Topics: Finance and Accounting Transformation, Procure-to-pay cycle
Posted on November 28, 2024
Written By Priyanka Rout
Procurement might seem like just another part of everyday business operations, but it’s actually the heartbeat of a company, keeping everything from production to services running smoothly.
Traditionally, it wasn’t seen as particularly glamorous or strategic—just a necessary function to make sure materials and supplies were on hand when needed. But that’s all changing. Today, procurement stands at the center of a storm, driven by rising costs, supply shortages, and global market pressures.
Gone are the days when chief procurement officers (CPOs) were tucked away in the back office, focused solely on compliance and cost reduction. Now, they’re front and center, innovating with data analytics and new technologies to make procurement faster and more efficient.
Modern procurement tools are transforming the landscape overnight. Automating the procurement process doesn’t just mean catching up; it means staying ahead, taking advantage of early purchase discounts, and turning sluggish, manual processes into a sleek, strategic operation.
If you’re still relying on ancient tools, this blog is your wake-up call. Let’s explore the nuts and bolts of the procurement process and give the upgrade it deserves.
Procurement is simply the process where businesses find and buy the goods, services, or materials they need from suppliers. This includes all the steps needed to source, request, approve, and track each purchase, helping businesses keep an eye on their spending.
No business, big or small, can do everything on its own. Whether it’s to keep the lights on or to make products, they all need to buy goods and services from outside suppliers.
But procurement is about more than just sticking to a budget. It’s about making sure every purchase brings enough value to the company. It’s a bit like how we shop for ourselves, weighing things like quality, delivery time, and value for money. For businesses and organizations, though, the process is much more complex.
Procurement goes beyond just getting the best bang for your buck. It includes a series of steps to ensure a business has what it needs, when it needs it, and at the right price:
In the case of direct procurement, which is a key part of supply chain management, this involves a structured approach. A procurement officer must coordinate all these activities to make sure the business gets the necessary goods and services, aligning with the company’s broader objectives.
Procurement isn’t just for the finance folks; it’s vital for the whole business. It affects everything from your profit margins to your company’s entire strategy. Here’s how:
That’s why setting up a solid procurement department takes a lot of effort and planning. This team does more than just purchase goods; they help shape the business itself.
Discover why QX ProAP is the go-to AP automation software for forward-thinking businesses. Read our blog to learn more!
PROCUREMENT TYPE | DEFINITION | EXAMPLE |
---|---|---|
Direct Procurement | Involves purchasing goods and services that directly contribute to producing an end product. | Raw materials, components and parts, machinery, items purchased for resale |
Indirect Procurement | Consists of acquiring goods and services not directly used in production, supporting operational functions. | Office supplies, marketing services, utilities |
Goods Procurement | Concerns the acquisition of physical items, which can be for direct production or operational support. | Raw materials, wholesale items, office supplies |
Services Procurement | Encompasses the procurement of people-based services, either directly related to production or for supporting operations. | Law firms, contractors, contingent labor, on-site security services |
Procurement is a step-by-step process that varies from business to business, involving everything from creating a requisition to placing a purchase order and approving an invoice. But despite these differences, three key elements are always at play:
When you map out these steps in a clear flowchart, it not only makes the procurement process transparent and fair, it also shows where there might be room for improvement.
Procurement can seem like a complex process, but it really boils down to a few key steps that fit each company’s needs. Here’s a straightforward look at how it works:
Procurement breaks down into three main phases: sourcing, purchasing, and payment.
This is where it all starts. The company figures out what it needs, sends out a purchase request, and picks the best suppliers. It’s also when you start building good relationships with those suppliers, which can help improve the products and trust between both parties.
During this phase, you’re making deals, placing orders, and then checking the goods or services when they arrive to make sure everything’s as expected.
This is the final stretch. The accounts payable team checks that the order, delivery, and invoice match up. If they do, they give the green light to pay the invoice. It’s also important to keep all the paperwork in order, just in case you need to look something up later.
Companies often view the procurement process as a continuous cycle. This approach highlights how the different tasks and stages overlap and depend on each other. It’s a cycle that keeps going, always linking back into the business’s broader operations, like adhering to company rules and budgeting procedures.
This lifecycle isn’t always a straight line. It needs to be flexible to handle a constantly changing digital supply chain, where suppliers, availability, and costs can shift unexpectedly. Making adjustments along the way is key to keeping everything running smoothly.
Procurement revolves around three essential elements: people, processes, and paperwork.
1) People: It all starts with the team. This includes everyone from procurement specialists to accounts payable and the departments that need the purchases. The more crucial or costly the purchase, the more people you’ll find involved, making decisions and giving approvals.
2) Process: A smooth procurement process keeps costs down and ensures that everything the business needs arrives on time. Everyone involved needs a clear understanding of their roles and deadlines to keep things running smoothly. Without a clear process, you’re likely to run into costly mistakes like overpaying or delaying payments, which can strain relationships with suppliers.
3) Paperwork: Good record-keeping is essential. These records help keep track of everything from how much you’re paying to how suppliers perform, making sure the procurement engine runs smoothly, no matter who’s at the wheel. They also come in handy during audits or disputes, providing a clear trail of all transactions.
Unlock the full potential of accounts payable automation. Explore essential insights and tips in our comprehensive blog.
Keeping an eye on procurement KPIs helps businesses streamline their procurement process, track progress towards goals, and pinpoint areas that need improvement. Here’s a look at some key procurement KPIs commonly tracked:
Now that you understand the basics of procurement support, including its various types, how it fits into a company’s workflow, and top KPIs to track, you’re well on your way to smoother buying processes.
By focusing on procurement process optimization which includes improving performance, speeding up approvals, and keeping a close eye on spending, you’ll notice better product quality, higher customer satisfaction, and budgets that actually stick.
Here at QX Global Group, we get the challenges you face with procurement. That’s why our tailored procurement outsourcing solutions are all about making your processes more efficient and effective, so you’re always one step ahead.
Take a moment to think about your current procurement strategies. Are they doing everything they could be? Check out how our solutions at QX could help enhance your operations and lead to better outcomes.
Originally published Nov 28, 2024 12:11:45, updated Nov 29 2024
Topics: Finance and Accounting Transformation, Procure-to-pay cycle