How to build procurement process?
Communicating with various companies around the world we realized that the main problems are similar. And when it comes to procurement, they are mainly connected with the lack of information on the company's procurement. Also, there are too many people responsible for this process and it's not clear who possess all necessary information.
Let's try to understand what caused these problems!
What are the usual difficulties in the procurement management process?
1. Companies are not engaged in procurement management process at all
In small businesses, this process is usually operated by the owner or managers, heads of various departments, accountants or employees who have been randomly chosen and have nothing to do with procurement. It seems to be quite effective for some time, but it actually creates several problems.
Procurement without well-thought-out management provokes a lack of understanding about where the money goes and, what is more important, why it happens. Businesses with an uncontrolled procurement process create limitations in the incurring costs by themselves. People working without a specific procurement management system, often become dispersed. They spend much time on routine tasks like buying goods and ordering services, paying bills, managing cash reimbursements, or trying to understand what's happening to the budget. But they still don't have an understanding of processes connected with the costs. Moreover, people panic because it's impossible to understand what is happening and why the budget is always exceeded. At the end of the month they realise that there were some unaccounted expenses and it is necessary to redo the reporting.
2. The process is controlled manually
Many companies, especially medium and large, understand the necessity of creation of some kind of cost management system for their company. And usually this understanding leads to customized solutions. Procurement or cost management typically includes communication via e-mail and regular meetings. This must be done for discussing the goods or services that need to be purchased. Usually, a corporate cost-conscious culture contains a combination of various communication methods which is managed in a table, Excel / Google doc.
Manual procurement management can fulfill its function until the time when a large number of errors, made by people, break this process. For example, additional costs could be spent because of accidental doubling of orders, incorrect cash reimbursements, incorrect payment of the bill. People do not get what they need in time. People, who are responsible for decision-making, do not understand the amount of the budget which has already been spent. The procurement management table is usually not controlled by anyone during the cost escalation along with the company's growth.
3. Companies have solutions which is difficult to implement
The solutions are designed to solve problems, not create them. There are so many solutions that are just not right for companies. And not because they are bad, but because each decision takes into account its own problems. No one can create a universal solution for solving all problems.
People develop solutions, which are very important when implementing ideas that will be adopted by the company. Many choose solutions based on functions. Sooner they are disappointed, because the team can not implement and use what they have been given.
Just like any process, the corporate cost-conscious culture should be focused on the crucial functions and problems of your organization. A lengthy cycle of implementation, complex trainings, system overloading can kill any motivation to change the process for the better.
So what should you pay your attention to when choosing a procurement system?
All companies are different like their problems. So, their processes are also unsimilar. Nevertheless, it is possible to determine the general core of the problem:
Take note that solutions built around functions can not solve the problem because it's connected with the work of people.
Solutions are designed to make someone's work easier. Procurement management systems are not an exception. We communicated with representatives of many companies and all of them stated that their businesses had difficulties with implementation, procurement, and training. They constantly tried to figure out how to get ahead of these problems. But you shouldn't rebuild the bike if you have already bought it.
In order to implement the procurement management process really successfully, you need to precisely understand the principles of corporate cost-conscious culture. Otherwise, you should have at least an idea of what kind of culture you want to build. This will help you to find the right solution which will help to understand the basic steps of your process and to solve your problems.
Once you figure out the procurement process and the cost-conscious culture, you can plan a strategy with the purpose to achieve expected results. Be sure to think about the changes in the processes that you want to implement and imagine how they'll fit into your company.
We have prepared 5 questions, answers to which you need to get In order to help you better understand the structure, the framework of the process, which you want to build.
5 questions you need to answer in order to understand the company's cost-conscious culture
1.Who carries out the procurement: any employee, heads of department or there are special employees for completing this task?
2.Who is responsible for approving corporate procurement, signing of contracts, approval of costs, reimbursements and orders?
3.How do you want to adjust the approval process: different levels of cost approval based on departments or operational functions, procurement could be done without approval, or the director approves everything?
4.Who will be involved in procurement: whether there will be centralized purchases, everyone will be responsible for own purchases, or it is worth to allocate the person responsible for each department?
5.How do you want to keep a record of costs: to have a responsible person for receiving goods/services or transfer this responsibility to the accountant?