Procurement is a critical part of supply chain management. Regardless of the size of your company, applying discipline to the process by which you acquire goods and services directly improves your bottom line.
Good procurement practices also allow you to monitor the quality of the materials you buy and apply your company strategy and principles in what is often the biggest expenditure on your books.
What is the procure-to-pay process?
Procurement is the process of purchasing goods and or services for use in a business – or an organisation such as a government department. Procurement encompasses the actual purchasing process – from issuing a purchasing order request through to invoice payment – but also includes the surrounding planning, strategy and procedures that allow for control and optimisation of buying behaviour.
When we use the term procurement we’re looking at the exchange of goods or services from the perspective of the buyer. From the perspective of the vendor the same activity is a sale.
The procurement process can have many moving pieces. By understanding this complexity, companies can start developing and implementing strategies that would lead to better business outcomes while minimising the risks due to poor procurement practices.
Why procurement is so important in supply chain management
Regardless of the size of your business, there are benefits to having a sound procurement process – and risks to doing it wrong. Reasons why procurement is important include:
Along with labour costs, the purchasing of raw materials, components and stock is likely to be one of the largest expenses in your company. Good procurement practice will see you seek out the lowest price for equivalent goods and services, and review those purchasing decisions regularly to ensure your direct materials costs remain low.
While buying in bulk will reduce the price of goods, good procurement practice must balance the cost of goods purchased with proper inventory management.
For instance, a bakery chain could buy fresh eggs in bulk at half price. However, they would lose money if too many eggs spoil or break before they can be used – and if holding more stock lifts their warehousing costs too.
Another consideration that must be balanced against the unit price paid is the quality of goods purchased. A good procurement system can enforce quality control measures during the purchase process.
For example procurement within the construction industry can create discipline around proper certification of steel strength. Or an organic juice bottler might require orchardists to file a relevant organic certification number before winning a contract.
Optimising supplier contract terms and conditions
An unglamorous but important part of procurement is setting the right terms and conditions for your needs. More than just explaining your payment terms, your supplier contracts should set out specifications for the goods to be supplied, warranty periods for any defective goods received, confidentiality and intellectual property details, termination clauses and more. Carefully drafted contracts set out what you expect – and what happens if things go wrong.
Planning and strategy
A well-functioning procurement system works hand-in-hand with forward planning. For example, a new product launch can only proceed if the right components are secured ahead of time. And a price point for the new product can only be set by sales and marketing once the cost of materials is known.
Similarly, a cost-effective product business must avoid production halts and stockouts, both of which require the support of smooth and responsive procurement.
How SB360 can help?
With SB360, you can capture your procurement data and turn it into useful information to guide decisions. Saving you time and reducing costs.
Massively improve your procure-to-pay process by implementing an inventory management solution that integrates seamlessly with your company procedures. The procurement team (and all departments for that matter) can gain better insight into their operations, waste less time on tedious, repetitive tasks, and focus on the strategic aspect of the procure-to-pay process.
Sb360 can help you create accurate forecasts and spot bottlenecks or opportunities. The STOCK module digests your purchase data and displays it on a dashboard, perfect for your procurement team to monitor their performance at a glance.