As with any business process, there are a set of best practices that should be adopted to maintain business excellence and improve productivity, and the same applies to a company’s procurement process. Procurement best practices are designed to be cost-effective and capable of boosting a company’s revenues, and efficient procurement processes make up a big part of a company’s procurement policy.
While each company has their own tried-and-true procurement process, several methods are gaining popularity with established companies the world over. This article by the team here at ThunderQuote introduces 10 key best practices that should be incorporated into your company’s procurement policy and procurement process to ensure supply chain excellence.
Establish a procurement board
The purpose of a procurement board is to chart the course of a company’s procurement process and position its procurement plans in line with the company’s overall business strategy. Its members should consist of the procurement head, as well as the heads of each business unit, along with other key upper management figures, showing that the board is endorsed by senior leadership. This helps to ensure that key business-unit stakeholders will offer their full support for the procurement unit’s initiatives.
The inclusion of senior management in the board will also ensure that the company’s procurement policy doesn’t stray from the corporate strategy, and has the company’s mission, vision and objectives in mind. The procurement board also offers an avenue for interdepartmental communication, allowing heads of business units to share information regarding future strategies and projects with the procurement unit, allowing them to craft procurement policies that align with future business plans.
Design an effective procurement unit
It’s not a must to house the procurement professionals of a company in a department of their own. As with any business decision, the staffing process for a company’s procurement unit should be done with a view to improve the effectiveness and efficiency of business processes. Some companies prefer to place their procurement professionals across every business unit, while others take a more centralised approach by placing all procurement professionals in a separate department.
There are also those who adopt both methods by using a centralised approach when planning procurement process strategies and designing procurement policies to obtain general consensus, and then opting for the decentralised approach for better implementation and service improvement. Regardless of the method used, it’s important to ensure that your procurement professionals are continuously trained to grow their skills set and improve their knowledge. All-rounded procurement professionals who have strong strategic management and communication skills will be better equipped to contribute towards the company’s bottom line.
Select the right technology for your company
Companies today are no strangers to employing technology to improve their everyday business processes. In fact, more and more companies are allocating a substantial amount of the company budget to cover yearly expenses on technology procurement. The key to selecting the right software or technology for your business is to first understand your business requirements. To do that, you’ll need to evaluate every single business and procurement process, and identify those that require improvement.
Subsequently, you’ll be able to know which software or technology can best meet the needs of those processes. This is definitely more cost-effective and efficient compared to structuring your workflows and processes around technology. Acquiring technology that is suitable for your organisation’s needs allows you to extract the necessary data and valuable information quickly and easily, which is imperative for making sound business decisions.
Establish a strong partnership with key suppliers
Supplier relationship management goes beyond inking the deal after both parties have agreed to the procurement policies and are clear on the procurement processes that will be put in place. Progressive companies understand that the business deals are only the start of a long-term relationship with the supplier, and that effective and constant communication is key to successful business ties. The two-way management of this business relationship – termed ‘alliance management’ – sees both the buyer and the supplier collaborating to strengthen the relationship, with the objective of creating value for both parties and ensuring that business objectives are met. Alliance management also ensures that the lines of communication are clear, and any problems that arise can be resolved efficiently and effectively.
Employ collaborative strategic sourcing
The responsibility of strategic sourcing traditionally lies with the procurement unit, but this is, of course, not set in stone. A better way of going about strategic sourcing would be to do so collaboratively. As the saying goes, ‘two heads are better than one’! To provide supplies that meet the needs of the whole organisation, you’ll need to speak to the members of each business unit to understand their main objectives and strategies, and obtain their views and feedback on sourcing the right supplies. This procurement approach is cost-effective and ensures a steady supply of products. It also streamlines business processes and shows that the procurement unit is attuned to evolving business needs.
Emphasise total cost of ownership
Progressive companies no longer place an emphasis on the price of a product or service, striving instead to understand the total cost of procurement and how it benefits the business in the long term. As a result, these companies are no longer employing traditional methods of procurement such as selecting the supplier that offers the most competitive price out of all those who made a bid. Instead, they study the procurement policy and consider many other aspects of the procurement process that affect the total cost of ownership, a task that requires collaboration between both the buyer and the seller.
Place contracts under the care of supply chain
Even after selecting a vendor and negotiating a good deal according to the procurement policy, these contract terms often go un-monitored – usually due to misplacement of the contract – leading to poor contract compliance and un-realised savings for the company. As a result, more companies are placing contract management under the care of the supply chain unit instead of leaving it under procurement’s care. This ensures that the contracts are based in a central repository, making it easier for access and reference. It also helps the supply chain leader to make better choices on company expenditure, make this move cost-effective.
Optimise company-owned inventory
Companies everywhere are always looking to grow their revenues while keeping their working capital to a minimum. One of the ways to do so involves maintaining optimum inventory levels. Research has shown that inventory holding costs – inclusive of insurance, taxes, obsolescence, and warehousing – could be as high as 60% of the cost of an item held in inventory for a year. Proper planning and forecasting of demand and supply can help to ensure that inventory levels are maintained at an optimum, fully meeting business needs.
Establish appropriate policies and procedures
Every business process must be structured and follow a certain sequence, hence the need for a set of policies and procedures – this applies to supply chain management as well. However, having put these policies and procedures in place, there is also a need to review them periodically to ensure that they are still relevant and not creating issues in the supply chain. Keeping policies and procedures simple and easy to understand help ensure compliance, while streamlining them help put in place controls while deterring theft, fraud and other issues that could pose a risk to the supply chain process.
Support ‘green’ initiatives and be socially responsible
Responsible companies everywhere are now consistently striving to reduce the carbon footprint of their supply chains, and procurement policies and processes are also progressively being drafted to include green practices, in line with customers becoming increasingly partial to suppliers who go green. Many customers now request for information about a company’s green initiatives when deciding on a vendor, and are equally concerned about a company’s corporate social responsibility (CSR) practices. Being socially responsible means putting in place measurable corporate policies and procedures that benefit the workplace and its workers, as well as the community. CSR is becoming increasingly important in supply chain management and affects purchasing decisions and risk evaluations, and a company that does not have a meaningful CSR programme runs the risk of backlash from its workers and/or consumers.
Best practices are always made to ensure that your company does the best it can to allow for the best optimisation of the company’s resources. Without best practices, it is easy for the company to spiral because there is a lack of a set structure to follow. We hope that this article has helped you implement the best practices when it comes to procurement as we believe that it is an extremely important branch of the company’s lifeline.
ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.