As a crucial component of the supply chain management, procurement management tends to be one of those processes that’s more tedious than necessary. Manual procurement management processes are especially vulnerable to obstacles, such as delayed approvals and misplaced documents. As a result of these factors, projects slow down, productivity takes a hit, and overall business profitability declines.
A procurement management plan serves as a good start to putting procurement processes in order. Put to proper use, these documents help lower overall procurement costs and support smoother business operations.
In this article, we discuss the components of an effective procurement management plan and list down the steps to creating one for your projects. We’ll also go into detail about common problems in procurement management so you can prepare accordingly.
The saying that no man is an island holds for procurement management. Procurement management covers a chain of processes essential to many businesses, whether for acquiring goods or services. With proper procurement management, companies avoid delays and errors that hurt their bottom line.
Procurement management is crucial to both the private and public sectors as well. In the private sector, these processes prove to be integral to the supply chain, helping identify ideal sources of supply and lowering the overall costs of raw materials. In the public sector, on the other hand, especially in Europe, procurement management holds spending accountable to ensure value for money.
Make or Buy decisions%
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New product development%
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Effective procurement planning and implementation start with a procurement plan. A procurement plan establishes acquisition needs and provides a clear roadmap of the procurement process from start to finish. With a properly made procurement plan, you can reduce procurement costs, improve relationships with vendors, and improve overall business productivity.
A procurement management plan outlines the essential procurement processes, including scheduling and vendor and contract management. It also identifies the team members to be involved in the processes. The plan provides details on strategies for carrying out procurement processes and illustrates various stages of procurement, from documentation to contract closure. Additionally, these plans are to be as thorough as possible to ensure overall procurement efficiency.
In many cases, the procurement management plan is part of a larger business strategy. For instance, the procurement management plan often serves as an important component of a project management plan, which documents external purchasing processes for a project. The information detailed in the procurement management plan can be used in other processes as well, including procurement documentation and change requests.
Interestingly, despite the availability of procurement management software, many companies continue to rely on manual processes for creating these plans. This is reflected in the slow growth of the procurement software market, which is projected to reach $6.04 billion by 2023.
Source: Apps Run the World
Procurement management plans usually have several components that identify various parts of the procurement process. Knowing these core components helps procurement professionals understand their roles better.
A thorough procurement management plan optimizes the procurement process and increases a project’s chances of succeeding. Aside from being detailed, a procurement management plan also needs to be flexible. This ensures that the plan can change according to the project’s scope and accommodate various risks and adjustments. The following steps should guide you through making a procurement management plan:
Start making the procurement management plan by outlining the items and services that need to be procured, along with reasons for procurement. Specify the dates when each item is needed, with respect to the project’s timeline. For clarity, this section of the plan should also indicate the people authorized to approve these purchases.
Additionally, decide if you want to use fixed-price contracts or cost-reimbursement contracts. You also have the option of choosing contracts based on material costs or fixed hourly rates. Once the contract type is established, specify the details on managing the contract throughout its lifecycle, including approvals and signature requirements.
To ensure flexibility, a procurement management plan accounts for potential risks that could cause project delays, along with mitigation strategies for these risks. Specify these risks, which may include delayed delivery of products and services, unmet cost expectations, shipping delays, and vendor conflicts. Make sure to include strategies, such as replacement contractors or vendors, to reduce the impact of these risks.
Similarly, the procurement management plan should include project constraints. Outline possible limitations so these can be taken into consideration throughout the procurement process. For instance, expressly stated budget constraints would help team members, contractors, and vendors understand that sticking to the budget is non-negotiable.
Source: BCI Supply Chain Resilience Report 2018
This is a crucial step in creating a procurement management plan as it directly affects the budget. Mostly, cost determination involves issuing a request for proposal (RFP), which asks vendors to provide bids for their products or services. These RFPs typically include critical schedule dates and provide details on vendors’ products and services, work arrangements, and previous experience. Vendors also usually provide a line-by-line outline of their costs to help managers and executives make informed decisions on procurement.
This part of the procurement management plan outlines the approval workflow for contracts. Specify the steps required before final approval, including reviews for bids and proposals, and analyses of services and costs. This detailed workflow helps ensure that each contract is reviewed properly before the final approval stage.
Aside from the approval workflow, establish the criteria that vendors should meet to be awarded contracts. These criteria may include the quality of the products and services offered by the vendor, performance history, RFP compliance, and the vendor’s ability to follow the provided schedule. Here, you can also specify additional vendor requirements, such as social and environmental responsibility.
These vendor management processes may include how and when project managers and vendors will meet as well as the goals of these meetings. This way, project managers regularly receive progress updates and get the information they need to keep the project on track.
Additionally, establish performance metrics so vendors understand your expectation in terms of scheduling and final costs. These processes ensure that the products and services you need are delivered on time without compromising quality.
The good news is that the best procurement software today offer plenty of tools for managing suppliers and vendors.
Tradogram, for instance, has features for ensuring smooth communications with suppliers and vendors. The software provides supplier evaluation forms and vendor scorecards so you can easily do vendor evaluations. Moreover, the platform comes with built-in messaging and discussion rooms to facilitate hassle-free collaboration with suppliers and vendors.
Procurement management often involves more than just the purchasing department or the procurement team. Procurement processes cover a wide range of functions and roles. People involved in procurement include:
With the wide-ranging functions of procurement, it’s not surprising that procurement management solutions often offer integrations with business software such as ERP software and accounting platforms. Tradogram, for instance, comes with built-in integrations for QuickBooks, Xero, and Sage 300.
We’ve already discussed some of the benefits of a well-made procurement management plan. As part of the overall procurement management process, this plan ensures that the procurement process goes well for your business’ projects, among other benefits like:
Given the complicated nature of procurement, it’s not surprising that the field can be fraught with challenges. Many of these challenges can be resolved through an optimized procurement management process.
Like most fields, procurement is no stranger to digital transformation. Disruptive technologies such as procurement software, advanced analytics, and crucial trends in artificial intelligence make it easier for procurement professionals to handle planning and implementation. These technologies optimize procurement processes through automation, providing benefits, such as strategic sourcing and proactive supplier management.
Procurement solutions like Tradogram provide an easy first step to transitioning into digital procurement. You can check out the platform’s free trial if you’re interested.
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