What is Procurement?
Have you ever wondered what procurement is and how it impacts on organisations? In commercial terms procurement is the act of obtaining something for business purposes and can cover a whole range of things including assets, supplies, skills and services for the business to continue its smooth operation.
As companies grow, it’s important to have a structured approach to procurement.
Today, we are taking a look at the processes of procurement, different roles in procurement, e-procurement, regulations, fraud, procurement strategies and the future of the sector.
Firstly, establishing a framework for any size organisation is essential to the development of success and secondly an understanding of the processes will help build and develop the relationship between a buyer and seller.
A Procurement Life Cycle is a step by step process, identifying a requirement and a need but will differ from business to business; however there are some common stages/techniques that you should be aware of:
Identifying Needs – The first step in procurement is identifying there is a need for particular goods. Once a need has been identified they can be specified in more detail.
Find Suppliers – This stage may include reviewing companies and prices, company standards (suppliers may need ISO accreditation for instance) and terms and conditions.
Purchase Order – A buyer will raise a purchase order specifying details such as amount, costs, delivery dates in an agreement with the supplier.
Dispatch/Delivery – Items are despatched to be received by the date confirmed on the purchase order. Goods are checked on receipt for quality, amount and other criteria.
Invoicing and Payment – Invoices are sent by the seller for payment. The purchaser would usually have identified typical payment terms when seeking a supplier.
Record and aftercare – This stage will allow procurement teams to monitor spending, identify areas to seek reductions, manage stock levels and predict future cash-flows.
Role of a Procurement Manager
The Procurement Manager is responsible for procurement across the company, creating a strategy and ensuring employees adhere to its guidelines. The role of the Procurement Manager ensures that the company does not over spend on allocated budgets and helps to forecast future spending.
They will need a good understanding of the various business units as they seek suitable suppliers, and this may mean finding suppliers who can meet very detailed departmental needs such as insurance cover or ISO accreditation.
A Procurement Manager will have responsibility for preparing tenders and requires skills in negotiation.
A procurement strategy would contain items such as:
- Objectives – Enable stakeholders to understand why there is a procurement strategy and what its goals are.
- Budgets – One of the key reasons for a procurement strategy is to ensure that budgets are adhered to reduce costs.
- Requirements – Do needs develop over time or are their day to day requirements for products and services.
- Conditions of supply – Should suppliers conform to any strict supply guidelines, price structures or payment terms?
- Approval Authority – if needs arise who has the authority to approve any purchases? Different people may require various levels of authorisation.
- Timeframes/Review dates – companies may review their strategic approach to keep up to date with the marketplace.
E-Procurement is the automation of the procurement process across web-based systems. Systems allow buyers and sellers to locate each other quickly and submit relevant bids for products and services. Subsequently, this reduces costs such as travel and procurement agent fees.
There are systems available which allow companies to automate many of the purchasing decisions made and control stock effectively. It is expected that the procurement market will move towards a more integrated digital model over time.
If you were to work as an e–procurement officer or manager some of your key accountabilities would be:
- Ownership of governance, system process and implementation of infrastructure
- Managing suppliers and onboarding for purchase
- Point of contact for queries and all issues
- Managing e-catalogue content and ensuring updates
- Leading e-procurement projects
- Auditing payments
There are several benefits to working in e-Procurement:
- It is the future of the procurement sector, so opportunities are growing
- As one of the earlier entrants in the marketplace competition for roles is lower
- Excellent salary prospects with mid-senior level managers in the region of £50k plus
Procurement fraud is something that unfortunately is a common aspect of the sector. There are numerous examples of using a procurement system to commit fraud. For example conflicts of interest may occur when the purchasing company has directors involved in the ownership of bidding companies leading to unfair advantages. Furthermore, fraud could result in the receipt of inferior quality goods, fictitious orders or the transfer of illegal assets.
EU Procurement Regulations
The EU has its set of rules for the procurement of goods and services relating to the public sector which is then controlled locally by its member states. The decision to instigate such regulation allow the EU to
- Open up opportunities to competition
- Prevent ‘buy national’ policies
- Promote the free movement of goods and services
In England, Wales and Northern Ireland the legislation is covered by Public Contracts Regulations 2006 and in Scotland by Public Contracts (Scotland) Regulations 2006.
Future of Procurement
Over the next few years, the dynamics of procurement are expected to change. It is anticipated that more businesses will use e-procurement systems to procure goods and manage stock levels.
While e-procurement will grow there will still be a need for human touch points, however, more third party procurement specialists will enter the marketplace.
Furthermore, while budgets and costs have always been a driver companies will become more reliant on purchasing based profitability, requiring a more holistic approach to decision making.