One of the crucial activities in an organization is the procurement department function which must be conducted effectively and efficiently. Companies are beginning to understand the potential that their supply chains and procurement divisions contribute to their profitability.
What is Procurement?
All aspects of a company’s purchasing process are referred to as procurement. The procurement department serves its customers internally by negotiating costs with the vendors, preparing the contracts, and issuing vendor’s purchase orders. The procurement department functions at large companies for maintaining the financial health of the company. Depending on the product or service, we carry over the procurement department functions with the company. If a product is being manufactured with raw materials, then the functions are managed by a person or procurement department. The main procurement department function is to centralize the efficiency and compliance of the purchases done for the company. There are three types of the procurement: direct procurement, indirect procurement, and service procurement.
Effective procurement department helps to streamline processes, reduce raw material prices and costs and identify better sources of supply, thus improving organizational efficiency.
Report from Florida-based Hackett Group says through the deployment of digital tools, procurement organizations can reduce operational costs by up to 45%, achieving efficiency levels while at the same time enabling them to improve effectiveness and customer experience.
Hence, procurement has become one of the most important functions of an enterprise. The following 12 important procurement functions are mandated to be executed by the procurement department:
One of the most important procurement department functions is to purchase goods, services or works from external sources. It plays a vital part in the company’s overall business strategy as it requires strategic planning to acquire these things at the best possible cost. It should procure from the right source at the right time the right quality of materials in the right quantity.
It starts by qualifying suppliers before initiating negotiations. The collection and monitoring of supplier data are streamlined to ensure that suppliers comply with corporate policies. Important supplier qualification information is collected and supplier proposals are compiled and compared. Best suppliers are selected by assessing supplier qualifications, risk factors, and policy compliance. One of the significant factors for controlling costs is finding the best and reliable vendor.
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Procurement department professionals with their skills to negotiate should be able to negotiate the best deal for the company. They should procure the highest quality product from the suppliers at the best possible price. This function is very vital for the organization`s profitability because if purchasing costs are high, an organization can end up spending well over half of its revenue in this area thereby affecting its bottom line. Organizations have realized that if the purchasing decisions are effective then cost savings can be achieved. Even the slightest decrease in purchasing costs can make a significant impact.
Procurement department professionals after evaluating supplier bids based on price, quality and value, offer the contract award to the best supplier by taking into consideration the unique business requirements of the organization which is in accordance with company standards, industry regulations and client expectations.
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Monitoring of suppliers’ performance
Procurement department professionals must monitor contracts to ensure suppliers perform well in terms of delivery of goods and pricing. It should generate and track purchase orders. It should see that there is timely delivery of materials from vendors and are of expected quality, otherwise, it would affect the complete production chain. The promised deliveries by the vendors should be tracked to see if the invoices are approved and paid in a timely manner. It must also keep track of all goods and services ordered and received and maintain inventory records accurately along with details on performance, delivery, and pricing. Thus, this function is of the utmost importance across all enterprises.
Compliance with business protocols
The procurement department must ensure that it is meeting with all company objectives and compliance requirements. For example, in an organization, if members or staff is requesting to purchase things like supplies, stationery or computers, then it has to look into the business protocols for purchase and budget approval and ensure whether the items purchased are in compliance with the organization’s purchasing policy.
Leveraging technology to help in procurement functions
A recent case study research concerning the challenges facing procurement department functions and responsibilities in an organization established, 48% cited on lack of professionally qualified and experienced employees and 28% cited on technology change. From the findings, it shows that an organization should learn to adapt to any technology change as technology improves the efficiency of the organization.
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How DocuCollab can help
With the help of DocuCollab`s cloud-based enterprise software, organizations can streamline their supplier selection, rate management, enforcing negotiated pricing and policy. It can create purchase orders from approved requisitions eliminating manual process. It can help manage supplier relationships, monitor performance, and process payments. By optimizing the procurement process with DocuCollab`s contract management software, companies can significantly cut costs, protect their profit margins and improve efficiency in supply chain management.
Collaboration with Other Departments
All departments of an organization are generally interconnected, wherein a task is achieved with the help of all contributing teams. In the case of the procurement department, the procurement manager needs to understand the finance & budget controls, legal formalities, inventory level, and production capacity of the company before making an informed decision about the prospective vendor. Proactive collaboration with other departments on the part of the procurement team is essential for the seamless functioning of the company.
Forecasting the Procurement Trends
Although forecasting does not fall within the scope of the procurement team’s activities, the importance of learning, and understanding the trends in purchases has increased in recent years. By collaborating with the sales department and gaining insight into the sales volume, the procurement department must be able to forecast the rise or fall in demand for products, which will help in cutting costs or increasing the expenditure level at the right time, thereby profiting the company.
Effective Monitoring of the Procurement Team
A team is as efficient as the management that monitors it. Procurement Department is one of the crucial expenses that a company invests in that determines the profit or loss for a period. Procuring goods over the budget level or under the fixed budget can result in a loss. Hence, the management must monitor the functions of procurement department, where every purchase and transaction is intensively controlled. It is also essential to ensure there are not any malpractices within the team and there are no clerical errors that could tamper the reputation of the organization.
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The procurement team must stay abreast of the vendor management by constantly analyzing the competitors of your vendors. Competitor analysis enables the team to understand the market scenario, quality, and price details. Procuring the best items at a competitive price is the ultimate objective of the procurement department and it could be done with an effective analysis of the market competitions.
DocuCollab’s Role in Procurement Management
With the help of DocuCollab`s cloud-based enterprise contract management software, organizations can streamline their supplier selection, rate management, enforcing negotiated pricing, and policy. It can create purchase orders from approved requisitions eliminating manual process. It can help manage supplier relationships, monitor performance, and process payments. By optimizing the procurement process with DocuCollab`s enterprise management solution, companies can significantly cut costs, protect their profit margins, and improve efficiency in supply chain management.