract-based purchases. 

5. Request for Quotation (RFQ): The negotiating team will request quotes — or in some cases, a Request for Proposal (RFP) — from several potential suppliers to evaluate large purchases such as high-volume goods, consulting services, or software. This practice is commonly referred to as “three bids and a buy.” This allows the team to understand each solution better, explore features and pricing from different bidders, and conduct due diligence before negotiation. In some cases, at this stage of the purchasing process, the team may choose to work with a preferred list of suppliers selected as part of a strategic sourcing program. 

6. Contract negotiation: Based on the numbers and contract terms provided, the procurement team engages the selected supplier to work out needs and requirements. During the negotiation, the team attempts to negotiate for the best price and payment terms, ensuring that they get the right-sized solution to satisfy the purchase request. If the negotiating team and supplier reach acceptable terms, the buyer executes the contract and transmits an approved Purchase Order to complete the transaction. 

7. Receipt of goods: Working from the information in the PO, the supplier fulfills and delivers the goods or services to the buyer. Once delivered, the buyer inspects the goods for quality and accuracy. If the goods do not match the PO or have quality issues, the buyer may return them or seek a remedy through the supplier. The buyer should note any discrepancies between the order and the goods delivered for future record-keeping activities. 

8. Matching process: The buyer performs three-way matching between the purchase requisition, purchase order, and invoice to ensure accuracy. This triple-check is necessary to address any discrepancies in the goods delivered and the amount to be paid. 

9. Invoice approval: Upon a successful three-way check, the invoice is approved for payment, coded by the accounts payable department, and submitted for payment. 

10. Payment: The buyer transmits payment to the supplier through preferred means (preferably electronically). If paid early, the buyer realizes early payment discounts. 

11. Post-close recordkeeping: After successful payment, teams conduct record-keeping activities to facilitate analysis and future planning efforts. These activities include supplier evaluation, contract management, spend reporting, etc. 

Ebook

The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

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Track your procurement process with the best KPIs

One way to streamline your procurement strategy is by tracking metrics to understand your process and its outcomes. These metrics are called Key Performance Indicators (KPI). By establishing and monitoring your business KPIs you improve your process, shorten the procurement cycle and boost the bottom line. 

Some key KPIs you’ll want to consider tracking are:

Cost per invoice (CPI): The cost to process an invoice for payment. This KPI tracks the efficiency in the payment stage of procurement. Manual processing is associated with higher CPI. Automation reduces the cost per invoice by increasing processing rates and reducing exceptions.

Invoice exceptions: The percentage of invoices encountering coding, processing, or payment errors during the purchasing process. Exception rates average 5% for most organizations. Rates above this level indicate problems in your invoice and payment processing workflow. As with CPI, automation significantly reduces this number. 

Emergency purchase: The number of non-planned spending events within the measurement period (per quarter or year, for example). These unplanned events may point to issues with your project planning, budget, or requisition process. Problems with these processes could encourage maverick spending, increase risk, and reduce capital efficiency.

Vendor defects: The percentage of damaged or non-conforming items in a vendor delivery. Along with other supplier-focused KPIs, the defect rate could point to the need to offboard a particular vendor or improve the strategic sourcing program in your organization. 

Procurement life cycle: How long a need takes to get from purchase requisition to settlement. Long lead times will impede production schedules and contribute to downstream distribution and cash flow issues. 

Improving procurement process KPIs with automation

Once organizations begin improving and tracking procurement through KPIs, many discover areas of needed improvement. The most effective solution is not to increase headcount or complexity but rather to implement a scalable solution using procurement software. Doing so saves money on employee wages, reduces errors, and creates a process that grows right along with company growth. 

If automation could improve your most crucial procurement KPIs, then the time is right to consider a solution that works for your organization. 

Order.co helps organizations move away from tedious and error-prone manual processing and get a handle on spending and payment with an easy-to-use platform. Schedule a demo today to learn more.

Every organization engages in some level of procurement strategy, whether using an ad hoc process or administering a large, well-documented procurement practice. While managing and tracking procurement spending may vary, how the process is defined shouldn’t. 

But how do organizations define procurement? And is the definition of procurement important to company success? 

To answer these questions, we’ll help you gain a clear understanding of procurement, including: 

• What it is, its importance to your business, and the steps necessary for a successful procurement strategy 
• How using procurement technology can significantly reduce the time and expense of successful procurement management 
• How to improve the procurement cycle in your organization 
• Real-world examples of how Order.co helps fast-growing companies achieve streamlined and automated invoice and procurement management

Download the free ebook: The Procurement Strategy Playbook

What is procurement?

Procurement is the process of sourcing, acquiring, and paying for goods and services. While many organizations use terms like ‘procurement,’ ‘purchasing,’ and ‘sourcing’ interchangeably, these are different components of the total procurement function.

Purchasing focuses on ordering and delivery, and sourcing pertains to the suppliers used for purchasing goods, but procurement refers to the entire process. Procurement includes sourcing, acquisition, settlement, analysis of procurement data, and future-spend planning. 

Why is procurement important in business?

Every business requires materials, goods, and services to achieve its desired outcomes. Whether it’s software for communication, raw materials for making products, or services to maintain facilities, keeping the organization running is an expensive and time-consuming task. 

The primary mission of a procurement department is to acquire the goods a business needs at the best price and terms. Procurement professionals excel at building supplier relationships, negotiating advantageous terms, and streamlining the procurement process, from identifying a needed good or service to invoice payment.

With a streamlined procurement process, organizations increase cost savings, minimize wasteful spending, and analyze how and where budgets are most efficiently deployed. Automated procurement can help businesses save as much as $13 or more per invoice in processing costs. The money preserved through good procurement practices spurs growth and insulates the organization against downturns.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.

Download the free ebook

Types of Procurement

Companies engage in different types of procurement, depending on business needs and immediate goals.

Direct procurement: This is the acquisition of goods and services directly related to production within your organization. Examples include the raw materials, software, services, or products that directly support the production of the products your company sells.

Indirect procurement: Anything not directly related to the production of goods is indirect procurement. This category includes office supplies, software the company uses to communicate internally, or facilities services not connected to a specific product your company offers.

Whether direct or indirect, companies require two types of purchases: goods procurement and services procurement.

Goods procurement: Goods procurement refers to any tangible object purchased, whether finished or unfinished. Raw materials, office supplies, desks, and other physical goods are considered goods procurement.

Services procurement: Any non-tangible purchase falls under services procurement. This includes professional offerings such as consulting services or facilities repair. It also encompasses purchases such as software, with software as a service (SaaS) increasing in business use and often becoming one of an organization's most significant service-based expenditures. 

How procurement works

Strong procurement management is one of the most critical components of an organization’s financial health. Procurement is often one of the most substantial portions of revenue spending, so it’s essential to keep a careful eye on expenditures at a granular level. This level of spending optimization requires a cross-departmental effort that draws on oversight from finance, legal, IT, and supply chain management stakeholders.

The procurement team may seem like an intermediary between internal stakeholders and suppliers. In reality, the department is responsible for the continuous administration and improvement of the procurement process and supplier lifecycle. 

There are many stages of the procurement process. Most procurement and purchasing activities fall into some general categories, including: 

Planning: The planning phase includes establishing budgets for departments or teams. This process happens in cooperation with the finance team and departmental stakeholders. 

Sourcing: Sourcing encompasses using competitive analysis and current strategic sourcing partnerships to identify the best suppliers to meet company needs. This evaluation process is conducted in conjunction with department heads and purchasing approvers.

Acquisition/payment: This stage includes ordering, reconciling, and paying for goods and services and meeting organizational needs while maintaining spending control. Such close attention to price and terms ensures the acquisition of the best quality products at competitive prices and under the most favorable terms.

Evaluation: Evaluation means using past performance and current data to understand and strengthen supplier relationships, prepare for future spending, and analyze available data to uncover further cost savings and improve the bottom line. 

Ebook

The Procurement Strategy Playbook for Modern Businesses

Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.

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Steps in the procurement process

Procurement practices are most effective when they follow a repeatable, optimized process. While every procurement team establishes a unique process for sourcing, acquiring, and paying for goods and services, the procurement cycle usually follows the following steps:

1. Identify a need: A stakeholder surfaces the need for a product, materials, software, or service in order to create products or conduct daily business. This need is outlined in an intake form or requisition form. 
2. Submit a purchase requisition: The stakeholder completes a purchase request. This form should include all relevant information needed to approve and process the purchase. The requisition may include recommendations for solutions or service providers. 
3. Evaluate potential suppliers: Depending on the process and type of purchase requested, procurement evaluates possible solutions and selects the best vendor to fulfill the request. Sometimes this takes the form of a competitive bidding process, such as a request for proposal (RFP), request for quote (RFQ), or a “three bids and a buy” process. 
4. Negotiate terms and conditions: Once the best supplier has been selected, the negotiation process begins. The procurement team works with the sales rep to establish pricing and terms for the purchase. Negotiations should be completed only after all departmental prerequisites have been met. 
5. Create a PO: Procurement drafts a purchase order to acquire the goods or services from the supplier. In most cases, the PO goes through a separate approval process to ensure all transactions meet expectations and check for potential issues or discrepancies. Procurement then transmits the purchase order to the supplier for fulfillment.
6. Receive and review goods: The supplier fulfills the order as requested. Once the goods or services are delivered, the procurement team receives and inspects them to ensure the quality and accuracy of the shipment. If the order does not meet expectations, the receiver may seek adjustments from the supplier or return the shipment. 
7. Reconcile and match: After receipt of goods is complete, a three-way match is conducted to ensure the shipment, invoice, and PO are accurate. The procurement team also conducts supplier evaluations to ensure all expectations and contact conditions are met during the delivery process. 
8. Approve and pay the invoice: Once three-way matching is complete, the supplier invoice is submitted for processing. The invoice is batched, coded, and scheduled for payment. 
9. Complete post-close activities: The procurement team is responsible for post-close operations and purchasing analysis. This may include record-keeping, reporting, spend analysis, supplier evaluation, contract management, and supplier onboarding (in cases where contracts are completed or terminated).

Case study: How Order.co helped WeWork automate procurement

The procurement process at small companies often starts out with a simple, manageable workflow. Some accounts payable (AP) teams can get by with manual processes for a time. But what about a company that experiences explosive growth? That success often comes with exponential growth in orders and invoices. 

This was the case for WeWork. The unicorn coworking company’s meteoric rise saw the addition of over 800 global locations in a few short years. It also added invoices — over a million per year and rising. The scale of operations left too much space for out-of-policy spending and surprise invoices that caused confusion and cost money. The company needed a way to streamline and automate processes for more than 2,400 orders per month across 100+ vendors. 

WeWork turned to Order.co in 2017 to eliminate its manual processes and automate its procure-to-pay process. With our help, the company created a fully functional, automated system integrated with Workday to get spending and processing under control. The changes created detailed spend visibility across every location and category, greatly reduced WeWork’s cost per invoice, and resulted in a simple, dynamic process that controlled budgets while allowing stakeholders to get needed supplies. 

To read the whole story of how WeWork used Order.co to revolutionize its procurement process, see the full case study here.

How Order.co can help manage procurement

Maintaining a streamlined procurement process and analyzing data is no small feat. Even in new and growing companies, procurement may deal with dozens of vendors and thousands of invoices. This generates an excess of data that can only be fully utilized with the help of technology. 

Using procurement management software to automate processes and centralize the data reduces the strain of manual procurement processes, and allows teams to understand how the organization spends money.

Order.co can help improve the purchase-to-pay process by:

• Allowing businesses to analyze and contextualize purchasing data in order to set more accurate budgets and plan capacity effectively. 
• Streamlining the vendor selection process and empowering buyers to use strategic sourcing partners when acquiring goods and services. 
• Centralizing contract, benchmarking, and supplier data to create better leverage in negotiations.
• Automating three-way matching and reconciliation to reduce effort and time spent on the process. 
• Streamlining the invoicing and vendor payment process to reduce manual data entry, eliminate invoice exceptions, and integrate and consolidate vendor payments.  

When you define procurement processes in your organization and empower your organization with the benefits of a robust procurement platform, the savings and productivity quickly add up. 

To get a better understanding of how Order.co can help your organization, schedule a demo and see the platform in action.