To highlight the significance of effective procurement management, you only need to think back to what was occurring across the globe in March 2020. Two years ago, the impact of the coronavirus pandemic took its toll on a number of key services. Supplies available to businesses across Australia were significantly impacted almost overnight. Suddenly, businesses required staff to remain at home or utilise Personal Protective Equipment (PPE) and social distancing to complete their work. This resulted in immense demands on critical items, and caused delays and costs to skyrocket. In the worst cases, many scrambled to procure new items and suspend potentially hazardous activities that could jeopardise the health and wellbeing of stakeholders.
Since then, many Australian business owners and managers have taken a little more notice of just how their brand is managing procurement activities. They have analysed their processes (often paper-based) and sorted to better understand the level of planning that is necessary to maintain their operations - unlike spontaneous procurement practices. Both of these factors are problematic as they do not take into account potential threats and challenges that affect the day-to-day operations of procurement management, and impact the ability to undertake planning for procurement activities.
Lack of control of documentation, ad hoc hiring, planning, escalating pricing, confused staff and suppliers, maverick-style spending, and lack of visibility and consistency: these are common occurrences to businesses without appropriate procurement management. Not only can this mean valuable resources wastage but also comprises the relationship between suppliers and in-house staff.
Successful procurement management looks diferent for each organisation.
What is procurement management?
Successful procurement management involves optimising your approach to ascertaining goods and services from external organisations to keep your business running smoothly and achieving value for money each time.
How can businesses implement successful procurement management?
Successful procurement management looks different for each organisation. Success will ultimately be determined by organisation effectiveness in achieving profit and retaining staff in the organisation.
Procurement Management Process
For businesses that are growing or rapidly changing to meet demands, business owners and managers may require an extensive overhaul of their procurement practices. This will be driven by a strategic plan to ensure that policies, schedules, activities and targets are in full alignment.
In order to achieve improved procurement management, AML Advisory recommends noting the following steps:
Specification and planning — Before anything, companies must develop a cohesive procurement strategy and plan that details the outcomes to be achieved, as well as resources, methodologies, processes, schedules, and budgets that will enable the organisation to understand all the responsibilities in order to execute the plan.
SWOT Analysis — Identify the strengths, weaknesses, opportunities and threats to your old and proposed new procurement practices. What were you doing well in your last procurement activities? Have you consulted your colleagues, suppliers and stakeholders for ideas and gained a high-level view of the supply chain in which your new activities will function? For businesses looking to improve their vendor selection, have you developed your criteria to help you achieve your strategic goals, including cost, delivery times, social, environmental and ethical responsibility, safety, service and support, and quality control? All of the previously addressed needs to be planned for and analysed.
Proposal Requesting, Negotiating, and Contracting — Once your procurement method is selected and has been fully planned, potential suppliers can now be narrowed down. You can begin requesting proposals and negotiating as needed, even creating preferred supplier lists and explaining how new or alternative suppliers may gain access to this list. The negotiation process can shed light on potential suppliers’ dependability and trustworthiness. Careful planning is needed to ensure requirements and expectations are met on both sides of the agreement.
Control and Delivery — Now that you have entered into agreements with your preferred suppliers, consistent messaging and meetings will be need to ensure compliance on both sides. Do you need or require a Performance Management Framework (PMF)? Proper controls and appointments need to be standardised and have clear control methods for collecting receipts of deliverables and payments. This should include delivery tracking, progress of all orders against established specifications, and quality standards.
Measurement and analysis — By this stage, the procurement management process of your business is fully operational with established Key Performance Indicators (KPIs) in place. Monitoring of this process must continue along with careful analysis on pre- and post-procurement management implementation. This will allow you to quantify the Return On Investment (ROI) in this process and ascertain if the efficiencies have been realised.
Refined Procurement Management
For businesses that have a carefully planned and reasonably efficient operational procurement process, you may be surprised to know that contemporary ICT and ERP systems are continuing to drive improvement and efficiencies that deliver a Value for Money return.
Procurement Management Automation
In recent years, procurement management software and ICT systems have played a vital role in identifying demand and facilitating automatic procurement. This in effect reduces the time taken to procure goods and services, but also provides transparency and a baseline to compare each procurement activity objectively.
So, what can be automated?
Stock level assessments
Vendor Management, and
Contract Approval (to a certain degree)
Not only does automating these procurement activities mean efficient usage of resources, but also has benefits for schedule and costs reduction. The automated process also permits an evidence-based data sequence that supports governance and compliance against the responsibilities your organisation has, including legal and agreement obligations.
For businesses requiring complex procurement of goods and/or services that are high value and requiring specialist skills and expertise, the argument for pursuing a tendering process increases. Tendering management is often the most effective method. However, this is a subject in itself that will be the focus of its own blog by AML Advisory.
Businesses will likely face challenges similar to that of the coronavirus pandemic into the future. However, your business can protect its day-to-day operations by creating sustainable procurement management plans that meet such occurrences and mitigate many of the risks identified.
Where do I go to get help?
Need some assistance in creating an effective and relevant procurement management plan? Call AML Advisory today and discuss your planning requirements and desired outcomes for improving your procurement. Ph: (03) 8687 2174 or book an appointment.