There are several ways to go about procuring goods and services. You might have heard of traditional, strategic, compliance, and hybrid procurement methods. Each has its advantages and disadvantages, and a combination can be the best solution for your company.
Traditional Procurement
Traditional procurement management is a classic approach to procuring goods and services for a project. Typically, a project owner hires an architect, design firm, or interior designer and then a contractor after a competitive tender process. The contractor then coordinates the construction team and subcontractors. The main drawback of this process is that there needs to be more communication between the design and construction teams.
In traditional procurement management, the focus is on extracting the maximum value from contracts and vendors. As a result, the process has been plagued by the law of diminishing returns. When a contract price becomes unprofitable for the vendor, they reduce the level of service provided and finally give up the contract. A more effective approach is to view procurement as a strategic partner with a customer-centric approach to procuring goods and services.
Strategic Procurement
Procurement is a continuous process where businesses strive to build relationships with key suppliers to obtain the best possible service at the lowest costs possible, allowing them to increase profit margins. The process also involves performance analysis and quality assurance checks. Understanding the various aspects of procurement management is essential to ensure that it delivers the most value to your business.
The first step in strategic procurement is identifying the organization’s specific needs and then identifying the most effective approach. While it can be challenging to determine which approach is best for a particular organization, several models exist. These models include competitive negotiation, sealed bidding, and sole source procurement.
Hybrid Procurement
There are several different approaches to procurement management. One approach involves the creation of a central procurement process. However, some activities are outside the purview of procurement, such as centrally negotiated contracts. While some activities are managed centrally, others are managed locally. Regardless of which approach a company chooses, it is essential to consider the overall impact of the process on the company’s performance.
The traditional procurement method involves evaluating vendors’ prices and quality. It also involves managing stakeholders, which can be either internal or external. Internal stakeholders include budget owners, the finance and legal departments, and senior management, while external stakeholders include vendors and suppliers. Developing positive relationships with these stakeholders is imperative to achieve long-term success. Increasingly, organizations are choosing to outsource procurement to save money and time and focus on their core competencies.
Compliance Purchasing
Compliance purchasing is a process that involves the use of technology to ensure compliance. This process can help companies track expenditures and improve their audit readiness. It can also help companies ensure their vendors comply with the requirements. However, it is not without its challenges. In addition to the technical aspects, this process can lead to human bias and data inaccuracy.
The first step is to identify a need for a product or service. Recognizing a need is essential, whether a new product or a restocked item. Next, a firm will require a requisition procedure to document the need for goods and services. This process also requires consultation with all stakeholders.
Automation Software
Automated procurement management workflows can help you save time, money, and include a sales incentives plan while boosting the speed and efficiency of your process. Instead of manually processing purchase requests, you can use dynamic forms that are automatically filled out and submitted to approvers for online approval. You can even automate the approval process with e-signatures. This software also allows you to streamline your record-keeping by eliminating manual processes.
Procurement automation software helps businesses automate many manual processes and eliminate the need for multiple employees. One of the most common processes is purchase requisitions, which require multiple approval stages. Automating these processes can free up valuable employees’ time, avoiding project delays. Another necessary process that can be automated is invoice approval. Automating this process saves your procurement team time and ensures that invoices are appropriately approved.
