Top 10 Best Practices for Procurement
Any business looking to optimise its supply chain, reduce costs and build strong supplier relationships knows that it needs to implement the best practices in its procurement process.
In today’s hyper-competitive landscape, those fine details across the entire operation separate the great from the best. From strategic sourcing to spend analysis, to sustainable procurement and continuous improvement.
Procurement Magazine looks at the top 10 best practices for procurement to achieve long-term success.
10. Total cost of ownership (TCO)
Procurement has many functions, but its most vital in a business sense is saving money where possible.
Something to keep in mind is the total cost of ownership (TCO). TCO is there for a business to consider all the costs which come from a purchase, from the initial outlay to its operation, maintenance and service.
Think about weighing up the purchase of something, a business is given two choices. One is more costly upfront but will be reliable and not involve much maintenance and repair, while the second is cheaper upfront but might need to be serviced and repaired more, leading to a higher TCO.
By reviewing all the costs which come from purchases, companies will have a more complete and comprehensive picture of their procurement decisions that go far beyond that initial purchase, meaning that a business can create better value over time.
9. Category management
With all the technology on offer, it is great to group and understand all parts of the purchases.
The use of category management allows organisations to group services into categories and provide a single source of management.
This helps leverage buying power, standardises specifications and improves supplier negotiations, leading to money being saved and more efficiency in the procurement operation.
8. Sustainable procurement
While saving money is vital for operations, there is now the sustainable impact that must consider when it comes to purchases.
Procurement must integrate ESG goals and social responsibility into the choices made for the procurement operation.
This includes working with suppliers who are equally sustainable and considering the impact of the products and services. Procurement must work closely to hit their targets with Scope 1, 2 and 3 – as well as creating Science-Based Targets to hold themselves accountable.
7. Compliance and governance
Essential tools for procurement are compliance and governance, as they ensure that activities adhere to organisational policies, industry regulations and legal requirements.
High standards of ethical practices are important to procurement, as well as preventing fraud and ensuring accountability – protecting the business from legal risks and maintaining its reputation.
Operating with transparency also creates trust with stakeholders and builds a foundation on which sustainable procurement can operate and flourish.
6. Automation and AI
The technology now on offer for businesses must be taken into account and harnessed to ensure the procurement process is used to its full potential.
AI can analyse large datasets, providing a better understanding of spending. Automation of repetitive tasks allows team members to focus on more strategic operations and streamline the company.
E-procurement systems, such as supplier portals, can enhance accuracy and provide valuable insights. Technology adoption leads to more efficient and transparent procurement practices.
5. Risk management
Keeping an eye on all the risks in the procurement operation is vital for its success.
Identifying potential issues for the supply chain and developing ideas to mitigate their effect is crucial.
Proactive risk management ensures continuous operations, creates contingency plans and regularly assesses supplier risk.
4. Supplier relationship management (SRM)
The very foundation of any successful procurement is the relationship it has with suppliers and a good SRM programme is vital for monitoring and reviewing these relationships to ensure that all parties are working well together.
Effective SRM involves clear and regular communication, performance monitoring and collaboration to achieve mutually beneficial outcomes. This leads to better service, innovation and greater resilience in the supply chain.
3. Spend analysis
Spend analysis is the ability to collect and categorise all the spending taking place and using that data to gain valuable insights into spending patterns and opportunities to save money and increase efficiency.
This practice involves reviewing procurement data to understand where money is being spent, the suppliers being utilised and the types of products and services being bought.
By using this data, organisations can discover trends, detect areas of maverick spending and consolidate purchases to find ways to get better pricing and terms.
Spend analysis also helps identify potential risks and areas for improvement. It is a critical component of effective procurement management that drives cost reduction and enhances operational efficiency.
2. Strategic sourcing
Using this practice means procurement teams assess and develop long-term relationships with suppliers to ensure everyone is working together towards the business’s goals and objectives while providing the best value.
Through evaluating suppliers on criteria such as quality, cost, reliability, service and capacity for innovation, organisations can find and work with suppliers who offer the most significant potential for value creation.
Strategic sourcing also involves regular performance reviews and fostering collaborative partnerships. These partnerships can lead to shared benefits such as cost reductions, improved supply chain efficiencies and innovative solutions.
A proactive approach to sourcing ensures that the procurement function supports the overall strategic objectives of the organisation and contributes to its competitive advantage.
1. Continuous improvement
A business can implement all these practices and run the most effective and cost-efficient procurement operation in the world, but even when it reaches that point, it should not rest on its laurels.
Instead, it should continuously look for areas to improve. Procurement operations are dynamic and through regular process reviews, seeking feedback and implementing best practices, the team can become even more efficient, adapt to an ever-evolving market and continuously improve procurement outcomes year on year.
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