In an increasingly competitive economic environment, efficient procurement management plays a major role for companies. It promises to deliver products quickly and effectively to customers whilst maintaining profitability. To achieve this, there are critical procurement levers that companies must activate in their own way.
Procurement management: Definition and challenges
Managing procurement involves supplying a company with goods or services to fulfil customer orders, as well as for its own needs. The purchase of these goods and/or services can have various purposes: They may be products for resale, materials necessary for the manufacture of finished products, or goods intended for storage.
In this sense, procurement management covers several components:
- Planning and managing customer demands;
- Strategic sourcing of reliable suppliers to meet purchasing needs;
- Receiving goods to manufacture end products;
- Logistics management with delivery planning;
- Product returns management.
More than thirty years ago, Graham Stevens, a senior consultant at Peat Marwick McLintock (which became KPMG), highlighted the importance of procurement management in an article that has since become a reference for procurement and logistics departments. He notably emphasised: "The objective of supply chain management is to synchronise customer requirements with the flow of materials from suppliers so that you can balance what are often seen as conflicting objectives, namely high customer service, low stock management and low unit cost."
As you can understand, the procurement management process aims to optimise resources and synchronise different logistics flows in the most efficient way possible.
What levers can improve procurement management?
To enhance the efficiency, performance, and reliability of their supply chain, businesses can rely on proven best practices, from choosing management methods to implementing robust KPIs.
Opting for suitable management methods
First, determining the right procurement and stock management methods is an essential step to ensure demand is met while avoiding stockouts. It’s up to companies to choose the methods that are most suitable for their industry, products, and operations.
For example, the scheduled replenishment method involves planning the procurement process according to a defined calendar; the predictive analytics method takes into account sales history and economic context and determines a safety stock to avoid any stockouts; the empirical method relies on the analysis of data from previous years to anticipate needs; or the control point method which establishes a minimum stock level, below which a new order must be placed.
Relying on procurement management software
In the era of digital transformation, the supply chain is no exception. To gain efficiency, every company must, as much as possible, leave behind manual processes and paper documents. To do this, it needs to adopt a digital solution. This can take the form of an APS (Advanced Planning System) or a WMS (Warehouse Management System). These tools allow it to efficiently control and automate procurement processes, such as receiving, storing, picking, and shipping products.
We should also expect new technologies to contribute to this edifice. Soon, Artificial Intelligence will make stock tracking even more precise, blockchain will guarantee the authenticity and traceability of transactions, the Internet of Things (IoT) will provide key information on the status, location, and rotation of stocks…
Strengthening collaboration with external stakeholders
It’s also important to collaborate with all supply chain partners. This includes many stakeholders: Manufacturers, suppliers, distributors, carriers… It’s necessary to build strong and trusting relationships with each of them for the supply chain to function optimally. This necessarily involves developing clear and transparent communication about everyone’s needs and expectations. The implementation of communication systems can help in this regard, such as collaboration platforms that allow real-time information sharing with different partners.
Some companies even go as far as sharing risks and rewards. For example, we can consider sharing production costs, delivery risks, or sales profits.
Implementing a monitoring and reporting system
Lastly, it’s advisable to put in place clear procedures and communicate them to the relevant people within the company. This is an opportunity to specify who is in charge of each task (creating procurement requests, validating orders and invoices, sending purchase orders…) and the process for carrying out each of these tasks. To ensure that procurement teams fully embrace this system, it can be transposed into a user guide or even internal training. Ultimately, this ensures efficient procurement management that is followed by all.
The definition and measurement of key performance indicators are also essential to adopt a continuous improvement approach. The company has every interest in closely monitoring its KPIs: Customer satisfaction rate, Total Cost of Ownership (TCO), on-time delivery rate, return rate, cycle time…
The benefits of effective procurement management
For any organisation, procurement management is crucial to ensure operational continuity, minimise production interruptions, and avoid stock problems. Good management not only achieves cost savings but also improves productivity and customer satisfaction.
Reducing costs
By optimising its procurement management, the company buys raw materials and components at advantageous prices, by negotiating with its suppliers or benefiting from economies of scale. Moreover, those negotiations minimise costs related to storage and production interruptions, allowing it to make savings.
Boosting productivity
Through the optimisation of its procurement management, the company ensures the continuous availability of purchased goods and services, reduces tasks that do not add value, and limits interruptions in the production chain. This represents a gain in efficiency and performance for the entire supply chain.
Ensuring customer satisfaction
Ensuring the quality of goods and services, while meeting delivery deadlines, allows companies to guarantee an optimal customer experience. The company thus contributes to customer satisfaction and loyalty.
Optimising procurement management is therefore a powerful lever for improving the overall performance of the company. By adopting best practices, it can enhance its profitability and the satisfaction of all stakeholders, thus remaining competitive in the market.
