As a leader in operational procurement, you probably aren't alone if you've run into challenges in the past with achieving your savings targets. While your targets for potential savings are clear with the right supplies being ordered from the right vendors in the right amounts, sourcing teams are making purchases separate from pre-negotiated contracts and are paying higher prices as a result. Unfortunately, failure to pinpoint and address these issues can not only impact your organization's goals for the fiscal year, but they may also have long-standing impacts on company profits.
Therefore, businesses must learn how to manage a successful operational procurement process, considering factors such as material availability, good communication, supplier-relationship management, and order quantity optimization across all departments.
Equipped with the right tools, your team will be in a unique position to address these concerns. Here is a guide for problem diagnosis within your procurement system, with considerations and a solution to achieve cost savings with a consolidated vendor portal that gives users a single view into cost savings.
Operational procurement, also known as MRO purchasing, refers to the procurement of goods and services for day-to-day operations. In some cases, operational procurement may include the maintenance, repair and operations because these purchases are necessary to keep the business running. Successful operational procurement comes down to fast quote and order processes so production can continue to run smoothly.
The different dimensions of operational procurement can be further classified as:
Direct goods and services play a pivotal role in an organization's operational machinery, directly influencing product quality and functionality. These essential components encompass raw materials, machinery, components, and specialized software crucial for core operations.
In the realm of direct procurement, meticulous supplier selection based on capabilities, reliability, and adherence to quality standards is paramount. Stringent quality control measures are implemented to ensure acquired goods meet specified requirements. Timely delivery is equally crucial, as delays can disrupt production schedules and overall efficiency.
Strategic partnerships with suppliers are cultivated to optimize direct procurement. Factors such as supplier capabilities, reliability, and commitment to quality are weighed, fostering long-term relationships that yield benefits like favorable pricing and enhanced collaboration.
Efficient demand forecasting and inventory management are vital components of the direct procurement workflow. Accurate forecasting prevents stockouts and production delays, while effective inventory management reduces carrying costs and waste. Streamlined order processes, approval workflows, and supplier coordination ensure the timely delivery of direct goods and services, optimizing operational efficiency.
Operational procurement necessitates a strategic approach that balances centralized and decentralized methods. Two primary approaches exist: centralized procurement, where a central entity oversees all purchasing activities, and decentralized procurement, granting autonomy to branch or unit leaders for their respective teams. Each approach offers distinct advantages and drawbacks.
Centralized procurement leverages economies of scale, reducing procurement risks and streamlining processes, yet may lack flexibility and relevance to specific departmental needs. Conversely, decentralized procurement promotes operational efficiency and adaptability but increases inherent risks. A pragmatic solution involves centralizing procurement for universally used items, such as office supplies, while empowering department heads to procure goods and services tailored to their teams' requirements, thereby optimizing efficiency and relevance.
The process commences with demand determination, identifying essential materials and services required across the organization. Once requisitions are detailed, attention shifts to sourcing, evaluating potential suppliers' ability to meet demand efficiently.
Upon requisition submission, procurement teams navigate supplier selection, considering factors like lead time, quality, and quantity. If no contracted vendor exists, a Request for Quotations (RFQ) is dispatched to solicit offers, leading to the creation of binding procurement documents upon acceptance.
With suppliers chosen, purchase requisitions evolve into legally binding purchase orders. Constant monitoring ensures timely delivery and quality adherence, vital for seamless production workflows.
Upon goods receipt, meticulous invoice processing commences, leveraging Planergy's three-way matching to align received goods, purchase orders, and vendor invoices. Timely settlement ensures supplier relations remain robust and operational continuity.
One of the most common reasons why plans fall off track comes down to governance. Even with the best processes documented, if teams find them difficult and deviate from the set of business rules you defined, your processes are little more than words on paper. To ensure sourcing teams are purchasing the right items from the right suppliers, rather than incurring spot quotes, your job as a leader comes down to making this process easy to follow.
Today, ERP systems are set up with some best practice business processes, although industry experts will often recommend keeping this backend fairly clean and building on any additional customizations with offerings like SAP Business Technology Platform. Each business rule should consider why and how an activity is performed, and the support embedded for the user to follow a given activity. While improvements can be seen on a task-by-task basis, the realization of major changes in the organization will come down to how an activity behaves as a part of the overall process. With the right considerations behind these business rules, systems can facilitate and automate the completion of certain tasks and reduce the overall process effort.
To diagnose this as a concern, businesses are required to identify the gaps that exist between documented processes and what their team is currently doing on a day-to-day basis. This can be done the most simply with our BPI-based offerings that show what really happens in an organization. In the presence of gaps, businesses can quickly determine the processes are not easy enough for employees to follow, allowing them to stray away from defined business rules towards off-contract spending. Fortunately, leaders can address these concerns by adding functionality that simplifies the traditional ERP interface.
When determining a solution, the next consideration comes down to your team's ability to audit. Following the procurement process is important for ensuring budgets stay on track and for avoiding the risk of fraud. An audit trail becomes essential as your organization's finances and assets require a record for each operation, procedure, or purchasing event (which may include at least one document for each of the seven stages of the procurement process).
When teams deviate from documented procurement processes, non-PO (purchase order) invoices become more apparent, making it difficult to trace back the paper trail or verify where purchases are coming from. Since procurement processes must occur in order, audits can be more easily done with an end-to-end solution and are typically more complex when steps are being completed in isolation. The integration allows source documents (purchase orders, goods receipts, or invoices) to be connected and cross-checked automatically, reducing the room for human error in the process.
As an added reason to consider the ability to audit, auditors that can easily surface the right documentation can spend less time and resources on your audit by simplifying financial records, thereby reducing your expenses and freeing your team to refocus on high-value activities more quickly.
Now that you've diagnosed the problem within your current procurement processes and made appropriate considerations, everything comes down to the implementation of an end-to-end process solution. Our proposition is to bring purchasing, receiving, invoicing, and managing inventory for goods and services together into a single, streamlined workflow. The Rapid Vendor Portal is a collaborative portal environment that surfaces all relevant data based on a team member’s role, making it easy to use from the perspective of your procurement team. By making these processes so simple to use, team members have little inclination to seek workarounds or execute spot quotes. This is because the vendor portal is based on the latest Fiori, Fiori mobile, and simple guided processes which improve the overall experience by gently guiding users through complex procurement practices.
Since the rules are baked into the processes themselves, operational leaders can have full confidence that plans to achieve cost savings will be followed. Additionally, all information is stored in a single location – as a "one-stop-shop" for audibility. This is simply the first step in going fully digital and increasing the efficiency of procurement processes including maximizing the number of invoices per AP FTE and decreasing the cost per invoice.
By using these procurement bundles, businesses can produce significant savings on their total annual purchasing spend. Learn what this means for your business by downloading the white paper below.