What is procurement management, and how do you secure it within your organization?
Did you know that for every euro earned, almost 70 cents are procurement costs? As a business, it is, therefore, crucial to keep costs under control. This is because the difference between costs and revenue determines the profitability of a business. Managing procurement costs contributes directly to an improvement of a company’s profitability.
What is procurement management?
Purchasing management includes all activities related to cost control. In recent years, however, we have seen a shift in which procurement management involves much more than the smart management of cost levels within a company. Purchasing Management 2.0 contributes to innovation sustainability goals and secures healthy cooperative relationships with suppliers and partners. As a result, procurement management is much more than just managing costs. It is a collection of vendor, tender, bid, and relationship management. As a procurement manager, you are a spider in the web, operating on many fronts to help your organization in more than just managing costs.
How do you ensure good procurement management within your organization?
The procurement profession, with its procurement management, has evolved significantly in recent years to a more strategic role. This is far from being recognized in every organization. Successful companies, however, do recognize the importance of good procurement management. They understand that the success of their organization depends, among other things, on the suppliers and partners they work with. This is where procurement management plays an important role.
To perform that role well, of course, you need the best people. By that, I mean you need to have a procurement team that can develop strong relationships and closely follow market developments. Did you know that proportionally, only 1% of every organization is made up of buyers? By the way, this is not to say that the other 99% don’t purchase. They do, and a good procurement team support many internal stakeholders.
Procurement management is becoming increasingly automated.
In recent years, we have seen more and more new procurement management software coming onto the market. Ranging from tender management to contract management software to ERP systems that offer these functionalities. An effective but, above all, user-friendly procurement management system is very important. This ensures that the right products and services are purchased at the right time at the best price and quality. Here again, the different components, such as spend management, vendor management, tender management, and bid management, also play an important role. Let’s take a closer look at these different activities.
Spend management: what does it entail?
Spend management is an essential part of procurement management. It involves analyzing and managing a company’s spending. Through insight, it is possible to verify that costs are market-based. Spend management can also help revise contracts with a supplier. For example, if it turns out that actual expenses are much higher than contractually agreed upon. This, in turn, can often be a reason to start new negotiations and negotiate higher volume discounts or better payment terms. It is, therefore, important to have insight into your company’s expenses to realize savings, among other things.
Vendor management: what do we mean by that?
Vendor management is another important part of procurement management. It is the process of managing vendors and creating long-term relationships with them. Its purpose is to improve the quality of products and services, encourage innovation and thereby save costs. Vendor management includes monitoring vendor performance, managing contracts and evaluating suppliers. However, this also ensures the purchasing organization is open to vendor feedback. In many cases, there are great savings opportunities when you, as a company, adapt your own processes to those of your suppliers. Or see where you can improve these processes yourself. In doing so, you create greater efficiency, contributing to lower costs for your company and higher profits for your suppliers. We call this a win-win situation; it is the basis of a healthy and sustainable cooperative relationship with your suppliers.
What is Tender Management and Bid Management?
Tender management and bid management are processes that companies use to select potential suppliers and start a procurement process. By the way, the term procurement is widely used in the public sector. In the private sector, we often talk about tenders. So tender management involves companies receiving bids from different suppliers and evaluating them based on criteria such as price, quality and delivery time. Bid management involves preparing and submitting bids to a potential customer. You look at this process more from the supplier(s) perspective. A good tender management and bid management process can ensure that companies select the best suppliers and thus get the best deal. In doing so, it is important to have a clear process, select primarily based on supplier expertise and communicate these evaluation criteria to suppliers in advance.
Procurement management in a nutshell
In short, procurement management involves vendor, tender, and bid management activities. These are the most essential parts of procurement management. By managing these processes effectively, companies can save costs, improve the quality of products and services, and build good relationships with suppliers. You need an experienced and well-trained procurement team to set up procurement management properly. Therefore, automating smart but, above all, user-friendly procurement software can help you achieve the goals mentioned above. We’ll tell you more about that in our next blog article.
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