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The order team

The procurement function plays a critical role in financial health and performance, even for early-stage businesses. The nature of purchasing and procurement is such that organizations swiftly find themselves overwhelmed by valuable data, but with no meaningful way to analyze or benefit from it. This volume of information can lead to wasteful spending and lost opportunities.

 

Fortunately, good procurement management practices can help even small organizations organize their invoicing and keep track of spending. Codifying and streamlining your processes will make it easier for stakeholders to raise their hands when needs arise. It further helps your organization quickly approve the request and arrange for payment of goods. When companies build successful procurement initiatives, they realize cost savings that could otherwise remain hidden in a sea of line items and renewal contracts. 

 

To achieve these outcomes, it’s important to understand the basics of procurement, and how to manage it effectively. As your company grows, you’ll have a process that translates well into more automation and software to help you scale.

 

In this article, we’re covering the important features and benefits of good procurement management, as well as ways to advance your procurement practice using technology. By the end of this post, you’ll know:

  1. What procurement management is
  2. The role of procurement management in saving money and time
  3. Why and when to automate your procurement management process

 

Let’s start by understanding exactly what procurement management is, and how it fits into your organization.

 

What is procurement management?

Procurement management is the process by which an organization conducts, approves, tracks, and optimizes its spending on supplies and services. The main mission of a procurement team is to reduce the bottom line costs of purchasing and streamline the process of getting goods and services the company needs to produce products. 

 

A strong procurement management plan comprises many functions, including:

  •    Resource planning
  •    Supplier sourcing and evaluation
  •    Purchase requisition approval
  •    Purchase order processing
  •    Order reconciliation
  •    Vendor payment processing

 

Procurement management is a component of the larger Supply Chain Management (SCM) function, dealing with internal materials sourcing and management. While many organizations treat procurement and supply chain management as separate functions within the organization, their operations and objectives are closely related. 

 

Procurement serves as a support system for supply chain operations. It serves as the sourcing partner that enables the supply chain and manufacturing teams to transform raw materials into products that meet or exceed quality standards. Supply chain management then oversees the distribution of finished products into the hands of resellers and end-users. 

 

The importance of procurement management

If you’re running a household, getting a handle on spending is the number one way to improve your long-term personal finances. If you’re a growing business with a vision for long-term success, getting a handle on your procurement practices has the same effect. 

 

Solid procurement management strategies are the first line of defense for reducing costs and stabilizing cash flow. It forms the basis of your budgeting and forecasting functions and ensures that your revenue is used in the most efficient way possible. The money you save with insightful procurement can then be invested in business growth, ensuring stability for the long term. 

 

In order to establish a functional procurement management system, you must be able to: 

 

  •    Give stakeholders a standardized process for making requests
  •    Establish an approval process and guidelines to evaluate price, terms, and risk.
  •    Build an efficient process for tracking, reconciling, and paying for goods. 
  •    Harvest data from the previous steps to be used in future planning.

 

By establishing this process, you can realize many benefits and surprising costs savings in the short term.

Key benefits of a strong procurement management process

Creating a well-documented, structured procurement management process offers many ways to increase efficiency and reduce costs, such as:

 

  •    Strategic sourcing: Committing to vendor management in your procurement process helps you to identify the best potential suppliers by price and terms, and consolidate them into a preferred vendor list. Sticking with a small list of pre-vetted, trusted partners reduces research time and allows you to fully leverage your existing partnerships and pricing. 
  •    Streamlined purchasing: A slow purchasing process reduces your ability to quickly source and receive vital goods. By formalizing your purchase requisition and approval workflow, you will improve purchasing timelines and reduce your overall project procurement by days or even weeks. 
  •    Reduced waste spending: Maverick spending accounts for thousands in waste spending across your organization. Closely tracking your procurement process eliminates the process gaps that allow maverick spending to thrive. By having a standardized process for getting requisitions approved and processed, every stakeholder can get their needs met without relegating tail spend to a corporate card or an expense report.
  •    Risk Management: Though lesser-discussed in terms of cost-savings measures, successfully mitigating the risk in your supplier relationships helps you avoid unforeseen costs and unplanned spend. Standardizing your procurement process, approvals, and contract review can help you avoid out-of-stock issues with suppliers, stabilize on-hand inventory, and improve contingency planning for shipping delays. 

 

Why should you automate procurement management?

Procuring goods and services is one of the most impactful financial activities in your organization, with procurement costs representing up to 50% of a company’s revenue, depending on the industry. With so much money at stake, understanding your procurement spending is essential for reducing bottom-line costs and improving budget efficiency. But conducting these practices across dozens or hundreds of vendors — potentially generating thousands of monthly invoices — is a tall order. 

 

Procurement automation helps companies achieve all these objectives without cumbersome manual processes. With automation, companies enjoy many money-saving advantages:

 

  1. Intelligent procurement management allows procurement professionals and supply chain team members to spend less time on low-value and repetitive tasks. It creates more opportunities for data-driven decision-making, high-value project management, and capacity planning. This increased time for high-impact activities results in better ROI and spend efficiency. 
  1. Automation helps your finance and AP teams keep up with growth. Manual invoice processes are costly and prone to discrepancies and inefficiencies. Even with low exception rates, AP clerks are limited on how much processing they can perform. By replacing your manual processes with a touchless, automated system, you can batch, process, code, and issue thousands of payments simultaneously. This significantly reduces costs and helps your purchasing department realize early payment discounts.
  1. The benefits of automation go beyond reduced spend to help you form better supplier relationships and realize benefits over the long term. Automation improves the management of procurement contracts and enables vendor lifecycle analysis, and improves accountability for the quality of goods and services you buy. By managing your contracts effectively, and automating your process for faster payments, you and your suppliers all win. 

 

Choosing the best procurement technology is easier when you have the right tools for evaluating your options. Check out our free downloadable decision matrix to help you analyze your options. 

 

What to look for in a procurement management software solution

If your organization is considering improving its business operations with automated procurement software, a thorough evaluation process will be necessary. Your current procurement management system, monthly invoice volume, tech stack, and typical procurement activities all factor into which potential suppliers could work for you. 

 

Any platform you choose should offer features such as:

 

  •    Full integration options: An automated procurement platform should operate as a component within your larger financial or accounting infrastructure. The procurement platform should also share data across systems to reduce issues and redundancy. Look for solutions that offer full integration capabilities with your other platforms and planning apps.
  •    Robust analytics tools: The wealth of data generated in your procurement process is there to be harnessed for data-driven decision making and cost-savings analysis. Advanced reporting tools allow you to surface real-time data from across your organization by location, category, product type, and GL code. Look for a solution with a full complement of reporting, analysis, and visualization tools on board.
  •    Budget controls: Automated purchasing controls make the purchase requisition process easier for your stakeholders, empowering them to serve their own needs while keeping organizational goals in mind. Dynamic budgeting controls provide protections from overspending for purchasing decisions. These can be administered by dollar value, role, location, or other key parameters. Be sure the solution you choose has a sufficient budget and approval workflows to encourage self-service without sacrificing cost control.

 

The above features will help your organization maximize the flexibility to create and administer purchasing workflows, improve purchasing efficiency, and share financial information across the organization. Best-in-class options such as Order offer even more ways to streamline and automate your procurement function.

 

The added advantages of managing procurement with Order

The Order procure-to-pay platform goes beyond invoice processing and vendor management functions. It allows clients to streamline their entire purchasing process into a curated experience. Once purchases are complete, our consolidation tools allow you to process fewer invoices per supplier, or even reduce supplier payment to a single event every month. 

 

Order drastically increases the efficiency of procurement practice in three simple steps:

 

  •    Creating a unified marketplace: Purchasing inefficiencies can creep in from the moment a purchase request is made. By creating a single, curated catalog of products, Order empowers your stakeholders to service their needs through a pre-approved list of products and suppliers. Instead of spending time looking for pricing and interacting with unknown providers, your employees will have a simple method to research, select, and complete their supply and materials orders. 
  •    Consolidating supplier invoices: A large organization with multiple locations generates potentially dozens of purchase orders per day from a single supplier. This creates headaches for AP teams who must process and code a constant flow of similar invoices. With Order, you can remove the redundancy from the supplier invoicing process, consolidating all invoices from a specific supplier and day into one invoice for processing.
  •    Integrating invoice payments: Order offers even greater flexibility in processing your purchase orders and payments. The system allows users to directly pay vendors with whom you have advantageous terms, or use Order as your Vendor of Record and pay for all your purchasing across every supplier through a single invoice. With any payment option you choose, Order’s automated process creates perfect coding and line-level visibility for granular reporting capabilities.

These advanced product features help clients of every size — from small businesses to major brands such as WeWork — effectively manage their procurement processes and get spending under control while greatly improving efficiency. 

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If the right procurement management platform could make a difference in your budget optimization and operational efficiency, we invite you to request a demo of the Order platform.