Procurement managers are the unsung heroes of balanced budgets. They have the power to eliminate waste in the supply chain, control costs, and optimize the buying process.
To get there, you need a comprehensive understanding of procurement best practices. You need to know how to audit your company’s procurement process and make smart spending decisions, particularly in high-value areas like IT.
6 procurement best practices
Waste in the supply chain can significantly cut into a company’s bottom line. Regular procurement audits can help you to identify and eliminate that waste, saving time and money for more valuable activities.
To complete a procurement audit, your team needs to review all of the contracts and processes in place. You’re looking for errors, gaps in information and places where you’re paying too much or buying features you don’t need.
1. Evaluate your procurement process
First things first: does your company have structured processes for procurement? Many companies don’t, and they end up spending way too much time reinventing the wheel.
As the initial step of your audit, look at the basic stages of the procurement process:
- Purchase orders
- Vendor selection
- Invoicing and payment
At each of these stages, team members should be able to give you a breakdown of what gets done and in what order. If there isn’t a standard process that people follow, it’s time to create one.
If your team does have a standard process, look for inefficiencies and places where errors could happen. Who authorizes each purchase? What’s the procedure for choosing a vendor?
Make sure that you include invoicing and bill payment in this process. Timely and accurate bill pay is essential to maintaining good relationships with suppliers, so there needs to be a reliable process in place for processing each invoice.
2. Look for opportunities to automate
Automation saves time. Think of how much time a purchasing department might waste chasing down approvals when automatic reminders could get a signature faster. Consider how long it takes to find information on a past purchase order when you have to pick through an email chain or spreadsheet.
Both of these processes can be automated. With Pipefy, for example, teams can use an invoice processing template that triggers an email to the relevant people when an invoice needs approval. Also, because invoices automatically move to the next stage of the process when one stage is complete, teams can see at a glance what needs to happen next.
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3. Involve other departments
Very often, a company’s purchasing department handles the process of evaluating and selecting vendors, regardless of who will use their products or services.
For several years, Ardent Partners has advised the procurement industry that a collaborative approach to sourcing is more effective. This sort of approach gives purchasing departments a better view of what functions and tools are best in class and which suppliers or product categories are becoming obsolete.
The purchasing audit is the ideal time to refine how user departments participate in the procurement process. Look for ways in which purchasing teams can become involved in the sourcing for various departments. Where teams do collaborate, make sure that there are standards for communication and established norms for decision-making.
Finally, be sure that collaborating departments have an easy way to share and find information. Look into getting a process management software like Pipefy, which makes it easy for members across teams to record and find data on contracts, suppliers, requests, and more.
4. Find shadow IT spending
Many companies have IT spending that doesn’t get counted because it’s buried in non-IT contracts. Departments and team members subscribe to services that don’t get counted in IT budgets.
Collaborative sourcing can help to solve this problem. If the procurement and IT departments know what users within the company need, they can meet those needs using IT budgets. This will allow bookkeeping and budgeting teams to keep track of spending and not pay for the same thing twice.
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5. Focus on the intended outcome
Redundant spending can also occur when teams buy prematurely. They know that technology can help them to build efficiency, so they spend money on a service that may not solve their biggest problems.
To avoid this mistake, start with an awareness of what problem you’re trying to solve. Turn to the department that’s asking for a solution. Ask them to appoint someone to do three things:
- Identify the problem or need.
- Specify the desired outcome.
- Suggest possible solutions.
At this point, IT should get involved to analyze potential solutions. Do the solution’s capabilities match the identified problem? Are there “extra” services involved that you don’t need to pay for? The collaboration process should continue until teams have found a “just right” fit.
Again, make sure all collaborators are working on a unified platform where they can be sure all information is up-to-date and process history is tracked.
6. Conduct a price benchmark analysis
IT evolves so fast that it’s hard to know if you’re paying a fair price for the services you use. In fact, unless you’re conducting price benchmark analyses for every purchase and contract renewal, there’s a 95% chance that you’re paying too much.
Part of the problem is the complexity of contracts, but another part is a lack of knowledge as to what’s out there and how much it should cost. Every time you decide on a vendor, whether or not you’ve worked with them before, do some research. Find out:
- How are other similar deals priced in the market?
- How might you adjust the contract to bring it closer to the market?
- Does the vendor offer any licensing, subscription or purchase options?
- Do any of your contract terms need to be adjusted?
You may need to bring in external help, and that’s okay. Just make sure they have all the relevant information about your business needs and budget.
Improve your procurement process with low-code automation
An efficient procurement department means a well-balanced budget, and these procurement best practices will help to get you there — but only to a point. A low-code automation platform is a perfect solution to patching up remaining process gaps to keep internal stakeholders, suppliers, and partners involved throughout the procurement process, maintain a comprehensive supplier database, and manage procurement categories and contracts with ease and data-driven insights to streamline purchasing and boost your company’s bottom line.