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.
Secure buy-in
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.