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What is Procurement?

Procurement Helps You:

Align procurement with corporate strategy
Streamline supplier selection
Manage supplier performance
Cut costs associated with daily processes

What is procurement, and how can a management system help users streamline procurement and purchasing? At its most basic, procurement is the overarching term for finding, negotiating, and purchasing goods and services. Regardless of the industry, every business has to interface with procurement tasks at some point. However, chasing down suppliers, getting quotes and negotiating prices is a drain on valuable employee resources.

Procurement software can take over many of the time-intensive tasks that would normally keep employees wrapped up for hours.

Align procurement with corporate strategy

Procurement is directly affected by the way a company is positioned and what type of products they intend to carry. Businesses that procure and store items requiring special considerations have an identity that is directly tied to procurement practices. The regulations by which their items can be stored and the length at which they can be stored can vary widely from a retail business selling clothes. In order to get the most out of procurement tasks, many organizations leverage the variety of features a software platform can bring to the table.

When setting up procurement practices, a management platform can identify which areas require special consideration while providing guidance on keeping up with regulations. By keeping important considerations front and center, every business can make sure they fall in compliance with the unique requirements of their industry. Procurement software can automatically reorder items that move out quickly to keep enterprises of any size on top of demand. Having a proper procurement strategy is vital to the long-term health of a business; keep an eye out for these features when considering a new procurement system.

Automatic reordering
Customizable dashboards
Compliance and regulation checklists
KPI management
Demand management

Streamline supplier selection

Suppliers are the lifeblood of procurement, and maintaining good relationships with preferred suppliers is a vital part of the process. A procurement management can help users identify suppliers that fit within their requirements. By analyzing past purchases and current inventory, a management system can pair users with suppliers that are the best fit. Management tools give users the ability to easily create job postings that suppliers can bid on. This way, suppliers can get a good look at your inventory, any other relevant statistics and decide if they are right for the job.

Some management platforms can loop you into valuable networks that contain many different suppliers that could help you down the road. To achieve this advantage, choose a solution that contains features similar to these:

Supply catalog access
Review past purchases
Supplier networks
Customizable job postings

Manage supplier performance

Finding a supplier that fulfills your requirements is great, but maintaining that relationship is key to maintaining healthy procurement practices. Procurement management can take some of the stress out of fostering healthy supplier relationships. Customers depend on a business for their products. If a supplier is underperforming, the company they supply fails as well. Business owners need to keep track of how their suppliers perform; if they routinely miss deadlines or lack communication skills, these shortcomings can be noted on scorecards. Collaboration tools keep lines of communication open between suppliers and business owners so that issues can be resolved.

When searching for suppliers to bring into an enterprise, procurement management can assess risks attached to each supplier and show past relationships with other organizations. This way, users get a good look at who they are about to work with without any unpleasant surprises down the road. Analysis tools and metrics help keep companies up to date on how their suppliers are doing while managing any underperforming aspects that may arise.

Cut costs associated with daily processes

Optimized procurement management is vital to save money. Purchasing goods and services add up to a significant bill for businesses of all sizes, but these costs can be managed with a proper procurement system. Even the slightest cut in procurement and purchasing costs can have a huge effect on the overall budget. For starters, a procurement management automates and simplifies the purchasing process. With these tasks streamlined by the system, users can focus on more lucrative opportunities and not get caught up in tedious manual input.

A procurement system can also link up inventory and accounting systems for better organization and error reduction. This allows for a reduction in staffing, better accounting accuracy, and fewer errors to chase down and correct. Users can set up purchasing rules so that only necessary items are bought, which can help cut down on costs associated with storage and superfluous spending on unneeded products. Those looking to find a way to save money should keep an eye out for these helpful features:

Purchasing requirements
Accounting integrations
Automated accounting
Automated purchasing
Inventory management integrations

FAQs

What is the Difference Between Procurement and Purchasing?

The terms procurement and purchasing are often used interchangeably. However, these are two separate processes that involve different steps. Firstly, purchasing can be found within the greater umbrella of procurement. Procurement has to do with the work that goes in before the actual purchasing of the goods or products. Selecting a vendor, vetting them and establishing terms for payment are processes that you would find within the wheelhouse of procurement.

Purchasing would purely involve the transactional steps that wrap up the entire procurement process. The entire process of purchasing goods beginning in procurement is known as the Procure-to-Pay-Cycle and contains numerous steps, including:

Requirements identification
Purchase request authorization
Request approval
Procurement
Supplier identification
Negotiation

There are many more steps, but you get the idea. Procurement makes purchasing possible, and a procurement management system has the tools to handle both of these tasks.

Procurement and E-Procurement: What’s the Difference?

We’ve covered some of the basics of procurement, but what is e-procurement and how is it different? Traditional procurement and e-procurement practices are quite similar; in fact, e-procurement is the next stage in the evolution of procurement as a whole. Procurement involves physical interactions and face-to-face negotiations when hiring suppliers and finalizing deals. The most logical continuation of this practice involves software and the internet. Instead of long phone calls and face-to-face meetings, users can exchange information through procurement management, schedule deliveries and negotiate beneficial prices with suppliers.

Procurement is the past and e-procurement is the future. As time goes on and more businesses adopt software to manage their procurement tasks, the old time-consuming methods will fade out. Effective organizations are always on the lookout for anything that can boost efficiency and cut costs, and moving toward a paperless e-procurement environment has too many advantages to ignore.

How Do I Select Procurement Software?

Selecting procurement software that is right for you can be a difficult task. In order to narrow down the large field of potential vendors, prospective users can ask themselves a few probing questions. What size is the business? How much room in the budget is there for a new software system? What deployment strategy best fits the unique requirements of the business? These simple questions can cut the vendor field down into a manageable form. If you need some more guidance, we have resources available to help, whether it be our Procurement Requirements Checklist or our guide to creating a strong Procurement RFP.

Resources for Software Selection

Product Directory

In-Depth Comparison Report

Requirements Template

SCM

Inventory Management

Transportation Management

Warehouse Management

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Confidence Comes from Data

Procurement software selection is complex and beset with problems for both IT buyers and solution providers. We do three things to make it fast and simple:

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Aggregated Reviews

We have collected every software review available online, crunched every last word using our proprietary Sentiment Analysis algorithms, all so we can tell you how a software product is viewed in its marketplace, retrospectively.

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Professional Analysis

We relentlessly collect and analyze data about software, then compile and share it so every company has the same access to the information. The information we gain is then used in our Software Selection platform to help you find the right software.

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Your Guides

Our industry journalists proudly distill the helpful information you read on SelectHub, always on the mission to share what matters so you can make your best decisions independently.

Procurement articles are written and edited by:

Zachary Totah

Content Manager

As SelectHub’s Content Manager, Zachary Totah leads a team of more than 35 writers and editors in their quest to provide content that helps software buyers find the right system for their company.

Ryan McElroy

Content Editor and Senior Market Analyst

Ryan McElroy is a Content Editor and Senior Market Analyst at SelectHub who writes content on EHR, EMR, home health, telemedicine and construction scheduling.

Amrita Chakraborty

Technical Content Writer and Market Analyst

Amrita is a Technical Content Writer and Market Analyst at SelectHub. She writes content for categories such as inventory management and procurement.

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Procurement Strategy Guide

What This Article Covers:

What Is Procurement Strategy?
Types
Steps
Key Elements
Importance
Next Steps

What Is a Procurement Strategy?

A procurement strategy is the long-term plan or method used by organizations to build strategic supplier relationships to acquire supplies at cost-effective rates. It reflects the company’s goals and objectives and includes a set of practices that align with them.

Some of its common objectives include better spend control, improved cost efficiency through strategic sourcing, and enhanced supplier diversity, quality management and product development. Its primary purpose is to use optimal resources to provide the best output quality.

Procurement Strategy Matrix

The Kraljic Matrix is a tool used in procurement strategy to identify the best approach for sourcing different categories of goods and services based on their profit impact and supply risk. It consists of four categories:

Strategic Items: High-profit impact, low supply risk. These items are critical to an organization’s success and require a strategic procurement approach, with a focus on long-term supplier relationships and cost optimization.
Leverage Items: Low-profit impact, low supply risk. These are typically commodity goods and services procured through a direct sourcing approach, with a focus on cost reduction and supplier standardization.
Bottleneck Items: High-profit impact, high supply risk. These have a significant impact on an organization’s profitability and require a managed procurement approach, with a focus on risk management and supplier collaboration.
Non-critical Items: Low-profit impact, high supply risk. These aren’t critical to an organization’s success and can be procured through a passive approach, with a focus on reducing administrative overhead.

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Types

Organizations are always looking for time-saving and economical strategies. There are various strategy types you can employ to help improve your procurement processes. Some of the popular ones are discussed below:

Types of Procurement Strategy

Cost Reduction

This is one of the most common procurement strategies used by businesses to save money and maximize profit. How’s it achieved? By identifying cheaper alternatives!

Start with streamlining the purchasing process, negotiating with vendors, adjusting operational expenses and looking for cheaper alternatives by lowering the total cost of ownership (TCO) of the procured products.

Risk Management

As the name suggests, this process is all about mitigating potential risks associated with your procurement process. The core steps involved in risk management are as follows:

Identifying probable risks
Assessing their nature and potential impact
Prioritizing based on their potential effect
Monitoring employee preparedness
Mitigating by using pre-established contingency plans
Communicating risk management practices

Supplier Management & Optimization

This particular procurement strategy focuses primarily on fostering supplier relationships and setting and enhancing performance standards. As a follow-up, you can remove any vendors from your supply chain who fail to adhere to the set company standards.

Green Purchasing

If you’re looking to reduce your carbon footprint and operate sustainably, you can take the green purchasing approach. How do you do that? By identifying vendors that follow the green philosophy and use energy-efficient, recycled materials generating low emissions.

Global Sourcing

The purpose of this strategy is to diversify your supplier search to procure services at a cost-effective rate. Global sourcing enables you to pick from multiple supplier alternatives with maximized production capacity.

Total Quality Management

Streamline your supply chain management technique by detecting errors and optimizing manufacturing processes. To achieve total quality management, implementing quality control, setting and conducting inspections are some necessary steps.

Get our Procurement Software Requirements Template

Steps

The purpose of an efficient procurement strategy is to eliminate maverick spend, minimize purchasing errors, ensure policy compliance and recognize cost-effective opportunities. To develop a robust procurement strategy follow the steps below:

Steps to Develop a Procurement Strategy

Analyze Current State

The first step towards developing a procurement strategy is to assess and identify areas of improvement in your supply chain. This primarily focuses on organizational spend — product acquisition and the amount spent on them and identifying different departments associated with the procurement process.

The actionable data gathered after analysis will give you insight into spend trends and highlight overlooked areas where cost-cutting is probable.

Engage Stakeholders

Collaboration with key stakeholders and partners is essential to developing a suitable procurement strategy. Having your stakeholders actively participate and be on board when proposing change is vital to an effective process.

Align Strategies

Once you’ve evaluated your business needs, it’s essential to set specific, achievable objectives. Having your objectives outlined, you can align your procurement strategy per the set goals.

Define Procurement Policies

Review process workflows and existing procurement policies for each department. The purpose of this is to recognize and address inefficiencies to adjust policies per the new approach.

Create an Outline

Now that you’ve evaluated your business needs, set objectives and defined policies, it’s time to outline your procurement strategy. The aim is to prepare SMART goals:

Specific: Setting up goals on par with the company’s needs and objectives.
Measurable: Monitoring the progress of set goals.
Achievable: Making your goals achievable based on your existing resources.
Realistic: Goals that align with company values and can be realistically accomplished.
Time-bound: Have a deadline associated with the goals.

Implement Procurement Software

Managing data manually can be tedious and slow, leading to inaccuracies. Automation helps curtail these issues and improve effectiveness. Implementing procurement tools enables visibility, boosts compliance, and mitigates risks.

Procurement tools can assist you with various functions, including:

Sourcing, purchasing and generating purchase orders
Vendor and supplier management
Inventory control
Spend reporting
Billing and Invoicing
Contract Management

Execute & Adjust

The final step is executing the procurement strategy, which you then need to analyze and review. To further fine-tune the process, use actionable data collected from measuring the success of implementing the strategy.

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Key Elements

The elements of a procurement strategy are the building blocks that form the foundation of the procurement process and include:

Objectives and Goals: Define the purpose and outcomes desired from procurement activities, such as reduced costs, improved quality and strengthened supplier relationships.
Market and Supplier Analysis: Understand the current market conditions and assess the capabilities and performance of potential suppliers to identify those that can meet your organization’s needs.
Cost and Value Analysis: Evaluate the total cost of ownership for each item or service procured, including direct and indirect costs, to determine the best value for your money.
Risk Management: Identify, assess and mitigate potential risks associated with procurement activities, such as supplier risk, contract risk and market risk.
Stakeholder Engagement: Engage with key stakeholders such as internal customers and suppliers to ensure that procurement activities are aligned with their needs and expectations.
Performance Improvement: Monitor and evaluate the performance of procurement activities and suppliers and implement continuous improvement initiatives to enhance performance.
Sustainability Considerations: Incorporate sustainability considerations into procurement activities, such as using suppliers that have environmentally friendly practices or procuring products made from recycled materials.

Importance

An effective procurement strategy will aid in streamlining processes and enhancing transparency by setting clear guidelines. It’ll help create a system to efficiently track progress, measure the results and identify areas for improvement.

It also involves implementing a purchase management system to improve the purchasing process and help develop supplier performance standards.

Other than these, a robust procurement strategy improves supplier relationships and uses automation to eliminate manual tasks, thus, making the process cost-effective and less time-consuming.

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Next Steps

The goal of a successful procurement strategy is to improve cash flow, deliver business value and improve supplier relationships.

Are you looking for procurement software to facilitate and execute your procurement strategy? Our comparison guide can give you a look at some of the top performers in the category.

Have you implemented a procurement strategy before? What were the biggest challenges? Let us know in the comments below!