Procurement is one of the main functions of a company’s operations, and proper management of procurement activities make sure the smooth running of the company’s operations. Along with running operations smoothly, it saves the company’s resources, time, and money. Today, we’ll discuss what is procurement management; its significance, various steps in the process, job titles, and required education and experience to perform this role.
What is Procurement Management?
Procurement management is the process of supervising various processes relevant to the purchase of needed goods/services, materials, and products in order to run the business operating efficiently. Different industries and businesses use various terms interchangeably like procurement, purchasing, and sourcing. However, procurement and purchasing term as company’s operational functions, and sourcing is in terms of strategy.
Businesses and companies among various industries rely on procurement professionals and experts; whenever they have to buy any item at the best cost and manage the relationships with external suppliers. That’s why procurement management has a great impact from strategic operations to the bottom line.
Significance of Procurement Management
- It’s nearly impossible for a company to run its functions smoothly without procurement management. It makes sure that the company has all the required goods/services so that its processes and projects keep on running successfully and efficiently.
- In fact, a well-optimized procurement system offers you a competitive edge by saving your time, resources, and money.
- The reason it plays a significant role at the bottom line is by minimizing errors, avoiding delays, lowering the cost down.
- It helps you to negotiate and win profitable production and supplier contracts, come up with innovative processes, and bring domestic business operations to the global level.
- It plays a significant role in dealing with diverse suppliers and leads towards corporate social responsibility
- It’s not enough if it only lowers the cost down, that’s why it has a strategic position to maintain the company’s growth in terms of revenue
Steps in the Procurement Management Process
When we talk about managing procurement, then the procuring lifecycle comprises of various steps. It’s important to mention here that different businesses and companies would follow various steps depending upon their needs and requirements. Anyways, some of the main steps are as follows;
Planning & Specifying
First of all, you should specify the needs and requirements of the product/service by planning and predicting based on the analysis of the existing data. It’s to determine when the company should order and reorder the product.
Recognizing & Choosing Supplier
You should recognize and choose the suitable supplier that meets your company’s needs and requirements. You can do so either by reaching out to the new supplier via proposal and quotations or contacting the known vendor/supplier.
Negotiating & Contracting
After that negotiating the terms and conditions of the contract and the price; you can do it either by negotiating directly and sharing your quotes and concerns, or biding your price. If you agree with the terms and conditions, finalize the deal, and sign the contract.
Placement of Purchase Order
The PO (purchase order) outlines the details of the supplied product/service like product specification, price, and terms and conditions. It’s important to know the source of the truth of the procured goods/service because it would affect the company’s various units.
Sometimes, expected products become outdated and it requires changing the schedule, that’s why it’s necessary to expedite the product order. When you study the delivery timing details, then it helps you to rectify some of the underlying issues like work completion, delivery timing, and unclear payment dates.
Receipt & Inspection of Purchase
You should review all the details in the orders in terms of quality standards and product specifications. In fact, you should also launch a 3-way match of the PO with the receiving document, packing slip, and invoice. If the delivery isn’t matching the specified and pre-defined standards, then a discrepancy report should be part of this step.
Clearing Invoice & Payment
You should align account payable with purchasing in order to complete the purchasing of the production process after confirming the documents alignment (receiving document, packing slip, invoice, PO), and inspecting the quality.
Developing Relationships & Maintaining Records
You should maintain a complete record of product ordering/re-ordering, confirming product warranty, and tax information in case of an audit. You should offer feedback and relevant data to the suppliers based on the KPIs (key performance indicators). It’s to recognize the improvement areas and the important changes that you want to make in the contract or the product.
Job Titles & Roles in Procurement Management
The role of procuring manager comprises finding reliable suppliers, high-quality material at the lowest cost, and developing a long-term relationship with the preferred suppliers. The manager has to coordinate with various departments (production floor, operation, receiving, and accounting) and the purchasing agents in order to keep them informed about the procedures and policies. Some of the other job titles along with procuring managers are as follows;
- Sourcing manager
- Purchasing manager
- Purchasing agent
- Procurement specialist
- The Procurement buyer
- Procurement analyst
According to research by LinkedIn Economic Graph, CPO (chief procuring officer) falls at the 11th position with the growth rate of 15%, and it is the fasted growth c-suit title in 2020. The impact of procuring managers is on the strategic level, innovative processes, and at the bottom line.
CPO position has earned the seat at the leadership table of the company. It deals with encouraging and motivating innovation and creativity in procurement, lowering the procuring lifecycle, ownership cost, and risk scenario planning.
Education & Experience
The procuring managers usually have a bachelor’s degree in supply chain management, finance, and business along with working experience as a purchasing agent, procuring agent, or any other buying role. They receive on-the-job training.
Conclusion: What is Procurement Management? Significance, Process
After an in-depth study of what is procurement management; its significance, various steps in its process, job titles, and education/experience; we’ve realized that purchasing position plays a significant role in the company. That’s why they earn higher salaries.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.