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Procurement management is one of the top priorities for any business as it takes up a large portion of the overall cost. Improving procurement function and turning your supply chain into a valuable asset is crucial to growing your company. This article will show you the 12 procurement best practices that leading companies have adopted over time. Read more to understand the strategies to improve process efficiency, lower expenses, and achieve a positive impact on your bottom line.

1. Develop a comprehensive procurement framework

Develop a procurement framework - procurement best practices

Develop a procurement framework

First of all, you need a strong procurement management framework before addressing specific issues in your process. An efficient framework will set a solid guideline for all your processes, including:

  • Supervision and approval of purchase orders,
  • Management of vendors and suppliers,  
  • Performance of three-way match for payment, 
  • Recording of all documentation, 
  • Sourcing new suppliers and purchasing agents,
  • Training employees on products.

Well-defined processes will create operational efficiency, helping your team with tasks they need to accomplish or prioritize at a given time to complete the work, thus ensuring punctual deliveries in your business activities. 

To develop clear procurement processes, you need to identify every necessary purchasing step, assign a specific person for each task, and describe the actions for the task. Therefore, your team can stay in the same picture and know their jobs to collaborate with others.

2.  Automate procurement processes

Automate procurement processes - procurement best practices

Automate procurement processes

Digitizing your procurement process is inevitable as technology is integrated into every aspect of our world. A complete digital transformation will boost your procurement processes to the next level and solve many bottlenecks in your supply chain.

Here’re the top benefits of procurement practices on automation:

  • Save time: All those hours spent on manual processing like data entry, invoice follow-ups, record updates, approvals, and document hand-offs can be sped up by software. Automation can reduce repetitive operational tasks and free your team to focus on strategic roles.
  • Reduce human errors: Automation also helps you minimize manual errors. You don’t have to worry about checking mistakes on miscalculated results or mis-entered data anymore.
  • Decrease processing costs: With the support of technology, businesses can cut down on labor for repetitive work, thus saving costs along the way. Cost-effectiveness is one of the top benefits of procurement automation.

A good digital procurement solution should be able to handle:

  • Supplier management: Onboard and keep track of supplier performance easily, 
  • Invoice approval: Review and approve invoices quickly with a three-way method,
  • Purchase requests: Templates to help you capture, approve, and monitor purchase requests,
  • Purchase orders (POs): Issue POs automatically based on approved purchase requests,
  • Spend analytics: Drive actionable insights and suggestions from your procurement data,
  • Integrations: Connect your procurement software with other systems like ERP and finance software.

3. Practice procurement transparency

Practice procurement transparency

Practice procurement transparency

Transparency in procurement refers to providing all internal stakeholders with the necessary information and documentation to complete their tasks smoothly and empower them to make better decisions. With the support of technology, you can explore more scenarios and develop a continuous, agile planning model that is transparent for your teams.

A transparent procurement process offers you many benefits:

  • Faster processing: When everyone knows their jobs and what standards to follow,  the entire operation can run seamlessly with fewer bottlenecks. 
  • Reduce wasted time: Transparent procurement eliminates tiring time spent on confusing requests and long email chains. Instead, your staff sees exactly what they need to do at what time.
  • Accountability: Transparency in documentation states clearly the accountability of you and your vendors for each stage of the purchasing journey.
  • Responsible sourcing practices: A transparent process guides you to source products and services in accordance with your corporate social responsibility. 

4. Optimize inventory with a data-driven approach

Optimize inventory with a data-driven approach - procurement best practices

Optimize inventory with a data-driven approach

The next procurement practice you must not miss is to leverage data to enhance your inventory management.

To check whether your inventory is optimized, take a look at some metrics like inventory carrying cost and stock turnover ratio. See if your planning and forecasting inventory is good to replenish stocks efficiently, whether sales and inventory levels are in sync, and which are the bestselling and slow-selling items to have a proper strategy for them. For example, you can purchase more stock for your bestsellers to ensure their availability when customers need it. In contrast, try to push sales for the slow-selling items at a discount to avoid them becoming outdated.

Adopting inventory management software can help you tackle all the above questions. For day-to-day operation, you can improve supply chain tracking, inventory flow between warehouses and stores, and consistent changes in sales and inventory levels.

For an advanced level, unleashing the power of AI and data-driven insights will help you optimize inventory costs, determine the lead time and predict demand for stock in the future, thus preventing overstocking or undersupplying situations.

5. Improve your contract management

Improve your contract management

Improve your contract management

Currently, the most common problem in contract management is the lack of a centralized platform where employees can search, access, and retrieve contracts and other documentation. The disorganized process causes many pain points such as inconsistency across contracts, cumbersome processing, and supply chain continuity issues.

To have a better contract management process, you should establish a centralized cloud database that allows your staff to create, store, and maintain all documentation from operational processes to contract templates. In this way, you can ensure consistency and standards among your contracts, save time dealing with repeated tasks, and mitigate errors and risks. 

Implementing a contract management automation should offer you with:

  • Central repository: An easily accessible database that stores all documents, 
  • Configurable interface: A customizable interface to fit your business requirements,
  • Automated notifications: Send automated alerts on contract milestones, renewals, and renegotiation chances,
  • Vendor performance monitoring: Track delivery time, product quality, pricing, and adherence to purchasing terms and conditions.

6. Engage with your suppliers

Engage with your suppliers - procurement best practices

Engage with your suppliers

Building a solid relationship with suppliers is always on the top list of purchasing best practices. If well managed, you can have trusted vendors who deliver reliable, high-quality products and services on time and at the best rate. To do that, you need to track and evaluate vendors’ performance to find ways to create a win-win long-term relationship. 

A well-organized process for purchasing and procurement will help you manage and engage with your suppliers. Here’re some tips to improve your supplier engagement:

  • Treat suppliers as strategic partners and build trust,
  • Communicate your requirements and collaborate closely with vendors on any purchase order issues,
  • Establish expectations early so you can hold your vendors to that standard and avoid unpleasant surprises through proper procurement negotiation,
  • Pay vendors on time: If you can pay vendors on time, your vendors will prioritize your company and open more opportunities for long-term partnerships, 
  • Monitor supplier performance: Evaluate the quality of goods and services delivered to ensure you receive the best value for your investment.

7. Have a multi-sourcing strategy

Have a multi-sourcing strategy

Have a multi-sourcing strategy

Relying solely on one supplier for any component of your supply chain is risky, especially for direct procurement. If there is a delay in goods delivery or your relationship breaks down, your business operation will suffer and you cannot produce your end products until you replace them with another vendor. 

That’s why you should have several vendors to create resilience in your procurement system. In addition, it’s better if you can diversify suppliers from different geographical regions. This aims to minimize the risks of force majeure like wars, pandemics, changes in laws that affect vendors’ performance, and severe weather conditions. Therefore, you can always switch among vendors to best suit your convenience and avoid disruption in your supply chain. This is one of the must-have procurement best practices for any company.

8. Integrate procurement processes

Integrate procurement processes

Integrate procurement processes

The entire procurement framework contains multiple sub-processes that can be disparate and create barriers. Even when you’ve automated some aspects, there’re still some gaps that need manual actions like budget requests, quality checks, dispatch authorization, etc. Your system is thus fragmented with various workflows riddled with bottlenecks, which may cost you time and money.

Therefore, it’s important to integrate all procurement processes to create a streamlined system that can speed up processing time and reduce bottlenecks. Connecting all workflows helps data move seamlessly among systems without manual checks and endless spreadsheets. System integration makes it easier and faster to conduct quality assurance and verifications across the procurement processes.

9. Build data dashboards

Build data dashboards - one of the best practices for procurement

Build data dashboards

Data dashboards are another procurement best practice to help your team access real-time data in a digestible format. It removes confusion and unnecessary questions when various departments try to patch data together. 

A clear data dashboard helps you become more agile by displaying accurate actual costs in relation to budget, measuring price fluctuation, and assessing vendor performance. 

Furthermore, complete and interpretable data also offer you valuable insights to improve your procurement strategy and activities. With a data-driven approach, you can identify the main bottlenecks that are causing procurement issues and figure out a solution for them.

10. Train your procurement team

Train your procurement team

Train your procurement team

The right strategy and tools cannot be implemented successfully without a competent team. You should ensure your staff knows all processes and can deliver the company’s priorities like cost and risk management. In addition, provide your team with procurement training materials and communicate any changes to processes as they occur. The training resources should be centralized so your team can easily find them.

A well-trained team is in a better position to carry out processes effectively. They can identify and deal with obstacles quickly before they become bigger problems. You can also manage employees more easily, knowing who is accountable for each step.

11. Don’t ignore corporate responsibility

Don’t ignore corporate responsibility

Don’t ignore corporate responsibility

Be mindful of the economic and environmental impact of your supply chain in your sourcing activities. Customers are increasingly aware of social corporate responsibility and prefer companies that make positive effects on the society or environment. If you don’t meet those expectations, you could damage your reputation and lose your customers to competitors.

Therefore, remember to conduct socially responsible sourcing and evaluate if your vendors comply with your standards.

12. Control procurement risks

Control procurement risks

Control procurement risks

Procurement risk management is an important factor that companies should not miss. You should identify both internal and external risks affecting your supply chain. For example, some major risks you can encounter are price instability, supply chain disruptions, fraud, overspending, poor supplier performance, inaccurate supply chain forecast, etc.

After identifying procurement risks, there are 4 types of actions you can take:

  • Ignore risks that are not real threats, 
  • Reduce the probability of a risk happening,
  • Remove the probability of a risk happening,
  • Prepare solutions to manage risk potential.

Boost your procurement process with Magestore

Above are the top 12 best practices for purchasing. To apply them successfully, consider a PWA Magento Purchase Order to streamline your procurement process.

With Magento Purchase Order, you can control all aspects of your procurement cycles, and save time and money while boosting sales. You can monitor all purchase data in one place by synchronizing sales and inventory channels, as well as managing all product and supplier data effortlessly. The software also allows you to minimize human errors and simplify PO processing, from PO creation, approval, to receiving products, and tracking product returns if needed. 

In addition, the software’s data-driven approach alleviates the pain points of stockout, overbuying, and underbuying. Now you can plan your purchase based on actionable insights and spot opportunities with potential suppliers. Try our Magento Purchase Order and see how it accelerates your procurement process to the next level.

To wrap up

Establishing well-defined processes and empowering your procurement activities with technology is the key to optimizing operation and creating a streamlined and efficient system. By implementing these practices properly, you can unlock your procurement potential and grow your business faster in this digital world.

Related questions

1. What are the 7 stages of procurement?

The procurement process involves the following  7 steps: 

  • Needs recognition,
  • Purchase requisition,
  • Requisition review,
  • Solicitation process,
  • Evaluation and contract,
  • Order management,
  • Invoice approvals and disputes,
  • Record keeping.

2. What are the four pillars of procurement?

There are 4 main pillars of global procurement you should keep in mind when developing a procurement strategy: people, process, technology, and supply chain. These are the key factors of a global approach to leverage your operation.

3. What is included in a procurement contract?

A procurement contract contains terms and conditions on each party’s obligations with specific requirements on the product, pricing, payment method, conditions of delivery, and other legal terms.

Richard

Author Richard

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