Procurement process optimization

Nowadays, optimization of the procurement process is a very important aspect of almost all companies. More and more often managers pay attention to potential savings that can be achieved, among other things, by negotiating prices during the procurement process. Company representatives responsible for such activities should strive to agree on the best commercial conditions with suppliers. The key aspects here will be time and cost. These two aspects play a very important role in the procurement process.

Elements of the procurement process

To better understand the procurement process, it is important to realize its complexity. Individual small actions carried out throughout the process ultimately affect the final result. The procurement process includes not only the tasks related to the selection of the best supplier. It is also other tasks performed within the company. Among other tasks we can distinguish: research and gathering information about the demand in the company, market analysis, collecting and comparing offers, negotiations, selection of the supplier, signing the contract and then monitoring its implementation. Then there are the issues of billing – invoicing and payments. Experts who optimize procurement processes distinguish yet additional activities within the realization of this process, which should be taken into account. These are: the appropriate selection of criteria for evaluation of offers and cost analysis throughout the entire life cycle of the supply (or service).

Why optimize the procurement process?

Businesses are increasingly aware that the procurement process offers great potential to generate savings. In many companies this process is becoming as important as production. However, it must be remembered that the effectiveness of the implemented methods and solutions depends largely on the specificity of the organization. Planning changes in the procurement process should be preceded by a thorough analysis of the current situation in the company, and then in the entire industry. The optimization project of the procurement process should be aligned with the previously planned procurement strategy, responding to the current needs of the organization.

Procurement process optimization – stages

The process of optimizing the purchasing process consists of several steps.

1. Information

In the initial stage of process optimization, make sure that all information about the organization has been communicated, collected, and will be used in subsequent stages of the project.

2. Company policy and standards

It is important that a company policy is established and communicated to the employees. It is meant to provide the organization with a good strategy in procurement activities. The company should also set certain standards for activities. These policies must be followed by every department (not only the procurement department).

3. People

Human capital is the foundation of any organization. In the initial stages of process optimization, it is important to look at human resources. Are the right people in the right positions? Do employees find the right negotiation tools and strategies? Have competency gaps been identified? Has training been planned for employees? Are employees aware of the need for change in the process in which they directly participate?

4. Process

The next step is a thorough analysis of the purchasing process. All operations should be looked at. All operations should be modified so that people, processes, and the technology solution are optimized for efficiency.

5. Technology

This area has been growing strongly in recent years. Modern technology solutions are increasingly used in almost all industries. These include the use of payment cards, P2P automation, e-commerce initiatives and most importantly e-procurement systems. Automating purchasing processes with IT solutions can significantly improve their efficiency by eliminating physical documents, speeding up order processing and controlling compliance.

6. Monitoring and controlling

Companies that have begun the process of streamlining the purchasing process need to identify ways to monitor and measure the activities that have been implemented in the optimization process. It is important to be able to determine the return on investment after a period of time. The return on investment should be compared to the business objectives – reducing costs (or increasing savings), increasing revenue and managing performance parameters.

An optimized procurement process can increase profits in an organization and improve efficiency, so it is worth taking a look at this process in any organization.