The procurement management process: Managing the bottom line
Key takeaways:
- The procurement management process is a cyclical process of key steps involved with procuring goods or services to ensure teams get what they need when they need it and at the best value.
- The steps in the procurement process are statement of need, strategic sourcing, purchasing, contract management, and supplier management.
- Use gaps in the process as an opportunity to be flexible and create long-lasting strategic relationships with internal stakeholders and suppliers.
Whether you are brand new in procurement or a seasoned procurement pro, there are some things on which we can probably all agree. Organizational lines are commonly blurred. Sometimes we use procurement and purchasing terminology interchangeably, and well, it’s easy to lose sight of the basics.
To help you get (or keep) a solid grasp of how to make procurement a competitive advantage in your company or take a procurement team to the next level, read on to uncover the heart of procurement: the procurement management process.
Then, we’ll reveal how you can take organizational process challenges and turn them into procurement wins using the procurement management process.
What is the procurement management process?
The procurement management process is a cyclical process of key steps involved with procuring goods or services.
Envision the procurement management plan as the umbrella under which all pieces of the procurement cycle live, including purchasing. You might also hear it called the supply chain management process.
This fundamental workflow is what procurement departments follow to ensure teams get what they need when they need it and at the best value. It also encourages the consideration of long-term budget, strategy, sustainability, and supplier relationships.
If it sounds important, that’s because it is. This strategic process is absolutely essential to a thriving company.
What are the steps of a formal procurement management process?
As a quick refresher, here are the five main steps of the procurement management process. As you read through the steps, think about how your company currently handles each one.
Process step
Key duties
Responsible department
SaaS solutions
1. Statement of need
- Receive purchase requisition
- Meet with stakeholders to discuss need
- Procurement
- Stakeholders
- eProcurement
- Procure-to-pay
2. Strategic sourcing
- Market research
- Make or buy analysis
- Specification development
- Project schedule
- RFP or RFQ
- Selection process
- Contract negotiation
- Implementation
- Change management
- Procurement
- Stakeholders
- Potential suppliers
- eProcurement
3. Purchasing
- Purchase order
- Receipt of deliverables
- Receipt of invoice
- Payment
- Purchasing
- Accounts payable
- Logistics
- Asset management
- Procure-to-pay
4. Contract management
- Renewals
- Price increase negotiation
- KPIs and metrics review
- Procurement
- Supplier
- eProcurement
- Vendor management system
5. Supplier relationship management
- Supplier report card
- Manage ongoing supplier partnership
- Procurement
- Stakeholders
- Supplier
- Vendor management system
- Supplier relationship management system
Step 1: Statement of need or request for purchase
During the first step of the procurement management process, we learn that a department has a need. This could be as simple as receiving a purchase requisition for contracted goods. Then again, it could be as complex as meeting with a cross-functional team of stakeholders to understand a high-level organizational need.
Step 2: Strategic sourcing and project procurement management
Strategic sourcing is the second step in the procurement management process and is full of opportunities.
Procurement starts the strategic sourcing phase of the cycle by doing market research and a make or buy analysis. Next, they’ll consult with the stakeholder team to develop specifications. During this step, Procurement takes on a procurement project management role. As the project manager, the procurement agent does the following:
- Creates the project schedule
- Leads the formal selection process with the project team
- Negotiates contracts or agreements
- Helps to launch implementation
- Assists with internal change management
Expert tip: Many eProcurement solutions include sourcing modules that help to streamline the Request for Proposal (RFP) or Request for Quote (RFQ) process, and provide high-level procurement data that you can use for category management.
Step 3: Purchasing
Even though they are often used interchangeably, purchasing and procurement are not the same. Purchasing is a transactional step in the larger procurement process. After Procurement approves a purchase requisition, a purchase order is issued from Purchasing, and then the order is received, invoiced, and paid.
If you’ve ordered software and there are no physical goods to receive, the purchasing process will occur between the requesting department, Purchasing, and Accounts Payable. However, your Logistics and Asset Management teams may also play a part if there are physical deliverables. So, while the step is collectively called purchasing, other departments are often involved in the purchasing process.
Expert tip: E-commerce or procure-to-pay solutions are procurement systems that focus on improving and automating the purchasing process in real time.
Step 4: Contract management
It is common for people to think that the procurement process ends after the purchasing step, but in reality, the work is only just beginning.
During the contract management step of the procurement management process, Procurement negotiation handles contract renewals and price increases. Procurement also monitors any key performance indicators (KPIs) or metrics established for tracking and works with the internal team and supplier to mediate and resolve any issues.
Another significant and often overlooked step of the contract management step is that Procurement must be able to answer questions about the contract for internal stakeholders at any time. For example, during my time as a procurement agent, it wasn’t uncommon to get a phone call from a company leader asking specifics on a several-year-old contract.
Step 5: Supplier relationship management
Much like contract management, the supplier relationship management step is a life cycle that will end only if the supplier relationship ceases.
This step includes analysis of supplier performance, innovation, and ongoing management of the supplier partnership.
Expert tip: A vendor management solution that includes supplier relationship management might be worth considering for more interaction and automation in tracking supplier satisfaction.
Overcoming challenges in the procurement management process
OK, you’ve brushed up on the procurement management process, and you know how vital it is to the company’s bottom line, but what happens when the real-life process doesn’t look quite like it’s supposed to?
Here are a few common challenges and what you can do to turn them into opportunities.
Challenge: Departments skip steps of the procurement management process
We’ve all been there, and if you haven’t, you will. For example, you get a statement of need from a department. When you start asking questions, you discover they have already developed specifications and done their own informal supplier selection process. They know which vendor they want to proceed with and are ready for you to sign the agreements with a “need-by” date of yesterday. Not cool, right?
Now, you know nothing about this SaaS solution, nothing about the market or the supplier they have chosen. You don’t even know if the selection process was fair. And indeed, you’ll struggle to answer questions about this future contract because you don’t even know the details. But the team is ready to move and wants to begin implementation urgently.
Opportunity: Build internal relationships
More often than not, the department didn’t bypass you on purpose. Instead, they probably got tasked with finding a solution to an operational issue, and to be proactive, they dove right in and forgot (or didn’t know) to include Procurement.
If this was a first-time mishap, use it as an opportunity to build internal relationships. There are few things more advantageous to a procurement professional than establishing solid relationships internally and with suppliers. This is the perfect time to show the department where procurement activities fit into the process and why. Explain why you can’t immediately sign the agreements and launch implementation, but assure them that you’ll assess the process and see what you can do now to keep things moving.
Give examples of previous successes by following the procurement management process. For instance, as a Buyer, I helped save a department over $50,000 on a large software purchase by going through the strategic sourcing process.
Rather than asking the supplier individually to quote the software, I put it out for competitive bid, and then the suppliers got competitive. That was a huge victory and savings for the company. I used that example for years to come when building relationships, and that department never forgot to include Procurement again.
Challenge: Unresolved supplier conflicts and contract cancellations
All is going smoothly in the procurement world until one afternoon when you hear from a stakeholder looking to terminate their contract. Why? They aren’t happy with the supplier and have tried to resolve the issues with no success.
Opportunity: Preserve supplier relationships
While it certainly would’ve been helpful if you had known there were issues with the supplier before it got this far, now is your opportunity to shine as a strategic mediator.
First, listen to and document the problems reported by the department. Ask for any documentation they have on the matter, including emails and notes. Next, talk with the supplier. Remember that you and the stakeholders went through a thorough strategic sourcing process to select this supplier and solution and were confident in the decision.
Most often, you’ll discover a breakdown in communication somewhere. If the issue is fixable, take the steps needed to mediate between the two parties and get things moving smoothly again. If the problems are not fixable, begin supplier offboarding to minimize further risk to your company.
An example: My first of more than a thousand contracts resulted in a request for cancellation by the internal department. Active listening resulted in the discovery that implementation required more internal resources (time) than we planned for. This became overwhelming for the understaffed department, and as a result, they got frustrated with the supplier.
I knew that any of the other solutions we reviewed would require a similar implementation process. The real issue was not the supplier or the solution but a lack of proper internal resource allocation. This resulted in an internal agreement for more resources and an agreement with the supplier to help streamline the process. The mediation was a success, and the organization still uses the solution today.
Challenge: Parts of the organization view Procurement as red-tape
In the first challenge, the department inadvertently failed to include Procurement. But what if getting a seat at the decision-making table is difficult because your organization sees Procurement as a red-tape obstacle instead of a strategic asset?
Opportunity: Show them value on the bottom line
Sometimes, it pays to speak the business love language of the decision-makers. Show them the money by creating an annual or quarterly balance sheet that itemizes procurement costs and savings, cost avoidance, and revenue to the company.
For example: As a procurement leader, I realized that Procurement drove the company’s bottom line in many ways that our leaders did not always notice. Since the Procurement department fell under the Chief Financial Officer, I decided that accounting and finance-based reporting would be most effective.
The balance sheet reflected procurement savings and revenue that would have otherwise never gotten recognized. Numbers on a spreadsheet itemized with brief descriptions were more influential than anything I could have said or written. The procurement balance sheet helped to define Procurement’s value to the company.
The procurement management process: The art of being flexibly inflexible
Procurement management stands on a solid foundation of processes that are a roadmap for the way a company gets the goods and services they need to succeed. The procurement management process is the pinnacle of these processes.
But procurement professionals know that every day in procurement looks different. New challenges, new technology, innovations, and the need for continuous improvement are just a few of the things we prepare for daily.
The ever-changing business landscape is why it pays to become a master of being flexibly inflexible with the procurement management process. Stick to using the process as a template or guide, but be flexible and keep the primary procurement goal in mind: to get your teams what they need, when they need it, at the best value, and with the company’s long-term strategy and sustainability in mind.
What if we told you that you could save money and time all the while having your SaaS stack managed seamlessly? Spoiler alert: You can! Contact Vendr today to learn more about how we can help to improve your procurement management process.
