Among the many costs that you hope to minimize when engaging in a business, procurement is probably one of the most important factors that you might have to consider. This is the same for both large scale and small scale businesses. Here’s a snapshot of procurement and ways in which you can make it more efficient and cost-effective.
What Is Procurement and Supply Management?
The Chartered Institute of Procurement and Supply (CIPS) defines this as a function that involves buying goods and services that enable an organization to operate in a profitable and ethical manner. Even though some may not pay much attention to the amount of resources set aside for procurement, it is important to note that it is a crucial factor that can influence future operations.
Is There a Difference Between Purchasing and Procurement?
Yes. Purchasing is just one step in the process of procurement. Though people tend to use the words interchangeably, procurement requires much more thought and strategic planning.
What Are the Challenges That You Might Have to Face in Procurement?
- Inaccurate data
- Issues with suppliers
- Quality and quantity of goods and services
- Delays in delivery
- Digitalisation and technology: This is a new challenge in the digital era. Increasing digitalisation may hinder the process of creating a centralized programme due to transformations in the supply chain.
What Are the Indicators of Procurement Fraud?
As you run a business with one or more other people in charge of different expenses – be it raw material, consumables or other – the opportunities for waste, poor practices or outright fraud increase.
Similar to any other type of fraud that can pose a challenge to your business, you can look for certain indicators that point to procurement fraud. Here are a few areas that you might have to keep a close eye on
- Documents: Documentation like contract specifications must be carefully monitored in order to ensure that there is no ambiguity or flaws in the information.
- Pay attention to your staff: Basic actions like a member of staff insisting that they meet contractors alone on multiple occasions can point to things that you may not be aware of. Ideally procurement officers should not reap any personal benefits from suppliers. Hence, if they accept inappropriate gifts and entertainment on the sly, it calls for more attention to the transactions that go on.
- Contracts: Improper selection of a contractor or unjustified favouritism of a certain contractor, (e.g. approval of high prices, excessive purchases, continued acceptance of low-quality goods, etc.) should be closely monitored.
- External Factors: When there is an unnecessary broker or middleman involved in transactions.
If large scale savings, greater preparedness and efficiency to face future challenges, reduced operational costs and a simplified process are what you’re looking for; all you have to do is gear up and follow the basic steps of the procurement process with a well-trained team.
A strategic procurement process will include the following steps;
- Conducting an internal need analysis to identify the specific need
- Assessment of the suppliers’ market
- Collecting supplier information from reliable sources
- Developing a sourcing/outsourcing strategy beforehand
- Implementation of a specific sourcing strategy
- Negotiating with suppliers and choosing the best fit
- Implementing a transitional plan or contractual supply chain improvements