Have you ever been so close to completing a project only to find that you’re missing an essential supply or piece of equipment?
You’re left hunting down purchase requisitions and rushed approvals, hoping you’ll still meet your deadlines.
When supply problems like this happen on a small scale, it’s inconvenient. But when you have supply chain problems across the organization, the results can have a big impact on your quality standards, efficiency, productivity, and of course your bottom line.
In this article, we’re breaking down procurement management and show you how you can build the procurement management system and implement tried and true procurement practices that are right for you.
What is procurement management?
Procurement management is a strategic approach to acquiring products or services for your business. When done correctly, procurement management reduces costs, improves efficiency, and maintains business operations.
You can also undertake project procurement management, which focuses on acquiring supplies and materials for a specific project rather than ongoing business needs.
Procurement management typically involves identifying potential suppliers, negotiating and maintaining procurement contracts, managing vendors, processing purchase orders for goods and services, and more.
In order to stay on top of all of these requests and components for overall project success, it’s smart to invest in a procurement management solution. You can find specialized procurement management software or build your own procurement management tool on monday.com, like in the image below.
Why is procurement management important?
Putting one project manager or team in charge of supplying the entire business might seem a bit excessive. Couldn’t each department handle its own supply orders?
Not exactly. Procurement management takes a significant level of strategic planning to work well.
Plus, when you’re aiming for maximum operational efficiency — as 78% of chief procurement officers (CPOs) are — a lack of coordination between business departments is a huge roadblock.
Here are a few ways a unified procurement strategy helps your business:
- Build relationships with vendors: when you establish a single point of contact between a vendor and your company, you can foster a mutually beneficial business relationship.
- Find the best prices for your whole company: negotiate deals, terms, and conditions with vendors and suppliers you have a solid relationship with, or get better prices by ordering in bulk.
- Reduce supply chain disruptions: your procurement manager will have insight into your entire supply chain, so they can anticipate gaps or disruptions and find alternative solutions.
These 3 benefits alone help your business operate more efficiently, leading to overall business growth. When you digitize or automate parts of your procurement management process, the benefits are even greater.
5 key components of procurement management
The procurement process can be complex, particularly if you work for a large company or enterprise.
Your exact procurement process will depend on the size of your company, your industry, and your budget, among other things.
Still, all procurement processes share some key components. In this section, we’ll give you an overview of each part of a procurement strategy, as well as tips for managing your procurement process in real-time on the monday.com’s cloud-based platform.
1. Vendor management
Vendor management is how you keep track of all of the business and external suppliers your company sources materials from.
Your vendor management tool should serve as the central location for all relevant supplier information, such as contracts, pricing, and contacts.
On monday.com, you can build a vendor management board that creates cards for each vendor. It acts as the single source of truth for information on vendors.
You can even track your contact history with each vendor, helping you seamlessly build beneficial vendor relationships.
You’ll also need to create a vendor onboarding process and think through other requirements for vendors to remain active in your system.
For instance, you might need them to fill out certain paperwork, have access to purchase orders and invoices, and more.
When your vendor management tool is set up, you can also create automations and integrations to bring your vendors fully into your procurement management system.
2. Contract management
Contract management is how you make sure your vendors are upholding their end of the deal.
If you’ve negotiated discounts, bulk pricing, or special circumstances around orders and delivery, you need to make sure you’re getting what you signed up for.
Contract management also includes tracking when contracts expire and setting things in motion to renew or replace those contracts.
Although understanding and monitoring contracts is a critical procurement activity, just 63% of procurement managers and workers have contract management technology to help them with this aspect of their work.
With a contract management tool, like one built on monday.com, you can:
- Create a centralized view of all vendor contracts and files
- Set automatic reminders about contract terms, expiration dates, and more
- Develop workflows and processes to make sure the terms of each contract are fulfilled
For instance, you can create an automatic notification for the chief procurement officer when a contract is 6 weeks away from expiring.
Or, you can set up a series of tasks to complete each time an invoice is submitted to make sure the terms of the contract have been met.
3. Purchase requisitions and approvals
Vendor and contract management help you work with external suppliers and other people outside of your company, but procurement management has internal components too.
Within your company, the procurement process works to compile and fulfill requests for supplies and materials.
To kick off this process, employees typically fill out a purchase requisition form outlining what they want to purchase, why they need it, and other relevant information.
You can build custom purchase requisition forms on monday.com, giving employees an easy way to request supplies and the procurement team an easy way to track the requests.
You can customize these forms however you like to get the information you need with each purchase requisition.
For instance, you may ask employees to include their manager’s name, department budget code, or other data for internal tracking.
Many procurement management processes require approvals for each purchase requisition. On monday.com, you can automatically route forms to managers, procurement officers, or other stakeholders to get approval or input.
You can even set criteria for multiple rounds of review and approval if necessary.
4. Purchase orders and invoices
Once approved by the procurement manager, purchase requisitions become purchase orders.
Put another way, a purchase requisition is an internal request for supplies. A purchase order is a request from a company for supplies from an external supplier.
If you’ve developed a procurement management system within monday.com and properly onboarded your vendors, you may be able to digitize your purchase orders here too.
One option is to create another order form that goes to the designated vendor once completed. This will only work if your vendors are properly onboarded into your monday.com platform.
Alternatively, you can attach files or documents, such as your completed purchase order, to communication tools integrated into monday.com.
Once the purchase order is accepted, and the goods are delivered by the vendor, the vendor will send you the invoice or the request for payment for said goods.
At this point, you’ll need to make sure the terms of the relevant contract have been fulfilled. Then, you can approve payment for the invoice.
By moving this process into the monday.com Work OS, you can develop transparency in the entire procurement strategy.
5. Reporting and analytics
Since the goals of procurement management are to increase operational efficiency and reduce costs, it’s critical to have the data that helps you measure these metrics.
With reporting dashboards and other analytics tools, you can monitor overall spend as well as the general status of your vendors, contracts, and procurement strategy.
You can also find new insights to improve efficiency and productivity even further.
In fact, high-performing procurement teams are up to 5 times more likely to regularly use advanced analytics and visualization tools than lower-performing teams.
On monday.com, you can build high-level dashboards to convey a general sense of your success in improving efficiency and reducing costs through procurement.
You can also build more specialized dashboards to give teams and departments insight into their own budgets and spending, as well as how they contribute to company-wide goals.
5 major obstacles in procurement management
Procurement management is a complex and far-reaching process that has the potential to impact every corner of the business.
With this much complexity, there are bound to be obstacles. Let’s take a look at 5 major challenges in procurement management (and how monday.com can help you address them).
1. Spend visibility
When you’re trying to control costs throughout an entire company, accidental or unapproved purchases can present a major problem.
Often, this uncontrolled spending is related to indirect procurement, or the sourcing of materials like office supplies that are needed for the day-to-day functioning of the business.
Because these purchases fall outside of the set procurement process, they are incredibly difficult to track and optimize.
One way to address uncontrolled spend like this is to provide complete visibility into budgets and spend on a team or department level. By making procurement something that all managers think about regularly, you’ll find more people using the appropriate channels to acquire what they need.
Dashboards like the ones mentioned above are a great way to provide this visibility. You can set permissions at the user level, so everyone sees exactly what they need to.
Another critical piece is to make the purchase requisition and approval process as clear and accessible as possible. By creating clear pathways for employees to get what they need to do their jobs, you’ll have more visibility into how teams are spending their budgets.
2. Disconnected data
Vendor, contract, and company data are all critical in order to understand the success of your procurement strategy.
Unfortunately, this data typically exists in disconnected tools or in a way that doesn’t immediately give you actionable insights. Between contracts, purchase orders, invoices, and more, there’s a lot to track and analyze to reach your goals.
You can use monday.com integrations to bring all of your data into a single platform that serves as a source of truth for your entire team or company.
Once you have all your data in one place, there are a near-infinite number of things you can do to it. Create dashboards, generate reports, and look for insights and inefficiencies at every stage of the procurement process to keep finding ways to improve.
3. Lack of digitization
Procurement management used to take place all on paper. As you can imagine, it’s incredibly easy for a stack of paper contracts, purchase orders, and invoices to get lost and confusing.
It’s difficult to maintain vendor relationships, check on contract fulfillment, and keep the supply chain operating smoothly when you can’t get one holistic picture of your procurement process.
While businesses are generally shifting to fully digital procurement management, not everyone is fully on board. As many as 1 in 3 procurement employees say their technology is inadequate for the work they need to do.
monday.com is a platform where you can digitize your entire procurement process using the tips and strategies we’ve already outlined here. You can even incorporate your existing procurement partners into your digital process and build automations to keep the procurement process moving.
4. Supply chain risk
Even as you try to eliminate all supply chain disruptions, the truth is, some things are just beyond your control.
For example, 81% of supply chains were affected by COVID-19, highlighting how some economic or social forces can impact nearly everything.
Beyond unprecedented events like COVID-19, some supply chain risks include product availability, cost and quality issues, and sole supplier contracts.
While you may not be able to fully eliminate the possibility of risk, data transparency and collaboration features on monday.com can help you see more of your supply chain so you can more strategically mitigate risk.
5. Lack of procurement agility
Procurement strategies are hard to pivot and adapt quickly, potentially causing problems when there is a disruption to the supply chain.
If you need to change vendors suddenly or address an unforeseen problem, your procurement process needs to allow for that flexibility.
monday.com is a flexible, adaptable platform where you can build tools that can adapt along with you. And if you use monday.com as a single source of truth for your company, everyone will know where to get the latest information to keep procurement moving.
Improve procurement management with monday.com
Procurement management is all about improving efficiency.
By using the right vendors at the right time, you can maintain a consistent supply chain while strategically increasing your company’s profit margins.
With monday.com’s Work OS platform, you can build the procurement management software that makes your business as efficient as possible. Customize your procurement management strategy to get better results for your business.
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