Procurement can be responsible for 70% of an organization's revenue. Create an optimized, digital, procurement management plan with these 7 steps.

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April 21, 2021
7 Steps To Procurement Management To Optimize
Processes Responsible for ~70% of Revenue
process.st/procurement-management
Jane Courtnell
April 21, 2021
Procurement directly impacts an organization’s bottom-line and can be responsible for 70%
of revenue. With this in mind, it’s important to get procurement right.
The world of procurement has undergone tremendous changes in the past couple of years.
Changes of particular importance when thinking about procurement management include:
Digital transformation: With 85% of organizations believing that this digital
transformation will change the way they deliver services over the next 3-5 years.
Thinking about suppliers beyond price: With a greater focus on supplier
synergies. The importance of supplier visibility regarding the procurement steps is
realized.
Moving to effective change management: Organizations focus on a smooth
change management plan, with procurement leaders agreeing change management is
the biggest roadblock to achieving procurement goals.

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Risk management and preparing the unexpected: With transparent
procurement systems reducing risk exposure. Only 65% of procurement leaders have
little or no visibility in their supply chain.
With this in mind, in this Process Street article, we explain how you can create a procurement
management solution that leverages a digital transformation (using Process Street as your
procurement management software), thinks about suppliers beyond price, and incorporates
effective risk and change management.
Click on the relevant subheader below to jump to your section of choice. Alternatively, scroll
down to read all we have to say on procurement management.
Let’s jump to it!
What is procurement? A re-cap of the basics
Procurement is the action of obtaining something. We’re talking about making physical
transactions to purchase deals of goods and services. But procurement does not solely focus
on the transaction; it’s the thinking behind the action as a process.
As you probably know, we have 2 top articles on procurement – ⬇ given below ⬇. These
articles focus on procurement and the processes involved. Today, we’ll be taking a look at
procurement management specifically, but before doing, let’s re-cap the basics.
Why you need to get procurement right
Procurement is about managing supplier relationships to avoid expensive mishaps. The top
78% of procurement leaders are focussed on cost reduction, and look to optimize
procurement processes to achieve this aim.
Procurement directly impacts a company’s profit, and can often be responsible for up to 70%
of an organization’s revenue.
I guess the next question is, how do you get procurement right?
For that, you need two things:
1. An optimized procurement process.
2. Optimal procurement management.
The latter is the prime focus of this article. I’ll briefly touch on the procurement process but
leave the details to the top resources presented above.
The procurement process

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“My whole job is to help people throughout their procurement process. So we would just get the
process built.” – John Cunnigham, Business Process Advisor at Process Street
A procurement process is all the steps and tasks needed to complete procurement
successfully. Without a standard process for procurement, you and your team will continually
go about procurement poorly which could increase organizational expense.
To help you get your procurement process right, we at Process Street have taken the best
procurement practices and transcribed these into a documented checklist process.
Although a company’s procurement process will be influenced by factors like the company’s
size, industry, available human resources, and organizational structure, this Process Street
checklist will give you the structural foundation you need. It will explain, step-by-step, how
to identify the true needs of your organization, find the perfect supplier to fulfill those needs,
and negotiate favorable contract terms and pricing.
“…every single time we go through the procurement process, we’ll run this Checklist. So that
way that the same steps are followed every single time.” – Cynthia Stirling, N5Now
Create your free Process Street account to get started!
Click here to access our Procurement Process Checklist Template!
Key checklist features include:
Approvals ‫܅‬: Allowing you to give the go-ahead or rejection on important items, such as
purchase requests and contract proposals.
Conditional Logic Ǡ: To create a dynamic system that caters to your needs. In this case,
you can detail issues with the procurement order.
Task permissions Ѥ: These help you hide specific tasks in the procurement process from
view for different users, making your checklists more private.
Embed Widget ̐: This allows you to view and interact with other apps without leaving
your documented process in Process Street. In this case, you can send an invoice to
accounts from the procurement checklist.
What is procurement management (+ benefits)
Procurement management is about acquiring quality goods and services from preferred
vendors within a stipulated budget, on or before a deadline. It details how the procurement
process will be managed.
A procurement management plan will include the following information:
The types of contracts you plan to use and any metrics that will be used to measure the
contractor’s performance.

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The planned delivery dates for the work or products you’re contracting.
The company’s standard documents you will use.
The number of vendors or contractors involved and how they will be managed.
How purchasing may impact the constraints and assumptions made during
procurement.
The coordination of purchasing lead times with the development of the project
schedule.
The identification of prequalified sellers (if known).
Handling the organization’s procurement is one thing; effectively managing it is another.
Good procurement management has the power to save money and time while increasing
organizational compliance.
Procurement management controls costs, compliance, and improves
supplier management
An effective procurement management system will deliver the following benefits, as given by
Oracle:
Increases spending influence Ұ
Procurement solutions enforce compliance purchasing by making it easy for employees
to find what they need and direct approved purchases from authorized suppliers.
Improves efficiency and automates sourcing and purchasing processes Ѩһ
Cumbersome procurement processes limit value-delivery to an organization.
Procurement management solutions standardize, streamline, and automate
traditionally manual processes. This frees up resources and time for other strategic
business processes.
Improves supplier management ѩҼ
Qualifying and assessing a potential supplier’s capabilities, viability, and compliance
with the company’s code of conduct is essential. Alerts prompt procurement
professionals when a supplier’s qualifications are expiring. Also, procurement keeps on
top of information that might affect supplier qualifications, capabilities, and changes to
their risk profile.
Standardizes the contract lifecycle Ԅ
Contract reviewers can identify deviations from the standard language and identify
risks, make changes as required, and gain approval before finalization. Alerts notify
users of expiring contracts to ensure timely renewals and to minimize delays.
Examples of procurement gone wrong
To truly emphasize the importance of procurement management, we’ll take a look at what
happens when poor management processes are in place.
Disappearing inventory at Asos

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Source
Towards the end of July 2019, as peak season was coming into full view, the e-commerce-
driven fashion brand, Asos, told investors about a costly warehouse technology failure.
The high trend-driven brand was tracking stock inventory using a stock-keeping unit (SKU),
which is a scannable bar code printed on the clothing item labels. This allowed vendors to
automatically track inventory movement. The organization was adding 5,000 SKUs per week
– which gives you a sense of the inventory scale we’re dealing with.
Asos relied on an automated system to manage its inventory levels. However, the breakdown
of this system led to a major procurement failure. That is, the automated system was sending
inventory out to complete orders, but not taking new orders in for weeks – e.g. new items,
replenishment, and customer returns.
This procurement error restricted stock availability for customer margins across Germany,
France, and the U.S, with a 68% drop in profits year-over-year for the 2019 fiscal year.
For a procurement blunder to rise to such a level that the media gets hold of it, then we know
the situation is bad. It took months for Asos to identify and address the $30 million
procurement problem.
A laboratory lapse in procurement, involving 500 test tubes

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Source
If you’ve read any of my previous articles, you’ll be aware that before Process Street, I worked
at an environmental testing laboratory. During my time at this laboratory, the importance of
procurement management truly hit home.
In my first month, I was charged with ordering test tube containers from our contractor, for
delivery to a client. However, instead of ordering 50 tubes, I accidentally put an inventory
order in for 500…
You can imagine the horror felt by the client when a truck of 500 test tubes arrived at their
door-step. ‫ښ‬
I hang my head in shame.
Of course, the fault rested on my shoulders. However, having a stricter approval process for
procurement requests would help catch and reduce human error from the process.
Procurement management best practices
The procurement management practices below are prescribed as correct and the most
effective procedures, to reduce inefficiencies and prevent damaging vendor relations.
1. Prioritize transparency
Prioritize transparency by processing purchases, invoices, and vendor monitoring using a
single platform. This ensures open communication and accountability during each stage of
procurement, for both the buyer and the seller.

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By keeping information on a single system, your procurement team can get the data analytics
they need to take advantage of discounts, avoid late or double payments, and keep vendors
happy.
The best way you can optimize transparency is by documenting your procurement processes.
Whether that’s vendor management procedures, managing accounts payable, or completing a
purchase order workflow – document it.
You can document any business process using Process Street, as you saw in our Procurement
Process Checklist Template given above. For more information on how to create and edit
templates in Process Street, watch the below video:
You can create your free Process Street account here to get started.
2. Optimize your inventory
Managing stock and intake, while maintaining bottom lines can be a daunting challenge.
Keeping inventory at an optimal level requires careful planning of purchase quantities to
minimize waste while delivering on customer expectations. Your inventory needs to rotate
smoothly and regularly to lower your overall risk and unnecessary expenses. Make sure your
procurement management plan optimizes your inventory.
3. Engage suppliers
Building a solid relationship with your suppliers is vital for your organization’s success.
Essential product delivery and routine maintenance are key components for any smooth-
running business strategy.
Ensuring your vendors deliver reliable, high-quality goods and services on time (and at the
best rate) requires strategic relationships with your suppliers.
For this, you need to have better insight into your suppliers, meaning you can track
performance and evaluate these relationships. With more data on vendor’s performance, you
can engage them in a meaningful way that will ensure your business needs are being met.
4. Automate procurement
Efficient procurement processes will save your business both time and money, with
inefficient procurement costing businesses $1.5 billion annually.
Automation minimizes repetitive operational processes, giving procurement teams more
time to contribute to other important tasks. For instance, with automation, the human
component of data entry and costly errors can be avoided.
To find out how you can automate your procurement processes using Process Street, read:

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The Ultimate Guide to Business Process Automation
50 Ways To Save Time & Money with Workflow Automation
What is Form Automation Software? How to Pick the Best Form Software
Ultimate Guide to Small Business Automation with Zapier
5. Integrate procurement processes
Having disparate procurement systems will slow work down by creating barriers and system
gaps between one procurement process and another. Think about it, processes such as
budget requests, quality checks, and dispatch authorization demand some manual action. If
these processes are not integrated, then the procurement system will operate haphazardly,
and act as a stop-start process labored with bottlenecks.
Integrating various procurement processes ensures a smooth, streamlined system from start
to finish via bridging gaps between one procurement process and another.
6. Minimize risk
You need to consider the risks involved in every business decision and have appropriate risk
management processes in place accordingly. Legislation around compliance, bribery,
traceability, health and safety, green issues, and social responsibility are all factors that
impact procurement decisions to be made.
Procurement teams have to equip themselves with knowledge of all these elements and
manage them to reduce business risk.
Procurement management plan in 7 steps

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Source
To effectively manage a company’s procurement needs, it’s important to have a thorough
procurement management plan based on solid information.
Procurement management follows a logical order:
1. You plan what you need to contract.
2. You plan how you’ll do it.
3. You’ll send out your contract requirements to vendors.
4. Vendors will bid for a chance to work with you.
5. You’ll continuously monitor work done, close out the contract, and complete all
associated paperwork.
To help you formulate an effective procurement management plan, we’ve split the
management procedure down into 6 steps, as follows.
Step #1: Define roles and responsibilities
Everyone involved in the procurement process needs to understand the responsibilities and
scope of their work. Boundaries between responsibilities also need to be set.
Important roles defined in the procurement management plan include project managers,
corporate executives, and contract managers.
You can use Process Street’s Role Assignments features to assign tasks to given team
members for your procurement processes.
Step #2: Create a schedule

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A procurement management plan should contain scheduling details to make sure that the
procurement processes are completed within the expected timeline.
Break down procurement projects into constituent tasks – something you’ll do when
documenting your processes in Process Street. Give start and estimated end dates to the
given tasks.
Step #3: Identify and mitigate risks
Risks are inherent in every part of project management, and procurement management is no
exception. A procurement management plan helps figure out what those risks might be and
lists them out.
Once an insightful list of risks is collected, use your procurement plan to help mitigate them.
Assign team members to distribute ownership of given risk types.
Step #4: Determine costs
Cost determination is a crucial step in creating a procurement management plan as it directly
affects the budget. These steps involve issuing a request for a proposal that asks vendors to
offer bids for their products or services.
The request for a proposal generally involves critical schedule dates and provides details on
the vendor’s work arrangement, and previous experience.
During this step, you should also conduct a make-or-buy analysis, to figure out whether or
not you should be contracting the work or doing it yourself. Think about…
What’s the cost to build it as opposed to buying it?
How will this decision affect the scope of your project/service/product?
How will it affect the project/service/product schedule?
Do you have time to do the work and still meet your commitments?
As you plan out what you will and won’t contract, you need to think through your
reasoning carefully.
You may need to rent, buy, or lease machinery/equipment to meet your procurement needs if
you decide to not buy-in. You’ll therefore need to examine leasing-versus-buying costs to
determine the best way to move forward.
Step #5: Establish decision criteria and approval workflow
This section of the procurement management plan outlines the approval workflow for
different contracts. It specifies the elements required before the final approval – e.g. cost
analysis.

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This stage of procurement management is made easy using Process Street’s Approvals
feature. With this feature, vendor contracts are reviewed and approved from a single
checklist platform.
“[documenting procurement processes]…in the system, everything’s in one place” – Steve Rye,
AstraZeneca Product Owner
There are two different contract types to consider during this step in procurement
management, as shall be discussed after this section, keep reading.
Step #6: Establish vendor management
This step specifies strategies and protocols used for vendor management. This way,
businesses ensure vendors provide acceptable goods and services within the expected
timeline. Moreover, this step may also detail processes for invoice processing, status
reporting, and timesheet approval.
Vendors and suppliers usually require payments during the life of the contract, as opposed to
at the end of a contract. Scheduled payments are needed as part of the contract, and are
usually made based on progress. These are called progress payments.
With progress payments, there’s a defined amount of work to be accomplished in a given
time frame, and a quality standard is set for the work to achieve before the contractor is paid.
Vendor management also defines the scope of work to be completed by the vendor.
Often, events will occur that’ll demand changes in the contractor’s scope of work. In these
instances, you’ll need a method of managing these changes, which should be detailed in the
contract.
That is, for effective procurement management, you’ll need to:
1. Capture the changes early.
2. Document what changed.
3. Document how the change impacted the contract.
4. Develop the change order.
Conflict among team members may arise when changes are not documented or when the
team cannot agree on the change. This is why you need an effective change management
plan. Find out how you can develop such as plan by reading:
Step #7: Review and approval processes
After the decision has been made to purchase goods or outsource services, the final
procurement plan needs to be sent for review and approval. This procurement plan should
include the following:

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A thorough detail of the relationships and contract approaches for each type of
purchased goods or outsourced services.
Prepared requests for quotes (RFQs), requests for proposals (RFPs), and mapped
partnership opportunities.
A thorough evaluation of RFQs, RFPs, and partnerships.
Documented awarded and signed contracts, securely stored.
Mapped quality and timely performance.
Managed contract changes.
Documented and securely stored closed contracts.
Contract types
Source
You must know about the major types of contracts available, for you to choose one that
creates a fair and workable deal.
The two main contracts to consider are:
Fixed-price contracts
Cost-reimbursable contracts
Let’s take a look at these contract types in more detail.
Fixed-price contracts
A fixed-price contract is a legal agreement between an organization and an entity to provide
goods or services at an agreed-on price.

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For these contracts, the quality of goods and services are given, including the timing needed
to support the project, and the price for delivering goods or services.
Fixed-price contracts work best when the work scope is clear and not likely to change – the
responsibility for managing the work to meet the organization’s needs is focused on the
contractor.
To make sure the contractor meets the project needs, the project team tracks quality and
schedules progress.
Fixed-price contracts are vulnerable to circumstance changes that could bump up the price.
For instance, say you have a project to be completed on a given time-scale, yet delays meant
the vendor contract length had to be extended. The price for such contract changes is usually
high.
To offset this risk, sometimes the change price is included in the original contract. However,
this will incur higher total project costs than other vendor contract forms, as the risk costs
are transferred to the contractor. The contractor will add a contingency to the contract to
cover their additional risk.
Cost-reimbursable contracts
In a cost-reimbursable contract, the organization agrees to pay the contractor the cost of
performing the service or providing the goods. These contract types are also known as cost-
plus contracts.
These contract types are most used when the scope of work or the costs for performing the
work are known. If there are changes to the costs associated with the given project, then the
contractor is reimbursed for these costs. This type of contract reduces the risk of cost
fluctuations for the contractor.
It must be noted that each step in procurement management can take either hours or
sometimes weeks of work to complete. Time is an important determinant when deciding
vendor contract types. Sometimes it may take you too long to deliver the needed output
without vendor help, meaning extra expenses for new contracts are necessary.
Use Process Street to embrace the significant changes in
procurement management
Using Process Street for procurement management allows you to leverage changes in
procurement, and capture optimal vendor opportunities.
Process Street provides a digital procurement solution, one that also allows you to manage
change and risk – two important procurement influences.

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Also, the transparency given by documenting procurement processes means you can think
about suppliers beyond price, and develop positive supplier synergies.
With this in mind, what are you waiting for?
Create your free Process Street account and get started today!