By most measures, procurement is critical to the continued function of many businesses. Of course, exceptions exist, like vertically integrated corporations. However, for the most part, procurement is nothing short of essential. That said, the concept of procurement and how to maximize its effectiveness has evolved considerably in recent years. To that end, for those who look at internal development in terms of cost-benefit analysis, we’ve gone ahead and laid out six potential advantages to effective procurement management.
This article will cover the following advantages:
The correlation between procurement and procurement costs comes down to a single concept - planning. When properly planned, purchase orders can go out at certain times of year for bulk amounts, which can positively affect cost. Moreover, when time is not of the essence, procurement teams have a more powerful negotiating position. Conversely, when time is running short, vendors/suppliers possess the advantage and, therefore, costs may end up notably higher.
Continuity of goods and services, without interruption, is core to a sustainable business. Harkening back to the planning involved with lowered costs, so too is the case for resource availability. Procurement teams can ensure ceaseless resource availability by planning with significant advance notice and by focusing on long-term requirements. On the other hand, without these measures, supplies may run out early, thus requiring costly, last-minute procurement arrangements.
There’s no denying the importance of transparency in business, and procurement is no exception. Given the stakeholders, relationships, steps, and processes involved with enabling large-scale procurement for complex organizations, such transparency is essential for problem-solving, making improvements, and acquiring a general understanding. By having a clear sense of how a business’s procurement systems work, these elements can improve overall efficiency, particularly when the goal is to iterate or scale.
When dealing with outside third parties, no matter the relationship, there is always an element of risk, whether it be financial, operational, legal, or strategic. Robust procurement systems should plan for these potential contingencies and have frameworks in place to identify and assess said risks. As a result, effective procurement management can mitigate the possibility and severity of supplier risk.
Beyond simple resource planning and availability, successful businesses have plans in place by which they can expect the unexpected. In the realm of procurement, this means accounting for scenarios where supplies might be limited despite service expected to continue unabated. In technical terms, this means businesses that desire robust procurement processes must shift from a “just-in-time” (JIT) to a “just-in-case” (JIC) mentality. That way, supplies, and overall service can remain resilient in the face of the unforeseen.
When businesses possess effective procurement management strategies, their priorities change. More specifically, when companies inefficiently manage procurement, their attention focuses on the short-term, while efficient procurement management enables long-term, high-level focus. In turn, this birds-eye perspective gives companies the freedom to innovate in ways they previously could not.
One such form of innovation may come in the form of PayEm, a new financial OS specializing in streamlining and modernizing companies’ procurement processes. To that end, PayEm’s platform modernizes the procurement process offering the necessary level of spend control, transparency, and compliance assurance, while still allowing the flexibility and ease that customers need. For a no-cost, commitment-free demo of the OS, contact PayEm’s experts here.
Procurement possesses several challenges and pitfalls for the unwary. That’s why we’ve gone ahead and outlined several of the challenges associated with procurement.
Procurement planning is the portion of the overall procurement process that identifies a business’s requirements and timeframes.