Centralized procurement makes good business sense; in one example of a procurement management project, a company was able to reduce the amount of money spent on purchases by 15 per cent over a 12-month period. This is a significant savings over a relatively short period of time.
What is Procurement Management
Procurement management is the process by which a corporation purchases goods and services from an outside organization or business. If the process is running smoothly, the corporation's employees will have resources needed to perform their duties and complete necessary projects.
An Example of a Procurement Management Project
A procurement management project includes the following processes:
- Identification of What to Procure and a Timeline for Purchase
- Identification of Potential Suppliers/Service Providers
- Obtaining Quotes or Bids and Choosing a Supplier/Service Provider
- Managing Relationship with Supplier/Service Provider
- Contract Close-Out
The first thing a procurement project manager considers is the corporation's needs and whether the necessary resources are available in-house or they need to be bought from an outsider supplier, organization, or contractor. Both in-house and outside consultants may be asked for input to determine whether it is more cost-effective to rent or buy equipment or other items.
Potential Suppliers/Service Providers
Once the project manager has a clear picture of what product or service is to be acquired, research will be conducted to assemble a list of potential suppliers and/or service providers. The corporation needs to consider scheduling and cost factors when identifying potential providers.
Selected suppliers/service providers are invited to submit bids, which will be evaluated or scored according to a set of criteria. This criteria may be as simple as the lowest purchase price or include a number of factors, such as
- Provider's Understanding of the Corporation's Needs
- Lowest Purchase Cost and Operating Cost
- Technical Skills or Knowledge
- Management Style (in the case of an organization)
Once a supplier/servicer provider has been selected, the terms of a contract will be negotiated. The terms of the contract may include clauses covering the following items:
- Responsibilities of Each Party
- Financing Terms
- Invoicing and Documentation Required to Request Payment
- Policy for Requests to Change a Term of the Contract
The contract is a legally-binding document and may be prepared by the corporation's staff, legal department, or outside counsel. The final, signed version of the contract should contain all the terms agreed to by the parties.
Managing the Relationship with the Supplier/Service Provider
Managing the relationship means that the supplier/service provider's performance is evaluated to ensure that the terms of the contract are being met. If several suppliers or service providers participate in the same project, the project manager may need to coordinate delivery of goods and/or services to ensure that the project continues to run smoothly.
If an element of the contract has not been fulfilled in a satisfactory manner, the supplier/service provider should be notified in writing. A requirement for written communication of this type will likely be included in the contract.
The supplier/service provider will submit invoices at specific intervals as set out in the contract. These will be forwarded to the appropriate department for payment.
Once the obligations under the contract have been met, a review of the process will be conducted. The goal of the procurement audit is to identify which elements of the process were successful and where difficulties, if any, occurred. Documentation should be prepared and assembled for inclusion in the corporation's project records. The supplier/service provider will also be advised in writing that the obligations under the contract have now been fulfilled.
As you can see from this example of a procurement management project, a number of steps are involved to make the process run smoothly. Planning is key to efficient procurement management for corporations.