Procurement Management Process - The 2020 Guide
Paper-driven procurement has a cascading effect on an organization's bottom line. A routine purchase generates bundles of paperwork, and needs too many back-and-forth emails to set things straight.
Procurement inefficiencies cost organizations a huge chunk of cash in delayed purchases, missed discounts, and transaction disputes. Attempting to speed up the procurement process with outdated tools like spreadsheets and emails is like trying to start a microwave with steel and flint.
To take advantage of early purchase and payment discounts, organizations need to toss stone-age procurement practices out the window and embrace technological solutions. Modern procurement tools can transform a painfully slow procurement strategy to world class overnight.
If your procurement process still relies on ancient tools, it's time for a major technology makeover. Here's all you need to know to power up the procurement process.
What is Procurement?
Procurement refers to techniques, structured methods, and means used to streamline an organization’s procurement process and achieve desired results while saving cost, reducing time, and building win-win supplier relationships. Procurement can be direct, indirect, reactive, or proactive in nature.
What is a Procurement Process?
It's the series of processes that are essential to get products or services from requisition to purchase order and invoice approval. Although we use procurement' and purchasing' interchangeably, they slightly differ from each other.
While purchasing is the overarching process of obtaining necessary goods and services on behalf of an organization, procurement describes the activities involved in obtaining them. The procurement process in an organization is unique to its context and operations.
Regardless of the uniqueness, every procurement management process consists of 3 Ps', namely Process, People, and Paperwork.
1. Process
The list of rules that need to be followed while reviewing, ordering, obtaining, and paying for goods/services. Checkpoints/steps increase with the complexity of the purchase.
2. People
These are stakeholders and their specific responsibility in the procurement cycle. They take care of initiating or authorizing every stage of the process. The number of stakeholders involved is directly proportional to the risk and value of the purchase.
3. Paper
This refers to the paperwork and documentation involved in every stage of the procurement process flow, all of which are collected and stored for reference and auditing reasons.
What Is the Procurement Process Flow?
To keep the procurement management process fair, transparent, and efficient, a good understanding of the procurement process flow is key. Although the procurement process of organizations differs from each other, the flowchart below sums up the important steps in a procurement process.
Steps involved in a Procurement Process
Every procurement management process involves several elements, including requirements determination, supplier research, value analysis, raising a purchase request, reviewal phase, conversion to purchase order, contract administration, monitoring/evaluation of received order, three-way matching, payment fulfilment, and record keeping. These are the important stages in the procurement process flow:
Step 0: Needs Recognition
The preliminary step in a procurement process is recognizing the need for a product. Be it a brand new order or a recurring purchase, needs are analyzed and the availability is double-checked before creating a request for purchase.
Step 1: Purchase Requisition
Typically, a procurement process starts with a purchase requisition. The requester sends a request for procurement (paper form, electronic, or phone) to the purchasing department.
Step 2: Review of Request
The purchase request is then reviewed by the procurement/finance team. Approved requests become POs, while rejected requests are sent back to the requester with the reason for rejection. All these can be handled with a simple purchase order app
Step 3: Budget Approval
In enterprises, once the procurement team raises a PO, it is forwarded to the accounting department to receive budget approval.
Step 4: Quotation Requests
Once the budget is approved, the procurement team forwards several requests for quotation (RFQ) to vendors with the intention to receive and compare bids to shortlist the perfect vendor.
Step 5: Negotiation & Contract
Once a vendor is selected, the contract negotiation and signing are completed, and the purchase order is then forwarded to the vendor. A legally binding contract activates right after a vendor accepts a PO and acknowledges it.
Step 6: Receive Goods/Services
The vendor delivers the promised goods/services within the stipulated timeline. After receiving them, the purchaser examines the order and notifies the vendor of any issues with the received items.
Step 7: Three-Way Matching
At this step, three documents purchase orders, packaging slips (that arrive with the order), and vendor invoices are lined up and reconciled to pinpoint discrepancies and ensure that the transaction is accurate. Discrepancies should be addressed once they are discovered.
Step 8: Invoice Approval Payment
Once three-way matching is complete, the invoice is approved and forwarded to payment processing depending on organizational norms.
Step 9: Record Keeping
After the payment process, buyers make a record of it for bookkeeping and auditing. All appropriate documents right from purchase requests to approved invoices are stored in a centralized location.
Why Should You Automate Your Procurement Management Process?
A solid procurement automation software can streamline the cluttered procurement process and keep it transparent. No information is lost and stakeholders can raise, approve, or reject items on time. A streamlined procurement process offers better control over every stage of the procurement lifecycle.
Furthermore, an efficient procurement automation software:
- Minimizes the chaos made by paperwork
- Shortens the procurement lifecycle
- Reduces human dependency intervention and errors
- Lessens the workload of all stakeholders
- Keeps the process accurate and consistent
- Injects transparency into the process flow
- Sticks to the predefined procurement cycle
Choosing an automated procurement management software rather than depending on emails and excel sheets will speed up the procurement process, ensure accuracy, enhance efficiency, and save time and resources.
Must-Have Features in a Procurement Management System
While most procurement management systems promise the same list of benefits, their inbuilt features set them apart from each other. So, double-check whether they have vital features to ensure a hassle-free procurement.
Here are essential features organizations need to look for in a procurement management software:
- Spend Control (with custom rules and approval workflows)
- On-the-go approval (centralized cloud storage)
- Risk mitigation (with audit trails, role-based access, and conditional visibility)
- Easy integration (API integration with other procurement apps)
- Insightful reports (get actionable insights from real-time reports)
- Simple customization (drag-and-drop, visual form builders)
- Pre-built templates (to shorten the implementation cycle)
- Interactive dashboards (to know the status of any request at a glance)
Summary
Cloud-based procurement automation tools like Kissflow are suitable for both SMBs and enterprises. Kissflow allows organizations to create a dynamic procurement management process that provides them with a tactical advantage.
Organizations can resolve procurement hurdles they face with archaic procurement tools. Today's e-procurement tools are capable of straightening the procurement process flow in a jiffy. Kissflow offers tools and resources every business needs to automate end-to-end procurement and scale it up or down to meet their business needs.
And best of all, you don't need a developer to automate the procurement process. Even business users like finance staff who don't have any coding expertise can create a purchase order app in 15 minutes.
Looking for a software that strengthens the procurement process and minimizes the chance for fraud and errors? Give Kissflow a try for free. It's a solution crafted with best procurement practices in mind, to deliver a procurement experience you'll love, every single time.
