Procurement Management, Everything You Need To Know [2022]

In today’s competitive business environment, it is very difficult to survive and grow without a good understanding of the basic principles of purchasing management. Survival and growth complement each other and neither can exist without the other.

  1. What is the purchase?
  2. Purchase types
  3. Procurement vs Purchase – What’s the difference?
  4. What is meant by purchasing management?
  5. What are the steps involved in the procurement management process?
  6. Why should you automate purchasing management?

What is the purchase?

Purchasing is the process of purchasing goods and services from sellers, usually for commercial purposes. Most companies have a designated buyer in charge of procurement, usually a senior manager with a team of procurement professionals. The buyer’s job is to find the best products and services for the company at the lowest price, and to find new sources to purchase a particular item or service when needed.

To understand how purchases can play a vital role in the success of your company, you first need to know the different types of purchases:

  1. Direct Purchasing Direct purchasing is the process of purchasing goods and services that are used in the core operations of a business. Goods and services purchased through the direct purchasing process eventually find their way to the end customer or customer of the company. These purchases are generally made in large quantities. Examples include raw materials, components, parts, and machinery.
  2. Indirect Procurement – An indirect purchase is the process of purchasing assets and services for a business not directly related to the company’s manufacturing operations or wings. Examples include the purchase of repair equipment, office supplies, and countless service sector products and services.
  3. Procurement of Services – Procurement of services consists of an integrated set of proven and economical business processes and practices used to obtain efficient professional services. From law firms to on-site security services, through external HR operations or equipment training, service procurement is all about purchasing the people-based services your company requires.

Procurement vs Purchase – What’s the difference?

Purchasing is an umbrella term that describes the process of defining the market for a product or service, building relationships with suppliers, evaluating cost savings and creating contracts. Purchasing is a sub-process of purchasing. Purchasing relates to the purchase of goods or services, purchase orders, invoices, notices of shipment, receipt of goods and payment. The two terms are closely related but mean very different things in practice.

What is meant by purchasing management?

Procurement management includes sourcing (identification and selection of suppliers), negotiation (determining terms and conditions of supply), purchasing (obtaining goods and services at the best prices by following the approved process), monitoring (identifying and managing risks), and reporting.
While purchasing management is all about strategic sourcing, it also involves a lot more. It has been said that purchasing management is the body, soul and spirit of the organization. It is a regulatory body, as it is about enabling the organization to make optimum use of its resources through cost-effectiveness and efficient procurement of goods and services. It is ethos because the procurement process involves identifying the core competencies of the organization and aligning them with the desired outcome of the procurement activities. It is ethos because it enables organizations to achieve their goals through a comprehensive approach to sourcing goods and services.

What are the steps involved in the procurement management process?

Even when purchasing simple items like pencils or clothes, they are often supplied to meet exacting specifications. That’s why there is a purchasing process called Purchasing Management. The proper procurement procedure consists of seven main stages:

  1. Determine requirements for goods or services
  2. Identifying and evaluating vendors/suppliers
  3. Negotiating contracts with the selected supplier
  4. Raising a Purchase Requisition (Public Relations)
  5. Create a purchase order (PO)
  6. Checking the quality of the ordered goods
  7. Billing and Payment

Purchasing stages

Step 1: Determine the requirements for goods or services

The first step is to define your requirements. This entails listing all the goods and services your organization needs to purchase, and thinking about which of those are high priority goods and services and which are not. It’s also important to consider your company’s strategic goals and mission, because purchasing decisions are often geared toward supporting those priorities.

Step 2: Identify and evaluate vendors/suppliers

Once you know what your needs are, it’s time to decide who will provide them for you. You first need to identify potential suppliers, which usually requires you to do some market research.

Step Three: Negotiate contracts with the selected supplier

The next step is to define the terms of the agreement. This generally includes pricing, delivery, payment terms, etc.

Step 4: Raising a Purchase Requisition (PR)

After the vendor has been identified and the details agreed, the next step is to raise a Purchase Requisition (PR) which is basically an approval from the department responsible for approving purchases that include description of the good/service, pricing, quantity and supplier information.

Step 5: Create a Purchase Order (PO)

Once the PR is approved, it’s time to issue a purchase order to the seller. This includes assigning a purchase order number, making it easier for your supplier to process your order and accounting for tracking.

Step 6: Check the quality of the ordered goods

Companies must audit ordered merchandise to ensure that suppliers meet quality expectations.

Step 7: Invoicing and Payment

The final step is to process the payment once the invoice is delivered to your company. This generally involves reviewing and accepting the invoice, and then passing it on to your accounts payable department for payment.

Why should you automate purchasing management?

Managing the purchase-to-pay process is manual, repetitive, often inefficient, and lacks transparency and quality. Employees spend a lot of time on this activity as they have to review many sources, build an extensive spreadsheet, or manually collect information from different vendors. Bad spending decisions are made, which leads to unnecessary purchase of products, services or materials at higher costs. On average, procurement professionals spend 30% of their time performing routine procurement processes such as creating, approving, and distributing purchase orders.
It doesn’t have to be this way!
The right small business procurement automation software can cut days off your purchasing cycle by streamlining the process of sourcing the right products, streamlining approval workflows and automating tasks throughout the entire purchasing journey. It leads to faster turnaround times, consistent results, and increased expense visibility. This can provide more value to your supply base, eliminate inefficiencies in your business, identify savings that can be reinvested, and ultimately help you succeed faster in your market.

.

Leave a Comment