The process of Procurement Management can be defined as the method by which items are purchased from external suppliers in the market. The process involves managing the ordering of the goods, receipt, review, and approval of items procured from the suppliers.
The entire process also specifies how the relationships with the various suppliers are to be managed in an efficient manner ensuring that high levels of services are received. It is one of the critical points in procurement management. The main essence of the overall process lies in the fact that you get what you have paid for.
Procurement management helps the company to save money spent when purchasing goods and services from various external parties in the market along with the various other benefits.
The working of the Procurement Management process :
Not all goods and services required by the company are required to be purchased from the outside parties in the market. It is very imperative to gauge the pros and cons of purchasing or renting the required goods and from the outside market. The management of the firm needs to check if the purchase decision will be cost-effective in the long run basis and prove to be quite beneficial for the company.
It is very important to understand and figure out the exact requirements and then search and consider upon the various options and alternatives available. There are quite many suppliers in the market catering to the needs and requirements but there has to be a clear yardstick on which one to select on the basis of thorough market research and understanding.
There is an option of calling for some kind of bidding for the product or goods requirement by the vendors in the market and use selection criteria to select the best one from the lot.
The next step involves calling for bids and the different suppliers will provide their respective quotes. This stage is quite similar to choosing projects, as the company needs to consider various and different criteria, apart from just the cost, to finally select the supplier for the requirement of the goods and products.
Aftermath the evaluation process, the company management is able to select and shortlist the best supplier followed the next step of discussing the exact nature of the requirements and the related terms and conditions such as payments, delivery timelines, and other crucial ones to avoid any sort of discrepancies in the future.
Procurement management is very much important to maintain a good relationship with the supplier and formulate the agreement that meets the requirements and the satisfaction levels of both the parties involved. This step helps in the sustainability factor of the businesses of both the parties involved.
How to make Procurement Management Work Efficiently?
In order to ensure that everything goes quite well in the entire process, one has to keep a track record of the progress of the procurement of the goods required. It involves checking on the suppliers in order to ensure that they are adhering to the terms of the contract and will be able to supply as per the delivery timelines.
In case of any sort of discrepancies or issues, the supplier needs to be addressed by the method of communication decided at the time of signing the contract and the final purchase order.
The company must have a flexible approach and should be willing and open to change as per the current market scenario. This factor involves all the changes required to ensure the efficiency of the entire procurement process.
The changes could be in the form of technological advancements in the industry and even changes in the nature of the workforce amongst the other crucial and required changes.
In terms of the technology advancements, any new type of equipment and machinery introduced in the market required to handle the goods purchased in an efficient manner may need to be purchased for the proper flow of work and business operations.
The same case applies to the nature of the workforce as well, the company would need to employ workers that are highly skilled, efficient, and trained.
Procurement management is always better for the company to have a different set of teams within the hierarchy who are specialized in different fields and various business operations. This approach would make procurement management quite more easy and efficient.
Each team will deal with the relevant areas of purchasing and will also possess the expertise required.
Stages in Management of Procurement:
- Identification of the needs and requirements – When the company figures out the needs and requirements of the goods, the vendor’s needs must be identified in order to choose which type of product will fit best as per the business operation. Then the company needs to shortlist the vendor as per the quality of the goods for the best price also making sure the supplier is able to deliver the consignment on time.
- Finding and qualifying the suppliers – Using the power of the internet or the various supplier databases, one needs to assemble a list of all potential product suppliers.
- Requesting proposals – It is important to ask for the proposals from the various suppliers to make sure to buy the goods of the best quality and at the best prevailing price. Aftermath, the negotiation process starts considering the current market scenario and budgets of the organization.
- Negotiating with the suppliers – To achieve the best prices, terms, and the final delivery, it is necessary to negotiate with the selected suppliers. This aspect helps to evaluate their trustworthiness and other vital business factors.
- Contracting – If both parties agree on all terms such as pricing, delivery, quality, etc the company enters into the final d=business deal by signing the official contract.
- Delivery – Throughout the entire delivery process of the goods, it is important to evaluate the products delivered to ensure they are what you had planned to buy and meet the quality standards plus they arrive well on time.
- Analyzing results – Once the project is complete and the goods have arrived and delivered, it is important to analyze the overall process and evaluate its success as well as record observations for future projects with the same vendor.
Here is a video by Marketing91 on Procurement Management.
Benefits of Procurement
Helping meet business goals and stakeholder expectations
Procurement Management helps the company to meet the expectations of the stakeholders’. It helps to perform the business operations on a higher level and attain the long term and short term objectives of the business.
Savings can be achieved by a variety of methods such as reducing the delivery errors or increasing the quality of products and services. The measurement of the direct cost and the team timesaving is accomplished through a better Procurement Management process.
Higher value and lower supply chain risks
Building close and fruitful relations with the strategic partners help to minimize the risks of the supply chain.