Estimated reading time: 5 minutes
• The procurement function is among the most critical processes in most organizations.
• The procurement function entails identifying goods and services required by the organization, inquiring about their availability, and assessing suppliers based on quality, cost, and delivery conditions.
• Below, we take a refined look at the difference between procurement and vendor management.
Procurement management is the end-to-end process of acquiring products, supplies, and services. Procurement management is a strategic process that involves evaluating and comparing costs, negotiating with suppliers, and awarding contracts. It’s critical to understand procurement to understand the scope and intensity of procurement management.
Well, procurement’s primary intention is to procure products and services, save sourcing costs, and drive business value. The procurement function has evolved to mitigate risks and create sustainable supplier relationships. Procurement professionals are constantly pursuing cost-saving opportunities to reduce fixed and billable costs. Procurement professionals look forward to optimizing cost-saving opportunities in licensure fees, support, and maintenance costs.
Procurement’s central role is to review current (and potential) vendor relationships and ensure the lowest-cost provider is considered for supplies. That means that procurement professionals reinforce supplier relationships by evaluating and comparing costs to determine the most cost-saving opportunities. The procurement function further involves consulting with the legal department to set the appropriate terms and conditions to protect the organization’s interests.
While vendor procurement is primarily concerned with cost-saving opportunities during sourcing processes, vendor management nurtures cost-saving relationships with suppliers.
Vendor management is a strategic function of any organization. This function ensures that any third-party relationships are nurtured and risks mitigated. Vendor management also mitigates risks in the supply chain processes by reinforcing and building healthy relationships with suppliers. In large IT organizations, obligation management drives or determines the governance agenda – meaning that vendor obligations affect governance procurement. Certain conditions set out in the annual performance review agenda apply when vendors fail to fulfill certain obligations.
Vendor Management Best Practices
Best practices allow you to extract the juice from your relationships with vendors and suppliers. Using the best practices in vendor management can help you settle for the best suppliers, mitigate risks, reduce costs, and enjoy flexible supply chain conditions. There’s no doubt that vendor management is an increasingly dynamic and complex practice.
Vendor management best practices include:
- Vendor management policy. The management policy is an official document that reports vendors’ business and supply chain activities to the senior management. The policy can improve collaboration among vendors, foster innovation, and reduce supply chain risks.
- The vendor contract clarifies responsibilities. The vendor contract is legally binding, and it clarifies vendor responsibilities. The contract specifies and outlines a number of conditions and expectations. For instance, the vendor contract may include information about products and services, their quality levels, and the conditions around which these products will be delivered.
- Use KPIs to evaluate vendor performance. The KPI is a set of measures that evaluate suppliers based on supply and product quality, cost, performance, and compliance. The key performance indicators KPIs used to evaluate suppliers examine various factors such as value, cost, and possibilities for strategic sourcing.
- Risk management. Risk management is part and parcel of vendor management best practices. You save your business unprecedented supply chain risks and ensure maximum business continuity by mitigating risks. Today, data risk is a primary concern for organizations, and firms are leveraging high-tech innovations to avert risks.
- Vendor collaboration. Fostering relationships with vendors is the cornerstone of strategic sourcing. Effective procurement encourages vendor collaboration to save time, improve supply chain efficiency, and mitigate procurement shocks. Encouraging vertical and horizontal collaborations streamlines your procurement planning and management from inception to completion.
Procurement Management in 2022 and Beyond!
The coronavirus pandemic has affected businesses in unprecedented ways. The announcement of the Covid-19 pandemic forced enterprises to close shops, rendering millions unemployed. The pandemic devastated markets because of procurement and supply chain shocks.
A stark shortage of consumer products was experienced, with retail outlets and fast-food stores sustaining the damage of a grueling pandemic. The coronavirus pandemic turned tables and marked the beginning of new transformations.
Procurement management has experienced the following transformations:
- Data and analytics. Data and analytics form a central part of strategic sourcing and procurement. Procurement professionals are relying on data and supply chain statistics to inform procurement processes.
- Procurement software. Organizations and employers are investing exhaustively in procurement software to streamline procurement operations. Already, thousands of enterprises are implementing procurement software to deal with complex billing and sourcing processes.
- Supplier relationships. Vendor management is an emerging discipline. Vendor management is gaining momentum for organizations looking forward to optimizing vendor relationships.
- Investment in eProcurement. Electronic procurement (e-procurement) is an innovative sourcing model. E-procurement enables organizations to leverage automation to power procurement and sourcing activities. With an e-procurement solution, you can achieve best-in-class, reliable, and competitive sourcing processes.
- Spend analysis. The procurement function has changed extensively. This function examines cost-saving opportunities by analyzing spending across product and service categories. Strategic spend analysis enhances transparency, preventing hidden procurement costs and averting confusion surrounding payments and contract terms.
- Sustainable sourcing. Sustainable sourcing integrates environmental, social, and ethical responsibilities in sourcing practices. Organizations exercising sustainable sourcing buy from suppliers who meet moral and social benchmarks. The global pressure to reduce production costs combined with the globalization of supply chains has pushed organizations towards sustainable sourcing.
Procurement trends will continue to evolve, thus calling for proactive measures in procurement management.
ProcurePort provides automated procurement solutions. ProcurePort sourcing tools enable you to streamline purchasing and sourcing processes, allowing you to take advantage of a futurist, cutting-edge sourcing solution. ProcurePort’s innovative solutions qualify you to optimize vendor relationships given its vendor management capabilities.
Contact ProcurePort and take advantage of procurement and vendor management.