Although all businesses must acquire goods or services, how they go about sourcing, scheduling and receiving them has proven to be a crucial challenge that may sometimes make or break a business, especially those currently experiencing periods of high growth. According to BDC, companies fitting this description will spend between 45% to 65% of their sales revenue on procuring raw materials or services. Therefore, even a small improvement to procurement processes can result in considerable savings.
However, improving processes isn’t something that happens overnight. Instead, it requires careful planning and consideration from your procurement team. To help teams learn what comes next, we outline some of the key steps to building a procurement improvement plan below.
1. Identify High ROI Opportunities
To begin, department leads are encouraged to conduct an audit of their existing procurement processes, including talking directly to business users to determine what bottlenecks are currently holding your team up and the resulting costs to your organization. To help guide this process, businesses are encouraged to start with target areas, including contract management, governance and document drafting/approvals.
The goal of this step is to determine which areas of your process will have the most significant or measurable impact. Mid-sized businesses often have limited funds at their disposal, and therefore must prove the greatest opportunity to deliver a return on investment (ROI).
2. Determine Key Performance Indicators
Now that you know the areas that have the highest opportunity for ROI, your team will have the foundations for a powerful business case. But your team will also need to demonstrate the potential savings that you can accrue by measuring target outcomes against a set of specific performance indicators to determine how effective or ineffective a process is. For this reason, the next step will be to set goals that your team can reasonably achieve with your efforts.
It is worth noting that while these indicators may shape the early stage of your procurement implementation, they will change over time, meaning evaluation should be conducted on an ongoing basis.
3. Select Your Strategy
After conducting an audit of your current processes and how you plan to improve, the only thing missing is a strategy to achieve your desired outcome. Although procurement strategies may vary, some of the most common include:
Cost Reduction: The intent is to produce savings on the total process, including negotiation terms, administrative expenses and automation tools.
Standardizing the Purchasing Process: Ensuring the process from purchase requisition to invoicing is as smooth as possible. Currently, many teams struggle with invoice processing and often become subject to late payments and reduced cash flow.
Sustainability and Green Purchasing: Leading with sustainability, teams focus on recycling and purchasing from suppliers that abide by certain ESG standards.
Quality Management: Quality management considers that all supply chain counterparts are delivering products and services that meet a certain standard, thereby reducing the scope of error.
4. Outline Procurement Policies
With an approach outlined, businesses do well to establish clear, accessible, and easy to follow procurement policies that address ethical and compliance considerations while identifying roles, responsibilities, and accountabilities. Some of the most common will include project planning, document drafting, bid receipt, contract award and risk management.
Living in a world more uncertain than ever before calls to attention just how impactful procurement disruptions, including natural disasters and security breaches, can be. Since these events can’t be planned for, it is important that teams carefully consider their emergency procedures to guarantee business continuity in the process development stage.
5. Centralize Your Information
Even with the best procurement processes in place, many teams still struggle with executing them, often due to the absence of a single view of spend. Collecting information for strategic decision-making and cross-functional efficiencies becomes difficult with fragmented views, and time-sensitive opportunities are often missed. Although there are several ways that teams can centralize relevant information, often the most simple to implement and utilize is a portal.
6. Invest in The Right Software and Tools
Naturally, many businesses are hesitant to splurge on a new set of tools especially when budgets are tight. Therefore, they must be careful to select the right tools to reduce errors and automate routine tasks, including approvals, invoices, and inventory tracking to produce savings that are both significant and apparent in the near term. As with any other technology implementation, this means gaining an understanding of how the end user works, in a gold standard process many know as design thinking.
By working closely with the people using the tools, businesses have found they are able to uncover inefficiencies in how they have previously done things and seek out new ways to accomplish the same tasks, such as making a purchase requisition an online form rather than requiring information to be entered into an SAP GUI screen, a task many users found difficult. Additionally, consolidating multiple steps in the procurement process has been proven to support automation, with functionality such as Evaluated Receipt Settlement (ERS) to eliminate invoices when a purchase order and goods or services receipt match.
7. Educate Your Department
Although better designed tools can greatly minimize the amount of onboarding needed, every process improvement will require some proactive training and a surrounding deployment program. This program should exist with the intention to increase institutional awareness of procurement procedures across the entire organization, thereby ensuring that compliance is maintained and spend remains on-contract.
8. Make a Plan for What’s Next
Growing pains are only temporary and are often worth it as your business goes from mid-market to enterprise. As exciting as reaching this size may be, businesses often face the question of whether it is worth it to invest in their procurement processes now when they will only need to do it again soon. To pre-emptively address these concerns, it is worth noting that newer offerings can act as a bridge from one solution to the next, in a manner that grows with a business.
Since the creation of a procurement improvement plan requires many steps, some teams have found it helpful to engage the help of a consultant or otherwise experienced procurement organization. In doing so, many businesses have benefitted from a knowledgeable perspective on the industry and available solutions in support of an improved bottom line. With significant experience designing procurement solutions for the mid-market, ConvergentIS can support your team with the tools and resources required for the development of your own procurement improvement plan.