Every organization is different, unique, and has specific needs. Any one organization could very well need to source a spectrum of tasks and activities to other companies, or vendors. These vendors then fulfill the terms of the contract, therefore providing the company whatever it was they needed in order to move forward. That could be to finish products, to best serve consumers, or even to keep upkeep and maintenance. All of these activities fall under duties of the procurement department.
In other words, to build an effective procurement department that works efficiently, while serving the needs of the company, and reducing annual-procurement costs one must look at the procurement process as a system.
Defining Procurement Activities
There are many activities related to the procurement lifecycle. Activities like the internal purchase order request at the time a department runs out of supplies they need. Another activity might be choosing the vendors a company works with, or tracking the shipment, arrival, and stocking of inventory, as well as it’s associated payments.
In the most basic terms, procurement is the business to business sourcing of goods and services through contract negotiation, and other communications.
However, every business or organization is going to have specific procurement needs that other similar entities may or may not have. Yet, even through all of these differences there are a few pillars to every top-shelf procurement team.
Vendor sourcing is the bread and butter of procurement. Companies trust their procurement teams to sift through the list of potential vendors and whittle it down to a short-list. A group of pre-qualified vendors who are all viable, trustworthy, and able to meet the terms of the contract.
An added benefit to a well designed vendor–sourcing process is that these short-lists can then be saved into the procurement software to be accessed later. Users can return later and reuse short-lists that have been previously created. Therefore, the user experiences a streamlined, more effective process.
Once short-lists are created, and vendors are vetted, the next pillar for an organization to tackle in regards to procurement is the reverse auction.
The reverse auction is exactly what it sounds like. Companies put out the terms of a contract they need filled, whether that be for goods or services, and vendors/suppliers bid lower and lower price points until one is the lowest bidder.
The lowest bidder wins that specific contract, and then starts the onboarding process with the company.
Saving money on a single contract is a good first step. Saving money on decades of contracts is the goal though. To achieve procurement savings on contract-after-contract for years and years to come, it’s important to prioritize the suppliers that are chosen for contracts.
Many procurement teams have professionals dedicated to managing the supplier relationship to make sure that everything is running smoothly and going to plan.
Contract management is another absolutely vital aspect of the procurement department. Contract management comes into play from the moment the need for a contract exists.
The contract management department within the procurement department is a function that originates the terms of the contracts and sends them to the vendor-sourcing and reverse auction specialists.
Once a contract is awarded to a specific vendor or supplier, the contract management team begins the onboarding process, and finalizes the terms of the contract with the vendor.
From then on, anything related to that contract is managed through the contract managers. Negotiation on extension, termination, and everything in between.
Establish Your Procurement Practices
Each and every organization is going to have slightly different needs when it comes to procuring goods and services. Due to that, there’s no single solution or perfect formula that every company can look to, to solve their procurement needs.
However, grasping an understanding of your organizations procurement needs specifically can inform the way your company approaches building a procurement department.
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