How e-commerce can streamline your procurement processes
The Basics of Sourcing & Buying Quality Products for Your Business
Procurement Best Practices
Prepare your team for the future.
Back in 2019, UNICEF procured a staggering $3.83 billion in goods and services. While that's impressive, it's how they saved 25% in procurement costs (roughly $363 million) that grabbed the business world's attention.
How did the global health organization achieve this?
By leveraging strategic procurement principles and practices.
UNICEF follows a strategic procurement approach to achieve substantial savings. You can adopt a similar strategy to get the maximum amount of value from your procurement, by reducing inefficiencies and delays.
In this article, we’ll discuss procurement best practices to optimize your current processes. Then we’ll look at a step-by-step strategic procurement guide to ensure you meet your organization‘s core objectives.
7 Procurement Best Practices to Reinvigorate Your Current Procurement Cycle
The key to sourcing and buying products for your business is cutting out inefficiencies and managing potential bottlenecks in your procurement system.
Here are the most impactful ways to streamline sourcing and purchasing in your organization:
Develop Procurement Management Frameworks
The first step is to eliminate inefficiencies and gaps in procurement by creating (or revisiting) a strong procurement management framework. This will enable greater transparency and better oversight of the procurement process.
Create clear and actionable guidelines for each stage of the procurement process, including:
- Tracking and approving purchase requests.
- Managing vendors and procurement negotiations.
- Performing three-way matching.
- Doing quality assurance.
- Invoicing and payments.
- Maintaining records.
Ensure these guidelines are included in the training for purchasing agents/buyers and any other stakeholders that have an impact on your procurement processes.
Document every step of your procurement process. Dig deeper into your process to closely analyze existing workflows, and then build out standard operating procedures (SOPs) for your team to set clear expectations from the start.
Another important element is to create comprehensive supplier contracts and regularly evaluate their performance to ensure they’re meeting your standards — and at competitive rates.
Automate Procurement Processes
Procurement affects almost every aspect of your company’s operations and profit margins, which is why swapping your outdated manual processes with efficient procurement automation tools is a sound investment. In fact, 23% of companies are already evaluating or implementing automation solutions.
Here are some more thought-provoking insights from a Smartsheet survey:
- Over 40% of workers spend a quarter of their week carrying out manual, repetitive tasks.
- 60% of workers think they can save at least six hours a week by automating tasks.
That’s six more hours per team member to focus on more strategic tasks that lead to tangible results fo your organization, such as developing and implementing strategic procurement policies or working on eliminating supplier risk.
The good news is that there are digital solutions for automating procurement.
Invest in reliable procurement automation software to automate data entry, approvals, record updates, document hand-off, and other repetitive tasks. Once you eliminate the need for manual processing, you’ll reduce the potential for human error and can build systems that make processing more cost-effective.
Create a Centralized Contract and Documentation Hub
Post COVID-19, 22% of companies have expressed concerns about contract complications within the supply chain. It’s a valid concern: inconsistencies across contracts, contract errors, and inefficient contract management cause delays and risks that could eventually cascade throughout the network leading to significant problems.
Procurement leaders that don’t have full supply chain visibility can’t understand how different disruptions and failures can affect them. Contract deviations are an early sign of risk, but simply detecting and managing contractual risks and issues isn’t enough — you must take active measures to prevent them.
Most contractual issues stem from a single problem: the lack of a centralized location where employees can find, access, and retrieve supplier contracts and other related documents.
On the other hand, when you have a centralized and easily accessible contract and documentation hub, you’re assured of:
- Fewer contract errors
- Contract and communication consistency
- Minimum time wastage dealing with remedial documentation work
Create a temporary repository within Google Docs or sign up with a dedicated contract management software like DocuSign or Concord to build a centralized hub for your contract templates and most recently used contracts. This will make things extremely convenient on your end, too; you'll get contract visibility and improve contract compliance.
Maintain Optimal Stock Levels
Based on your industry and business size, your carrying costs can run anywhere between 20%-30% of your total cost of inventory. That's why ensuring optimal stock levels is a prime focus of successful businesses.
If you don’t have enough stock, you won’t be able to meet customer demands. If you have too much, you’ll end up paying extra logistics fees. You can streamline spending and cut unnecessary costs by optimizing your inventory.
But to do this right, you'll need data-driven insights.
Use advanced insights and Al-focused tools to determine optimal inventory levels in real-time and predict your company’s future stock requirements. Many businesses have already taken this step.
- 39% of procurement professionals are using operational analytics to better track business matters and indicators
- 50% of organizations are leveraging tools and apps to improve supply chain tracking
- One in 10 organizations is implementing AI to optimize inventory management and streamline logistics
While emulating a similar tech stack for your business involves additional investment, it's worth it if you consider the benefits. You can then use the collected data to make accurate demand predictions and eliminate overstocking and understocking issues to ensure smoother operations.
Build Stronger Supplier Relationships
Identifying and onboarding suppliers, scheduling services, invoicing, and paying vendors can seem like an overwhelmingly comprehensive and time-consuming process.
Let’s not forget the continuous endeavour to ensure suppliers deliver high-quality goods and services on time and at the best rate.
To streamline your organization's product delivery and routine maintenance, you must take a strategic approach where you prioritize building strong relationships with your suppliers.
Use supplier management tools like Procurify and Precoro to get better insights into your suppliers. This will help you track performance, evaluate relationships, and enhance supplier engagement.
Alongside implementing technology, you can take the following steps to engage with your suppliers strategically to ensure your business needs are met:
- Maintain open, clear communication. When communicating purchase orders and requirements, ensure the supplier is crystal-clear on what needs to be done. We also recommend building a system to process all submitted invoices in a timely manner.
- Establish expectations early. Establish yourself as the authority right at the start and clearly lay out expectations. Use your market knowledge to hold your vendors to a high standard.
- Regularly evaluate performance. Evaluate deliveries regularly to identify and handle risks and issues early in the partnership. You should also monitor suppliers’ performance against contracts to ensure they are providing consistent service. Compare and switch suppliers when needed.
- Be aware of the competition. Take time to understand vendor markets and how your supplier compares to the competition. This will ensure your company gets the best bang for the buck and help you make sound and fair business decisions.
- Pay your suppliers on time. Vendors will prioritize you when you prioritize them. Implement self-service portals to allow vendors to submit invoices, proposals, and contracts, communicate directly with them, and make prompt payments.
Integrate Procurement Processes
Procurement riddled with approval processes is procurement riddled with barriers. Some guardrails are necessary.
Even if you automate certain parts of your sourcing process, activities like dispatch authorization, budget requests, and quality checks will still need some traditional manual effort. Thoughtless automation may also turn your sourcing process into a haphazard system of ill-connected workflows filled with bottlenecks that cost time and money.
The good news is you can reduce bottlenecks by integrating various procurement processes to create a smooth, streamlined system from start to finish. This will help you accelerate processing time and bridge gaps between different systems to ensure a seamless flow of data.
The fact that you can run quality assurance and verification at a faster pace without dealing with spreadsheets and manual checkings is another advantage.
Go Beyond Cost Reduction
Gone are the days when businesses only focused on reducing costs. If you use this approach today, you’ll unknowingly put your business at a serious disadvantage.
With continuous market shifts and changing customer preferences, you need to think strategically to get every edge you can get.
Analyze your current procurement systems to identify opportunities to leverage your supply chain. Use these insights to develop better supplier relationships and ensure better and faster service to stay ahead of the competition.
Automating manual tasks is beneficial. It creates more time for your procurement team to focus on value-add activities that eliminate waste and provide your business with more resources to innovate.
5 Steps to Create a Strategic Procurement Process
Strategic procurement or strategic sourcing is a data-driven process focusing on minimizing supply risk and adding value to procurement processes in support of your organization‘s long-term goals and wider business strategy.
It involves implementing strategies to reduce the overall supplier base, remove unnecessary negotiations and communications, and develop long-term relationships with suppliers. Your priority here is to create streamlined supply channels at the lowest possible total cost — and not just the lowest purchase price.
Building a strategic procurement process isn’t too challenging, provided you have the right guidance. Here’s a step-by-step rundown to help you secure the best suppliers:
Step 1: Identify Your Current Supplier Requirements
Strategic procurement begins with having an in-depth understanding of your organization‘s procurement requirements.
Assess your organization’s existing operations and performance to determine what steps need to be taken to meet your demands and goals. This will also give you an idea of the kind of data you'll need for building the appropriate procurement channels and predicting expected future growth.
Next, conduct an internal needs analysis to collect initial data for benchmarking current performance, resources used, departmental and organizational costs, and growth projections before creating a procurement strategy.
Here are a few tips to collect the required data:
- Communicate with your departments
- Analyze workflows
- Collect and study customer feedback
- Do A/B testing to know what works and what doesn't
Once you know your needs, focus on finding the best possible suppliers to maximize cost savings and gain a competitive advantage.
Step 2: Assess the Supplier Market and Collect Supplier Information
Identify potential sources to meet the required raw materials, finished goods and services, or components established in Step 1. Your options will be understandably limited when you have specific requirements, but you should still be thorough in your research.
Start shortlisting your business suppliers. If you end up with suppliers that don’t match your criteria, you run the risk of suffering significant losses or falling victim to procurement fraud.
When considering suppliers there are three broad considerations: track record of the supplier, openness about their relationship with their current customers, and building a solid network of suppliers. Let’s look at each these in greater detail.
Thoroughly research any potential supplier to learn more about their business ethic and experience. You can also reach out to agents familiar with the supplier and the market segment they operate in. More experience means a longer track record and a greater chance that the supplier will be invested not only in short-term dealmaking, but long-term professional reputation.
Talking to the supplier's current or past customers is reliable way to make an informed decision. Raise any negative feedback with the supplier and ask for clarification. It is a red flag if a supplier is unwilling to share the details of existing customers or provide tours of their facilities.
It is recommended that you select more than one supplier to create a competitive environment that is resilient to supply disruptions. This is especially relevant for large enterprises that can facilitate regional distribution while retaining centralized control. However, it is important to set the number of suppliers low enough to allow for deeper long-term relationships to develop.
Step 3: Develop and Implement a Sourcing Strategy
At this stage, you know your organization’s procurement requirements and have selected potential suppliers to meet these needs. Your next move should be to develop a sourcing strategy for your business.
The following are a few of the most popular sourcing strategies:
- Direct purchase. Send the suppliers a Request for Proposal (RFP) or a Request for Quotation (RFQ).
- Acquisition. Purchase goods and services from the most desirable supplier.
- Strategic partnership. Enter into an agreement with a supplier that benefits your organization in the long term.
How do you select the right sourcing strategy for your organization? Consider the competitiveness of the supplier marketplace and your overall business strategy. You should also factor in your company’s risk tolerance and motivation for outsourcing. For example, if you find several suppliers meeting your requirements, you can initiate bidding by calling for RFQs or RFPs.
Implementing your sourcing strategy.
If you choose the direct purchase sourcing strategy, ask identified potential suppliers to prepare an expression of interest (EOI) or an RFP or RFQ. As the bidding process is more competitive here, be prepared to solicit bids.
On the other hand, if you choose acquisition or strategic partnerships sourcing strategies, make sure the supplier(s) meet the following criteria:
- Fits the broader strategy of your business.
- Has access to specific equipment/technology and skilled labour pool.
- Has access to highly confidential proprietary knowledge, or can supply limited raw material, that is vital to your business.
Whichever criteria you set, it’s important to select a strategic partner that you can trust to hold up their end of the agreement.
Step 4: Negotiate With Suppliers and Select Bids
Make sure you’ve given the potential suppliers enough information to submit realistic bids for your requirements before evaluating responses.
Let your strategic supply chain team examine all accepted proposals, bids, and quotations. Using the selection matrix, you can either:
- Choose a first and second successful bidder (if reviewing RFQs or RFPs)
- Shortlist bidders to provide more detailed proposals (if reviewing EOIs)
Once you’ve picked the final successful supplier it is time to initiate contract negotiations.
Step 5: Implement Contractual Supply Chain Improvements
It is critical to set expectations from the outset when bringing on new suppliers. It is also vital to have an transition process for transferring information and making connections between logistics and communication systems of your organisation and that of the supplier’s.
Develop a communication plan and a system to measure and evaluate supplier performance. Make new suppliers part of this process to get them involved from the beginning and promote engagement.
Use this as an opportunity to clarify the quantitative KPIs and metrics you’ll be using to check deliverables. If needed, give the suppliers the necessary training and specific physical assets to eliminate risks.
Implementing these transfers takes time and expertise. It's best to outline your expectations for this timeframe during contract negotiations, complete with milestones for the operations and deliveries.
Digital is the Future of Procurement
You likely have experience of how easily the supplier ecosystem can be disrupted by unpredictable events.
Considering how fully integrated suppliers are in your operations, it's clearly time to rethink procurement management practices and spending. Your first step should be to embrace automation and get technologies to achieve greater visibility in your procurement process, reduce risks and costs, and facilitate internal collaboration with suppliers.
By adopting the right strategies and technology, you can build a new model for sourcing and procurement to unlock greater enterprise resilience and strengthen organizational agility and efficiency.
Prepare your team for the future.