How to Build an Optimized Procurement Process
We spend a lot of time talking about creating optimized procurement processes, and for good reason. Supply chains have become incredibly volatile, but standards have remained high. As the Harvard Business Review put it:
“Many things will not change. Consumers will continue to want low prices (especially in a recession)…the pressure to operate efficiently and use capital and manufacturing capacity frugally will remain unrelenting.”
The ability to navigate unstable supply chains and high consumer expectations is vital, but how do you actually start making improvements? Understanding the full scope of the procurement process is a crucial first step.
Steps in the procurement process flow
Every business and industry is different, but most successful procurement strategies share a few broad stages. We’ve created a full guide that details best practices for each of the following steps:
- Identification of required goods or services
- Supplier selection
- Purchase order creation and approval
- Receipt of goods or services
- The “three-way match”
- Invoice approval and payment
In short, your procurement process flow includes everything that goes into getting your business the resources it needs to operate. It’s deceptively simple, and it doesn’t really end with invoice approval. The data gathered at each stage should be used to make improvements, creating a feedback loop – or, as it’s widely known, a “procure-to-pay cycle.”
Adopt a strategic definition of procurement
The procure-to-pay process isn’t just about purchasing goods and services. Experts at EY recommend that businesses evolve procurement “to become a strategic business partner able to drive efficiencies for the organization.”
In other words, take a more holistic view of what your procurement process is actually for. Besides moving things along your supply chain, it’s also a chance to contribute to business-wide goals. When it comes time to implement a new process, you’ll ask questions that take your entire organization into account, like:
- How can streamlined purchasing increase efficiency?
- How will customers benefit from better supplier relationships?
- How will leaner supply chain management reduce business costs?
Understand procurement in context, and you’ll prioritize optimization initiatives that benefit the entire organization.
How to optimize your procurement processes
Again, procurement looks slightly different for every business. Like the procure-to-pay cycle, there are a few broad steps that every organization should take when approaching procurement optimization, and it all starts with setting the right objectives.
Set objectives for optimization
Before optimizing your procurement processes, define the improvements you’re looking to achieve. Keep that strategic definition in mind, and consult with stakeholders across your organization to ensure the changes you are planning align with current and future business needs.
Document the resultant KPIs, and gather benchmarks from your current processes by noting current spend, timelines, and customer NPS scores. It’s the first step towards creating the feedback loop that will form a vital part of your procure-to-pay cycle.
Regular measurement and iteration will help you to adapt to evolving procurement methods and changes in your industry. Establish broad goals at the outset, and you’ll implement a strategy that takes business context into account while establishing good practice for monitoring and reporting.
Audit your existing process
Procurement is complicated – just six percent of businesses say they’ve got full visibility into their supply chain. It’s difficult to improve processes that you aren’t keeping track of, so start by taking stock. It’s a chance to gain insight into inefficiencies, deviancy creep, supplier relationships, inventory and more.
How lean is your approach?
Savings don’t always come with supplier discounts. Responsible lean supply chain management can use what EY call “non-sourcing value levers” like stock management and bulk shipping to create immediate efficiencies. If you’re not familiar with lean supply chain philosophy, we’ve got a guide that covers the essentials.
Are there opportunities to automate repetitive tasks?
Audit your existing processes, and document them if you haven’t already. As you do so, look for repetitive tasks that are easy to automate, like purchase requisition approval, purchase order (PO) creation and the three-way match.
Is your procurement data centralized?
Keep an eye out for opportunities to consolidate information, too. Answer a few basic questions:
- Is your current procurement strategy spread across several platforms?
- How easy is it for stakeholders across the company to access and understand purchasing data?
- Is it possible to get a birds-eye view of your entire procurement process, and to identify areas for improvement?
How strong are your supplier relationships?
Take the same approach to supplier relationships. If you have historical data on pricing, delivery times, order fulfillment accuracy, error resolution and communication, gather it in one place. It’ll then become easier to negotiate with your current suppliers and compare them to competitors.
What is the level of risk?
Even with the most efficient procurement process, some things remain out of your control. Aside from keeping costs down, adaptability is one of the core benefits of procurement process implementation. Conduct a risk analysis of your supply chain – what could go wrong, and how well can you plug the gaps if it does?
This could mean anything from establishing relationships with contingency suppliers to emergency stock management that offsets the risks of a lean supply chain. By some counts, 98 percent of consumers say that delivery impacts their brand loyalty. Delays can be costly, so account for them early on.
Before making major changes, share the results of your audit and suggested improvements with the wider team. Alignment can contribute directly to your bottom line – research shows that “tightly aligned” organizations see their revenue grow 24 percent faster than their less integrated peers.
Present a clear plan that links each adjustment to a tangible business outcome, and give teammates the opportunity to offer feedback. A sense of involvement in the process will make securing buy-in that much easier.
Convincing your organization that it’s a worthwhile exercise shouldn’t be difficult – if you included multiple departments when setting goals, stakeholders should already understand the value of procurement process implementation.
Adopt best-in-class procurement software
Dedicated procurement software is often the best way to track and report on your processes, and it’s far simpler than relying on static spreadsheets, ad-hoc document creation and manual approval. Gaining that all-important visibility is a matter of gathering the right data in a digestible format, so that it’s easy to analyze and areas for improvement are clear.
A purpose-built procurement platform will centralize your purchasing efforts for cross-organization access and analysis. It won’t just keep things organized, though. Competitive platforms will integrate with your existing technology stack to reduce the learning curves associated with new software.
They’ll also give you the ability to standardize and automate the procure-to-pay cycle – those repetitive tasks you identified in your process audit can then be automated in the same place that you gather your purchasing data. Procurement basics then require less human input, freeing your team to spend more time on high-value tasks like building strong supplier relationships.
Already have procurement software in place?
Procurement platforms are constantly evolving, offering innovative new features to support ever-changing business needs and end-to-end capabilities. If you’ve had your solution for a while, it could be time to explore your options and see how new platform offerings stack up against your current solution. Like Procurify, most tools offer impressive training and support documentation, making it easy for employees to adopt new tools and be up and running in no time.
Establish a chain of approvals
Once you’ve identified the right procurement platform for your business, it’s time to onboard your colleagues. After training has taken place, you can create efficiency-boosting approval chains.
There will likely already be a hierarchy within your business for approving purchases. Mirror that on your procurement platform, and make use of notifications and procurement automation wherever possible. For most organizations, that will involve:
- An initial request or requisition made by one of your employees.
- Automatic approval if it falls below a certain cost threshold, and is delivered without error using the request template on your platform.
- A notification sent to their line manager if it exceeds a defined cost threshold. Notifications can often be integrated with existing communication tools.
- A notification sent to a more senior manager if it exceeds a higher threshold.
- Approval by management or a request for more information if there are errors, or questions that arise as a result of the requisition.
- The creation and delivery of a purchase order using a pre-approved template.
- Automated invoice processing and three-way matching on delivery of goods or services, triggering payment to suppliers.
Revisit optimization efforts on a continuous basis
With an optimized procurement process in place, you should now have the visibility that you need to make iterative improvements on a rolling basis. Business needs, industry demands and the economic landscape change over time, and your supply chain management needs to adapt alongside them.
Maintain a strategic definition of the procurement process, and continue to encourage cross-department collaboration when measuring your implementation’s success against initial objectives. Whether you opt for a manual procure-to-pay process or adopt a procurement platform, optimization is an ongoing task.
How Procurify helps
Procurify is a procure-to-pay platform that empowers you to manage your entire spend from one unified platform and regain control of your organization’s spending through customized tracking, accountability and end-to-end workflows. Our customer success team helps to make implementation as seamless as possible, focusing on user adoption, training, and optimizing for your business’s needs and overall success.
Sign up for a free demo to find out if we’re a good fit, or get in touch to learn more about how we can help you implement an optimized procurement process.