13 Best Procurement Practices to Boost Sourcing in 2023
How to Streamline Purchasing in Your Organization
As the costs of running a business continue to rise and vulnerabilities in supply chains become more apparent, more organizations are realizing the importance of improving their procurement process.
This goes beyond cost reduction.
Instead, it's about transforming your supply chain into a critical asset that you can use to grow your business. The key to getting to that point faster is by following these 13 best procurement practices.
This roadmap will help you see how you can start taking the steps necessary to improve efficiency, reduce waste, and gain more strategic insights into your sourcing.
If your organization is still following manual procurement processes (like invoicing, reporting, and vendor management), then you need to read this post. The potential ROI for streamlining purchasing in your organization cannot be understated.
1. Build Procurement Management Frameworks
Before you can start addressing any inefficiencies in your procurement process, you need to establish a strong procurement management framework.
If you don’t already have a procurement management framework in place or your existing one hasn’t been revisited in a while, you need to take a step back and look at how sourcing functions in your organization.
Your procurement management framework should establish guidelines for:
- Monitoring and approving purchase requests
- Managing vendors and procurement negotiation
- Conducting three-way match and quality assurance
- Invoicing and payment
- Record keeping
- Hiring new buyers and purchasing agents
- Training employees on products
Make no mistake, this is not an overnight process. You’ll need to dive into your procurement processes, map out workflows, and build out standard operating procedures.
In fact, it’s such an extensive process, we put together an entire playbook on how to do it right. (You need to check this out.)
Staying best practices with procurement processes requires a well-developed management framework in place. DO NOT skip this step.
How to Ensure Transparency in Procurement:
- Plan and implement strategic procurement policies: Create a procurement strategy to maximize ROI, and share these rules with everyone in your organization.
- Properly document every step of the process: Always write down key information about the progression of every order. The more data, the better.
- Manage and update the approved supplier lists often: Keep contact information of reliable sellers while staying on the lookout for new contacts and opportunities.
- Create fool-proof procurement contracts: Create comprehensive contracts and store them electronically so using them is as simple as drag, drop, and complete.
- Conduct audits frequently: Hold even the most reliable suppliers to high standards. Evaluate their performance regularly to ensure they’re meeting your demands at competitive rates.
2. Optimize Your Inventory
An often-overlooked area in the procurement process is not managing current inventory efficiently. Controlling spend and maintaining bottom lines while managing stock and intake can be a daunting challenge.
Keeping inventory at an optimal level is one of the best procurement practices. Planning purchase quantities to minimize waste while delivering on customer expectations is a careful balancing game.
It’s worthwhile to remember that holding inventory for long periods of time can jeopardize ROI. The cost of warehouse fees, taxes, obsolescence, and insurance add up over time. Your inventory should rotate smoothly and regularly, lowering your overall risk and unnecessary expenses.
3. Engage Suppliers
Building a solid relationship with suppliers is vital to your organization’s success. Essential product delivery and routine maintenance are key components to running a business strategically.
But ensuring vendors deliver reliable, high-quality goods and services on time (and at the best rate) requires a strategic relationship with your suppliers.
You need to have better insight into your suppliers, so you can track performance and evaluate relationships. With more data on vendors' performance, you can engage them in a meaningful way that will ensure your business needs are being met.
How to Engage Suppliers Strategically to Secure Procurement
- Maintain clear, open communication: Clearly communicate purchase orders and requirements to your supplier. Have a system in place to ensure the delivery of invoices.
- Establish expectations early: Leverage your knowledge of the market so you can hold your vendors to that standard.
- Evaluate vendor performance regularly: By evaluating the quality of goods and services delivered, you ensure your company receives the best value for its investment.
- Pay vendors on time: Leverage your company's ability and desire to pay quickly. Your vendors will prioritize your company if you prioritize theirs.
- Stay aware of the competition: Knowing your vendor markets and how your supplier compares to the competition also ensures that your company gets the best.
- Provide Self-Service Portals: With a self-service portal, your vendors can submit invoices, proposals, and contracts. Plus, you can easily communicate with them directly on the platform, sending or receiving critical notifications/alerts.
- Provide Vendor Dashboards: Track vendor performance against contracts and ensure your vendors provide consistent service. Compare and switch vendors easily.
4. Use Digital Contract Management
Contract management is at the heart of the procurement cycle. Purchase orders, invoicing, and reviews all come with a trial. But this trial doesn’t always have to be paper.
By moving the contract management process to the cloud, companies can minimize risk and maximize transparency. The cloud allows for a centralized and easily accessible system that can save your organization money while storing your procurement documents safely.
There’s a variety of software available for contract management on the market. These vary by design or services provided.
Find the one that fits your business needs the best.
5. Automate Your Procurement
Inefficient procurement costs businesses $1.5B annually. Efficiency will save your business time and money, giving you time to focus on your customers.
As a result, customer satisfaction increases. But to reach levels of efficiency that will yield a substantial ROI, you need to automate your procurement process.
Every company that wants to maximize growth while scaling needs every single advantage it can get. With customizable applications and strategy technologies available, your business can easily automate systems.
Automation minimizes repetitive operational processes, giving your employees more time to contribute strategically to the growth of your business.
There are immediate benefits to automation as well.
Without the human component in data entry, costly errors can be avoided. Employee satisfaction improves with streamlined workflows. And your organization can save money with strategic sourcing.
Here are 3 critical processes to automate:
1. Payment Reconciliation
With automated bank and sales reconciliation, you’ll give your team more time to focus on strategic initiatives rather than processing each transaction manually. Reconciliation automation compares your accounting against your payments, ensuring they match. As a result, you secure your cash flow with ease.
2. Accounts Payable
AP Automation allows you to automate invoice processes using machine learning and artificial intelligence. AP Automation platforms streamline everything from invoice coding to purchase orders and three-way matching.
As a result, you can effectively manage most of the AP process without direct human interaction.
AP platforms capture invoice data in a digital format and store it in an accessible, centralized database. They use technologies like optical character recognition, intelligent document processing, and fuzzy logic to capture unstructured data and translate it into values that can move seamlessly between your procurement systems.
While technically under the scope of AP automation, invoice automation is a complex process and can be an entire area of its own.
In short, invoice automation pulls invoice data into the accounts payable system where it can be processed. Invoice automation platforms handle:
- Price matching
- Data entry
- Purchase order management
- Invoice processing
By automating invoicing, you can reduce late fees, get early payment discounts, and keep your vendors happy with on-time payments. You’ll also avoid double payments and late payments with ease.
Plus, you’ll have clear, accurate insights into real-time budgeting. That way, you keep from going over budget.
6. Integrate Procurement Processes
The procurement cycle is riddled with approval processes that create barriers. Even if you automate some aspects of your overall procurement process, you'll inevitably hit these gaps in your systems.
Because people will have to manually transfer data between your disparate procurement systems. Usually, that means spreadsheets.
Budget requests, quality checks, dispatch authorization, all these actions traditionally demand manual action. As a result, your attempts to automate procurement will be "stop and start", turning your sourcing process into a system of haphazardly connected workflows riddled with bottlenecks.
And these bottlenecks cost you time and money.
Integrating various procurement processes ensures a smooth, streamlined system from start to finish while reducing bottlenecks. By connecting your procurement workflows, you'll speed up processing time, further ensuring best practices in your procurement strategy.
System integration bridges the gaps between various systems. They move data seamlessly from system to system. They also make running quality assurance and verifications across the procurement process much faster. (And they make it possible without manual checks and endless spreadsheets.)
7. Prioritize Transparency Across Sourcing
Your team members need to have the ability to see records, purchase orders, and technical specifications at any stage in their journey in real-time. Without a procurement system that provides that, your teams will remain in the dark.
You should manage your purchasing, invoicing, and vendor monitoring through a single platform. This ensures open communication and accountability during each stage of procurement, for both buyer and seller.
With one system, your team will get the data analytics they need to take advantage of discounts, avoid late or double payments, and keep vendors happy. You'll also reduce maverick/dark spending.
Transparency guarantees better record management, strategic purchasing practices, and procurement cost reduction. But you can't make it happen with several disparate systems working incongruently. You need a single procurement platform to make that happen.
8. Build Data Dashboards
Data dashboards make it incredibly easy for your team to access real-time data on your supply chain in a digestible format. This cuts down on confusion and unnecessary back-and-forth that happens when various departments try to patch data together.
With clear data dashboarding in procurement, you can showcase accurate spend in relation to budget, price fluctuations on products and services, and vendor performance. As a result, your sourcing will become more agile.
Better still, real-time data that’s easy to interpret makes collaboration easier. In the end, data dashboarding opens the door for your organization to leverage procurement more strategically.
9. Think Beyond “Cost Reduction”
When it comes to procurement, you need to think strategically. Narrowing in on cost reduction is myopic and puts your business at a huge disadvantage. As markets continue to shift and the need to do more with less continues to grow, you need every edge you can get.
Strategic procurement focuses is the best practice of seeing how you can leverage your supply chain to stay ahead of the competition.
With clear insights into your sourcing, you can leverage vendor relationships for faster and better service. You can also find ways to reduce manual tasks, giving your procurement team more time to focus on value-add activities. Finally, by removing waste, you give your business more resources to innovate.
10. Don’t Ignore Corporate Responsibility
Your customers care about socially responsible sourcing. You need to be mindful of the economic and environmental impact of your supply chain. After all, 88% of people prefer businesses that make a positive effect on the environment or society.
If your organization fails to meet those expectations, your customers may leave for the competition. Worse, you could permanently damage the reputation of your organization.
The challenging part about socially responsible sourcing is that supply chains are complex. While your vendors may follow established guidelines of your organization, the companies they work with may not. This is another reason why it’s crucial to have clear insights into your supply chain.
11. Minimize Risk
There are a lot of potential risks in procurement. Unfortunately, most organizations put themselves needlessly at risk by relying on dated, inefficient processes. Best practice for procurement risk management is to identify both internal and external risks to your supply chain.
Once you identify procurement risks, there are four paths you can take:
- Ignore risks that pose no real threat
- Reduce the likelihood of a risk occurring
- Remove the possibility of a risk occurring
- Manage risk potential with prepared solutions
12. Leverage Robotic Process Automation (RPA)
Robotic process automation is a growing trend for organizations looking to streamline procurement. RPA is great for rapidly managing transactional-based tasks that are highly repetitive and rule-based. It also provides a very high ROI (between 30% - 200% in the first year.)
Bots are very capable. Leveraging AI, these programs can do everything from extracting data to moving files and folders.
They can even interpret text, engage in conversations, and understand unstructured data. With RPA, you can reduce the time spent on menial tasks, giving your staff more time to focus on vendor relationships or value add activities.
13. Work with Procurement Professionals
The procurement process is a dynamic, complex web of systems that overlaps. Deploying improvements can be challenging.
Where do you start? Which procurement system works best for your business? Where should you automate? What systems can be integrated? And which improvements should be prioritized?
The difficulties in streamlining the procurement process make it difficult for growing businesses to scale their systems. As a result, they often continue with inefficient, manual processes (using things like spreadsheets and paper invoicing) to handle procurement while putting in critical system upgrades.
At Quandary Consulting Group, our procurement automation consultants can help you improve your workflows and systems by building custom applications and integrating your disparate systems.
We build custom, cloud-based procurement solutions using low code that:
- Automate Invoicing: Streamline the entire invoicing process and avoid late fees, overpayments, manual entry errors, and wasted labor.
- Purchase Requests and Orders: Use templated forms and easily track data on one organized platform while automating the issuing, processing, and storing of POs and PRs.
- Integrate Procurement Systems: Reduce the need for spreadsheets to store data from disparate systems, removing risk and waste from manual data entry.
- Provide Real-Time Spend Analytics: Get real-time data insights through an accessible dashboard and never waste time scrubbing data again.
As experts in procurement and low code, we can build exactly what you need. Whether you want to streamline a single workflow in your procurement process or your entire supply chain, we give growing businesses an alternative, affordable solution to the 7-figure custom, enterprise solutions.
See how we've helped our clients improve their businesses and get insane ROIs by checking out our case studies below.