Comparison between Procurement and Purchasing
Strategic sourcing VS procurement
What is the impact of procurement on business?
Procurement has a significant impact on a business in several ways:
Leads to higher cost savings
Procurement can increase cost savings for businesses. By effectively managing the procurement process, companies can identify cost-saving opportunities and negotiate better deals with suppliers. This can include consolidating suppliers, leveraging purchasing power, optimizing inventory levels, and reducing waste. These cost savings can ultimately lead to increased profitability for businesses.
Enhances the management of supplier relationships
Effective procurement practices involve building and maintaining strong relationships with suppliers, which can lead to a more efficient and effective supply chain. This includes developing communication channels, setting performance metrics, and working collaboratively to resolve issues. By managing supplier relationships effectively, businesses can improve supplier performance, increase transparency, and build long-term partnerships. This can lead to improved quality, increased flexibility, and better access to innovation from suppliers.
Boosts operational efficiency and automates processes
By digitizing procurement processes and leveraging technology, businesses can streamline workflows, reduce manual tasks, and improve data accuracy. This can include automating purchase order creation, implementing electronic invoicing and payment systems, and using analytics to identify areas for improvement. By optimizing the procurement process, businesses can reduce cycle times, eliminate errors, and improve process transparency. This can lead to better collaboration between departments, increased productivity, and a more agile supply chain.
Lifecycle of standardized contracts
Implementing a procurement process allows the creation of a lifecycle of standardized contracts by defining the steps and activities that need to be taken during each stage of the procurement process. This includes identifying the need for a product or service, defining the requirements, sourcing potential suppliers, negotiating terms and conditions, and monitoring supplier performance. By following a standardized process, procurement teams can ensure that all contracts are managed consistently and efficiently, regardless of the product or service being procured.
The Procurement Process Flow consists of 8 steps
Typically, the procurement process flow consists of 8 steps:
Identifying the need
The first step in the procurement process is to identify the need for a product or service. This can be done through a variety of means, such as conducting market research, receiving a request from another department, or identifying a gap in the current inventory.
Purchasing request
Once the need has been identified, the procurement team develops a plan for how the product or service will be procured. This includes determining the budget, defining the requirements, and identifying potential suppliers.
Analyzing the request
After the procurement department receives the purchasing request, they analyze the details provided and determine the best course of action. This could include determining if the product or service requested is available in-house, if there are existing contracts that can be used, or if a new supplier needs to be identified. The procurement team also evaluates the specifications of the product or service to ensure that they meet the needs of the department that made the request. If the procurement team identifies any issues or gaps in the request, they will communicate with the department that made the request to clarify or modify the request as needed.
Supplier evaluation
Supplier evaluation is the process of assessing potential suppliers or vendors against specific criteria to determine their suitability for fulfilling a company's procurement needs. This evaluation typically involves gathering information about the supplier's financial stability, quality control processes, capacity to meet demand, past performance, and compliance with ethical and legal standards. The goal of supplier evaluation is to ensure that the selected supplier is capable of providing quality goods or services at a competitive price while minimizing supply chain risk and supporting the company's overall procurement strategy.
Looking for quotes
Looking for quotes is the process of requesting and collecting pricing information from potential suppliers or vendors. This step typically involves sending out a Request for Quotation (RFQ) or Request for Proposal (RFP) to suppliers who have been pre-qualified through the supplier evaluation process. The RFQ/RFP specifies the product or service required, the expected quantity, the delivery timeline, and any other relevant terms and conditions. Suppliers are asked to provide pricing information and other details about their ability to meet the company's procurement needs. The goal of this step is to collect enough information to make an informed decision about which supplier to choose, based on factors such as cost, quality, and delivery time.
Contracting and negotiating to get the best deal
After selecting the preferred supplier, the next step in the procurement process is contracting and negotiating. This involves finalizing the terms and conditions of the purchase, such as pricing, delivery timelines, payment terms, quality standards, warranties, and other relevant factors. The contract should be drafted and reviewed carefully to ensure it reflects the mutual agreement of both parties and is legally binding. Negotiations may involve some back and forth between the buyer and supplier to reach an agreement that satisfies both parties. Once the contract is finalized and signed, it becomes a binding agreement between the buyer and supplier.
Getting supplies
This step involves creating a purchase order or agreement with the supplier(s), arranging for payment, and coordinating the delivery or receipt of the goods or services. It may also involve quality control checks or inspections to ensure that the goods or services meet the required specifications and standards. Finally, the goods or services are accepted and received, and any issues or disputes are resolved.
Relationship management with suppliers
Relationship management with vendors is an important step in the procurement process. Once a vendor has been selected and contracted, it is important to maintain a positive and productive relationship with them. This includes establishing open lines of communication, setting clear expectations and performance metrics, and regularly reviewing the vendor's performance. Effective relationship management can lead to better prices, improved quality, and greater reliability from vendors, ultimately benefiting the overall success of the procurement process and the organization as a whole.
The World Bank: briefcase study
The procurement process introduced by the World Bank aims to ensure that funds provided by the organization are used effectively and transparently. The procurement process involves the acquisition of goods, works, and services for World Bank-funded projects. It includes a competitive bidding process, which allows qualified companies to bid on contracts for World Bank-funded projects. It also includes various policies and guidelines to promote transparency, fairness, and accountability. For example, the World Bank requires bidders to disclose any conflicts of interest and prohibits any form of bribery or corruption. The procurement process has helped the World Bank to ensure that its funds are used effectively and transparently and has contributed to the organization's overall mission of promoting economic development and reducing poverty around the world.
5 key steps to optimize your procurement process
Procurement is a crucial function of any organization as it involves purchasing goods and services from external suppliers. A well-optimized procurement process ensures that the organization can acquire the required resources at the right quality, quantity, and price. Here are five best practices to optimize the procurement process for your business:
Identifying and reducing the risk management process
One of the critical aspects of procurement is risk management. It is essential to identify potential risks associated with the procurement process, such as supply chain disruptions, quality issues, or financial risks. Once identified, measures should be put in place to mitigate the risks, such as diversifying suppliers, improving quality control, or developing a contingency plan.
Inventory control
Effective inventory management is key to optimizing the procurement process. Organizations should have a clear understanding of their inventory levels to avoid overstocking or stock outs. By leveraging technology such as inventory management software, businesses can monitor inventory levels in real-time and automate replenishment processes.
Improve Your Vendor Management Approaches
Choosing the right vendor is crucial to the success of any procurement process. Businesses should establish a vendor management process that includes selecting the right vendors, negotiating favorable terms and conditions, and maintaining good relationships with vendors. This ensures a steady supply of quality products and services at competitive prices.
Create a customized Workflow
Procurement workflows should be customized to fit the unique needs of your organization. It's essential to identify the needs of your organization and create workflows that are efficient and effective. This includes outlining the procurement process, defining roles and responsibilities, and establishing clear communication channels.
Implement E-procurement solutions to automate the prioritization process
E-procurement solutions automate various procurement processes, including prioritizing purchase requests, sending out requests for proposals, and issuing purchase orders. This helps to streamline the procurement process, reduce manual errors, improve transparency, and save time and money.
The Best Procurement Software Tools for the year 2023
Coupa
Coupa is a cloud-based procurement software tool that offers features such as e-procurement, invoice management, supplier management, and spend analytics. It is known for its ease of use and customization capabilities.
SAP Ariba
SAP Ariba is a procurement platform that offers features such as e-sourcing, contract management, supplier management, and spend analysis. It is a well-established solution and is widely used by large enterprises.
Basware
Basware is a cloud-based procure-to-pay platform that provides procurement, invoice automation, and supplier management solutions, as well as analytics and reporting capabilities.
Precoro
Precoro is a cloud-based procurement software tool that offers features such as purchase order management, invoice management, and supplier management. It is known for its user-friendly interface and affordability.
Kissflow Procurement Cloud
Kissflow is a cloud-based procurement solution that offers features such as purchase order management, invoice management, and supplier management. It is known for its workflow automation capabilities and intuitive interface.
