Tag: supply chain management

The procurement function plays a critical role in every company’s financial health and performance, even in early stage businesses. The nature of purchasing and procurement is such that organizations swiftly find themselves overwhelmed by valuable data with no meaningful way to analyze or benefit from it. This volume of information can lead to wasteful spending and lost opportunities.

Fortunately, good procurement management practices can help even small organizations organize their invoicing and keep track of spending. Codifying and streamlining processes makes it easier for stakeholders to raise their hands when needs arise. It further helps your organization quickly approve the request and arrange for payment of goods.

When companies build successful procurement initiatives, they realize cost savings that could otherwise remain hidden in a sea of line items and renewal contracts.

To achieve these outcomes, it’s important to understand the basics of procurement and how to manage it effectively. As your company grows, you’ll have a process that translates into more automation and software to help you scale.

In this article, we cover the important features and benefits of good procurement management, as well as ways to advance your procurement practice using technology.

By the end of this post, you’ll know:

What procurement management is
The role of procurement management in saving money and time
Why and when to automate your procurement management process

Let’s start by understanding exactly what procurement management is and how it fits into your organization.

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What is procurement management?

Procurement management is the process by which an organization conducts, approves, tracks, and optimizes its spending on supplies and services. The main mission of a procurement team is to reduce the bottom-line costs of purchasing and streamline the process of getting the goods and services a company needs to produce products.

A strong procurement management plan comprises many functions, including:

Resource planning
Supplier sourcing and evaluation
Purchase requisition approval
Purchase order processing
Order reconciliation
Vendor payment processing

Procurement management is a component of the larger supply chain management (SCM) function, dealing with internal materials sourcing and management. While many organizations treat procurement and supply chain management as separate functions within the organization, their operations and objectives are closely related.

Procurement serves as a support system for supply chain operations. It’s the sourcing partner that enables the supply chain to find and acquire products that meet or exceed quality standards.

The importance of procurement management

If you’re running a household, getting a handle on spending is the number one way to improve your long-term personal finances. If you’re a growing business with a vision for long-term success, getting a handle on your procurement practices has the same effect.

Solid procurement management strategies are the first line of defense for reducing costs and stabilizing cash flow. They form the basis of your budgeting and forecasting functions and ensure that your revenue is used as efficiently as possible. The money you save with insightful procurement can then be invested in business growth, ensuring stability for the long term.

To establish a functional procurement management system, you must be able to:

Give stakeholders a standardized process for making requests
Establish an approval process and guidelines to evaluate price, terms, and risk
Build an efficient process for tracking, reconciling, and paying for goods
Harvest data from the previous steps for use in future planning

By establishing this process, you realize many benefits and surprising cost savings in the short term.

Key benefits of a strong procurement management process

Creating a well-documented, structured procurement management process offers many ways to increase efficiency and reduce costs, such as:

Strategic sourcing: Committing to vendor management in your procurement process helps you to identify the best potential suppliers by price and terms and consolidate them into a preferred vendor list. Sticking with a small list of pre-vetted, trusted partners reduces research time and allows you to fully leverage your existing partnerships and pricing.
Streamlined purchasing: A slow purchasing process reduces your ability to quickly source and receive vital goods. Formalizing your purchase requisition and approval workflow improves purchasing timelines and reduces your overall project procurement by days or even weeks.
Reduced waste spending: Maverick spending accounts for thousands in waste spending across your organization. Closely tracking your procurement process eliminates the process gaps that allow maverick spending to thrive. By having a standardized process for getting requisitions approved and processed, every stakeholder can get their needs met without relegating tail spend to a corporate card or an expense report.
Risk management: Though lesser-discussed in terms of cost-savings measures, successfully mitigating risk in your supplier relationships helps you avoid unforeseen costs and unplanned spend. Standardizing your procurement process, approvals, and contract reviews can help you avoid out-of-stock issues with suppliers, stabilize on-hand inventory, and improve contingency planning for shipping delays.

5 Ways to improve procurement management

Procurement management requires dedicated resources, processes, and metrics management to create accuracy and scalability. The below activities and upgrades ensure your procurement practice continues to grow in step with your organization.

Document: Formalizing the procurement management process with a documented policy helps teams identify and address gaps in the current approach. It sets standards for procurement activities like spending, purchasing policies, and performance measurement. It also ensures stakeholders are well-informed about the process and have access to the information and tools needed to perform their role within policy. Lastly, it creates an audit trail for regulatory compliance and eliminates the conditions that lead to maverick spend.

Centralize: Bringing procurement activities into a procurement platform helps streamline operations and improve visibility over the entire process. Centralization offers a comprehensive overview of the entire process, from request to delivery, enabling real-time tracking and reporting. Enhanced visibility helps identify improvement opportunities and address potential issues promptly. A centralized platform also minimizes the work associated with purchase orders, invoicing, and payment tracking, reducing errors resulting from manual data entry.

Integrate: Procurement doesn’t operate in a vacuum. Integrating procurement data with other data systems in your finance organization ensures that all relevant information is available across systems. This provides centralized purchasing management, empowering quick and informed decision-making. Integrated data systems offer a comprehensive view of financial operations while cutting down on redundant processes and potential entry errors.

Automate: Automating common or repetitive procurement processes is a vital means to streamline operations and reduce time spent on manual data entry. In fact, nearly three-quarters of companies are actively working toward enhancing and developing their data, insight, and analytics capabilities. Automation simplifies tasks like purchase order creation, order approval, three-way matching, and reconciliation, freeing up valuable resources for more important tasks. Automation also simplifies metric tracking by collecting data from multiple finance and procurement data sources, making it easier to spot trends and identify improvement opportunities quickly.

Measure: Measuring performance is essential to continued procurement improvements. Vendor scoring tracks supplier performance by rating vendors based on criteria like quality, delivery time, and price. Procurement performance metrics such as spend analysis, invoice processing accuracy, and turnaround time help identify trends in cost management. Monitoring these key performance indicators allows for more accurate forecasting, better cost control, and greater resource optimization.

3 Best practices for better procurement management

Refining the methods used to manage procurement within your organization doesn’t have to be complex. Three techniques help companies of all sizes improve their purchasing and tracking practices for better overall results.

1. Use spend analysis to optimize cost

Spend analysis is a process that identifies procurement savings opportunities. Finance analysts review data from invoices, contracts, receipts, purchase orders, and other sources and use those insights to optimize spend allocation and negotiations. This helps track supplier performance, uncover savings opportunities, and optimize spending. It provides a clear overview of resource utilization and informs strategic sourcing decisions, reducing costs and improving operational efficiency.

2. Digitize and automate wherever possible

Digitizing and automating procurement processes can save valuable time, reduce administrative costs, and boost efficiency. Automating workflows with digital invoices helps organizations keep track of all their purchases in one place and easily review purchase history. It also prevents manual errors and enables faster approvals, making it easier for organizations to meet compliance requirements.

Automated workflows, alongside digital ordering and invoicing, allow companies to take advantage of automated order processing and payment methods, resulting in fewer supplier delays. This ultimately helps companies maintain better control over their resources and budgets by having more accurate forecasts about future spending needs.

3. Build a vendor lifecycle management program

A vendor lifecycle management program can help organizations monitor their suppliers’ performance by collecting and analyzing data on past purchases, such as delivery times and order costs. This information can then be used to identify vendors delivering good value and quality service and award them more business. Conversely, vendors that are underperforming can be identified and replaced if necessary.

The process of onboarding new vendors is also much easier when using lifecycle management. It centralizes all relevant details associated with each supplier, enabling faster processing of orders once the vendor is approved. Similarly, offboarding old vendors is simplified with automated processes for removing access privileges and archiving related records.

Why should you automate procurement management?

Procuring goods and services is one of the most impactful financial activities in your organization, with procurement costs representing up to 50 percent of a company’s revenue, depending on the industry.

With so much money at stake, understanding your procurement spending is essential for reducing bottom-line costs and improving budget efficiency. But conducting these practices across dozens or hundreds of vendors — potentially generating thousands of monthly invoices — is a tall order.

Procurement automation helps companies achieve all these objectives without cumbersome manual processes. With automation, companies enjoy many money-saving advantages.

Intelligent procurement management allows procurement professionals and supply chain team members to spend less time on low-value and repetitive tasks. It creates more opportunities for data-driven decision-making, high-value project management, and capacity planning. This increased time for high-impact activities results in better ROI and spend efficiency.
Automation helps your finance and AP teams keep up with growth. Manual invoice processes are costly and prone to discrepancies and inefficiencies. Even with low exception rates, AP clerks are limited in how much processing they can perform. By replacing your manual processes with a touchless, automated system, you can batch, process, code, and issue thousands of payments simultaneously. This significantly reduces costs and helps your purchasing department realize early payment discounts.
The benefits of automation go beyond reduced spend to help you form better supplier relationships and realize benefits over the long term. Automation streamlines the management of procurement contracts, enables vendor lifecycle analysis, and improves accountability for the quality of goods and services purchased. By managing your contracts effectively and automating your process for faster payments, you and your suppliers all win.

What to look for in a procurement management software solution

If your organization is considering improving its business operations with automated procurement software, a thorough evaluation process will be necessary. Your current procurement management system, monthly invoice volume, tech stack, and typical procurement activities all factor into which potential suppliers could work for you.

Any platform you choose should offer features like:

Full integration options: An automated procurement platform should operate as a component within your larger financial or accounting infrastructure. The procurement platform should also share data across systems to reduce issues and redundancy. Look for solutions that offer full integration capabilities with your other platforms and planning apps.
Robust analytics tools: The wealth of data generated in your procurement process is there to be harnessed for data-driven decision-making and cost-savings analysis. Advanced reporting tools allow you to surface real-time data across your organization by location, category, product type, and GL code. Look for a solution with a full complement of reporting, analysis, and visualization tools.
Budget controls: Automated purchasing controls make the purchase requisition process easier for your stakeholders, empowering them to serve their own needs while keeping organizational goals in mind. Dynamic budgeting controls provide protections from overspending for purchasing decisions. These can be administered by dollar value, role, location, or other key parameters. Be sure the solution you choose has a sufficient budget and approval workflows to encourage self-service without sacrificing cost control.

The above features will help your organization maximize the flexibility to create and administer purchasing workflows, improve purchasing efficiency, and share financial information organization-wide. Best-in-class options like Order.co offer even more ways to streamline and automate your procurement function.

The added advantages of managing procurement with Order.co

The Order.co procure-to-pay platform goes beyond invoice processing and vendor management functions. It allows clients to streamline their entire purchasing process into a curated experience. Once purchases are complete, our consolidation tools allow you to process fewer invoices per supplier or even reduce supplier payment to a single event every month.

Order.co drastically increases the efficiency of procurement practice by accomplishing three simple steps:

Creating a unified marketplace: Purchasing inefficiencies can creep in from the moment a purchase request is made. By creating a single, curated catalog of products, Order.co empowers your stakeholders to service their needs through a pre-approved list of products and suppliers. Instead of spending time looking for pricing and interacting with unknown providers, your employees will have a simple method to research, select, and complete their supply and materials orders.
Streamlining the procurement process: Order.co helps users manage the procurement process from start to finish, from choosing the best products and creating a purchase requisition to approving, fulfilling, and paying for purchases. The platform gives stakeholders total visibility into the process and ensures a speedy, accurate process.
Consolidating ordering and invoicing: A large organization with multiple locations generates potentially dozens of purchase orders per day. This creates headaches for procurement and AP teams processing and coding a constant flow of similar invoices. With Order.co, you remove the redundancy from your procurement and accounting process. The platform also allows you to consolidate all invoices from across your supplier network into one invoice for faster processing.
Integrating invoice payments: Order.co offers even greater flexibility in processing your purchase orders and payments. The system allows users to directly pay vendors with whom you have advantageous terms or use Order.co as your vendor of record and pay for all purchases across every supplier through a single invoice. With any payment option you choose, Order.co’s automated process creates perfect coding and line-level visibility for granular reporting capabilities.

These advanced product features help clients of every size — from small businesses to major brands such as WeWork — effectively manage their procurement processes and get spending under control while greatly improving efficiency.

If the right procurement management platform could make a difference in your budget optimization and operational efficiency, we invite you to request a demo of Order.co.

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While COVID-19 offered a sobering reminder of the limits of our public healthcare systems, it also shed light on the previously “invisible” supply chain system we all rely on. Within weeks of the pandemic, shortages and delays revealed the impact and relative delicacy of the massive network enabling our daily life and work.

Despite our collective crash course on supply chain management, there remains much confusion about where the procurement function ends and supply chain management begins. But understanding the difference is the first step in improving your company’s operating efficiency, so the distinctions are important.

With that important goal in mind, today we’re taking the time to disentangle the roles of purchasing, procurement, and supply chain management within organizations.

By the end of this article you’ll know:

The major functions of the Procurement and Supply Chain Management departments within an organization.
How procurement and supply chain management differ, and where they overlap.
How supply chain management and procurement can work together to produce better outcomes.

What is procurement?

In simple terms, the procurement process focuses on evaluating new suppliers and working with existing ones to supply raw materials, goods, and services for your business. The procurement function is largely one of relationship management. Great procurement teams foster strong partnerships with both their internal clients and their external suppliers in order to meet operational objectives.

Procurement serves as a necessary bridge between the finance team and departmental stakeholders in larger organizations, making it easier for departments to get what they need to produce goods while providing accountability and data for financial approval.

Procurement is sometimes confused with purchasing. While the two terms are used interchangeably within many organizations, there is a distinction. Where purchasing describes the act of getting and paying for materials, procurement covers a much wider range of activities, such as:

Needs identification: Understanding company needs and initiatives, developing forecasts, and planning for resource procurement to meet deadlines.
Supplier management: Handling the supplier lifecycle from evaluation and onboarding to renewal or termination.
Negotiation: Using benchmarking and leveraging relationships to secure the best terms and pricing.
Contract management: Ensuring suppliers meet contract terms and deliver goods on expected timelines.
Receipt of goods: Receiving and reconciling invoices against the purchase requisition, purchase order, and invoices to ensure accuracy and correct delivery of goods.
Payment: Approving, coding, and processing supplier payments in a timely manner.

What is Supply Chain Management (SCM)?

A supply chain is the network of suppliers, service providers, logistical partners, and other organizations who work together to supply companies with raw materials, manufacture those materials into products, and deliver them to the end-user. Where procurement is the bridge between upstream suppliers and the organization, supply chain management is the bridge between the downstream network, and the promotional and logistics partners connecting the company and its customers.

It’s important to note that supply chain management is more than just shipping goods. While delivery is certainly part of supply chain management, it represents only a small portion of the overall function. Managing the manufacturing and the flow of goods to your buyers encompasses a much more complex set of processes.

Supply chain management teams are responsible for:

Inventory management: Managing and tracking the intake of both raw materials and finished goods. Maintaining inventory levels of necessary components to meet production timelines.
Manufacturing: The process and timeline of turning raw materials into products, and the methods of improving efficiency in their production.
Supply chain risk management: Evaluating the stability of the supply chain network, and the ability of your suppliers to help you get goods to market on time and at expected cost.
Quality control: improving the overall condition of products and reducing manufacturing issues and product defects.
Delivery and return management: Getting finished products from the manufacturing site or wholesale warehouses to distribution points (retailers, etc.) through logistics providers. Handling returns of defective or unwanted products.

How do procurement and supply chain management differ?

Procurement and supply chain share the core objective of driving organizational success, though they achieve these in different ways. Procurement is a subset of the overall supply chain process.

Some key differences between the two are:

Procurement is “what goes in” in terms of production. This means that procurement professionals’ main goal is to acquire materials and services for use. Supply chain management is “what comes out” of those materials. Supply chain professionals are concerned with taking those procured raw goods and services and transforming them into products.
Procurement is a support system for production. Supply chain management serves as the agent of production and distribution of goods.
Procurement’s objectives center on capital efficiency (finding ways to save money and improve value), whereas supply change focuses on operational efficiency (finding ways to reduce friction and distribution costs).

What does procurement and supply chain management have in common?

Procurement and supply chain management have several objectives and critical activities in common. For example, both departments:

Identify cost-saving opportunities

Procurement’s main concern is with spend optimization and identifying ways to save money and improve the company’s bottom-line performance. On the supply chain side, the focus is on increasing the quality and value of goods to improve the topline.

Procurement and supply chain both save money by maximizing spend efficiency on new projects, analyzing current projects and contracts to realize cost reduction, negotiating prices and terms to maintain the efficiency of current suppliers and vendors at renewal time. This may be achieved by practicing an effective supply chain strategy or employing procurement software for process automation.

Improve operational efficiency

On the procurement side, efficient administration of the purchasing process shortens the time to performance for purchases and reduces the research hours necessary to execute deals.

On the supply chain side, building efficient production and distribution channels allows you to get goods to market faster, with more cost-effectiveness. Improving these processes on either side saves hundreds of hours in employee wages and increases the productivity of your manufacturing function.

Build Strong Supplier relationships

Strong supplier relationships play a critical role in both procurement and supply chain. By improving your strategic sourcing practice with suppliers and distributors, you can leverage better pricing, reduce the time spent evaluating suppliers, and streamline functions like goods requisitions, order processing, and invoice payment.

Ways supply chain and procurement can work together better

Though procurement and supply chain operate independently, their coordination is essential to progress. They are, in essence, the two legs responsible for your organization’s forward motion.

Three ways procurement and supply chain can improve overall performance include:

Improved cross-departmental planning: Planning and resource allocation for the manufacturing and distribution functions should be a team lift. Improving interdepartmental alignment can produce more accurate forecasts, offer a holistic view of contracts terms and their potential impacts, reduce capacity and warehousing friction, and improve the time from raw materials acquisition to delivery of goods.
Increased data transparency: De-siloing data can greatly improve the ability of both departments to reduce lead times, identify trends, and realize opportunities for cost savings and efficiency. Integrated software can bring the supply chain management process into full view, allowing procurement to better support supply chain functions and improve performance times from beginning to end in the production cycle.
Supplier streamlining: Though procurement many have a well-honed preferred vendor list, extending that concept to embrace an interdepartmental approach can more fully leverage optimal pricing and terms. Doing so can further reduce the time and cost of order and payment processing.

If you’re looking to bring procurement and supply chain into better alignment for your organization, schedule a demo to see how Order.co can help coordinate their efforts.

Get started

Schedule a demo to see how Order.co can simplify buying for your business.

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