Procurement Best Practices: Key Strategies for Success

ControlHub
March 29, 2024

In today's world, procurement can be a major headache for many businesses, especially those that rely heavily on hardware. With supply chain disruptions becoming a global issue, companies must find ways to manage their supply chains carefully to mitigate the impact of these disruptions.

Fortunately, by implementing procurement best practices and using quality procurement software, procurement leaders can reduce headaches and keep their businesses moving forward.

This blog post covers essential procurement best practices, including timely purchasing, careful supply chain management, corporate responsibility, procurement contract management, and automation. By following these best practices and using procurement software like ControlHub, businesses can streamline their procurement processes, avoid costly mistakes, and keep their supply chains running smoothly.

If you're a hardware-centric, procurement-heavy company looking to improve your procurement process, this blog post is a must-read.


Buy what you need, when you need it

One of the biggest challenges in procurement is timely purchasing. For many companies, the procurement practice is to order a certain quantity of goods at regular intervals. And while this works well for some items, it’s less appropriate for others. In addition, it’s always tempting to buy a large amount of something less often, then store the extra.

While “stocking up” is useful when there are persistent issues with shipping, there are better alternatives. Storing items for a long time increases your total cost of ownership because you need more warehouse or storage space, which costs money. In addition, you’ll tie up more company capital for longer.

To help alleviate this problem, be sure that each purchase requisition only requests the amount of supplies needed for a short time. In addition, train your department managers to request something in enough time to get it delivered soon before use. This way, supplies will spend less time in the warehouse and more time creating value for your company and its customers.

Carefully manage your supply chain

Buying less of something more often does have one drawback – if there are shipping delays, it’s easier for your company to run out. Fortunately, you can help mitigate this risk with strategic sourcing. In a nutshell, strategic sourcing is the process of finding and selecting vendors based on certain strategic criteria. 

Before the pandemic, most of us didn’t think about the role of the distance between suppliers and customers. Now, companies are more likely to consider paying more cash upfront to have something travel a shorter distance because this helps mitigate supply chain problems. 

Practice strategic procurement

More recent among procurement best practices is the need to consider corporate responsibility. These days, buying the cheapest suitable item from a random supplier is less desirable. That’s because the public increasingly wants to know that the products they buy are free from modern slavery and environmental irresponsibility. Beyond those considerations, corporate responsibility for your company may include other bonuses like providing employment for disadvantaged populations or being considered “green.”

Combined with the supply chain reliability considerations and other factors, we consider corporate responsibility to be part of strategic procurement. In other words, having a responsible procurement process and making sure that your company runs smoothly are only two pieces of the puzzle. Instead, you should try to use vendors that won’t embarrass you.

Carefully account for each purchase order

You’ll see this item in a lot of procurement-related best practices lists. Why? Because a purchase order functions as a procurement contract, at least on some level. While most companies also have service contracts and use a purchase order as the individual requisition each time, it’s the PO that ultimately binds the company to buy something.

Because each PO creates the obligation, you should have one for each supplier invoice. Of course, in some situations, the PO calls for purchases over time instead of a one-off. But when this happens, your procurement team should make sure that each resulting invoice gets associated with the same PO. This way, your accounts payable team will know the bill is legitimate.

There’s another reason for careful procurement contract tracking – revenue agency and other compliance audits. When investors look at your company’s books, they want to make sure that every cent is accounted for.  Similarly, these documents can help hold employees accountable for their role in each procurement function. If something doesn’t look right, there’s a paper trail to resolve those issues.

Clearly define supplier expectations

Best practices also dictate that companies discuss expectations as part of the procurement process. Communication is one of the most important parts of doing business, whether it’s expressing the procurement strategy to your procurement team or telling a vendor when they should get paid. In addition, setting expectations help your procurement leaders to nurture these important relationships. 

Similarly, open lines of communication mean that when a supplier is having trouble meeting expectations, they know to call their contact person. Then, both parties can help mitigate any threat to the supply chain.

Don’t be afraid of procurement contract management

Part of implementing best practices is continually improving your contracts. After all, market changes happen over time, and you always want to make sure you’re getting favorable terms. To that end, you should always try to optimize each vendor relationship from purchase requisition all the way to invoice payment. 

No matter what you are buying from a supplier, it’s always important to ensure that the contract remains a win-win. This means that each contract should be fair, with the seller making a profit and the buyer not paying too much. Whenever this balance gets disrupted, it’s time to communicate and negotiate with your supplier. Ultimately, careful procurement contract management benefits everyone.

Deploy transparency in your procurement process

Part of sound procurement practice is transparency. These days, some jurisdictions require a degree of transparency that encourages companies to keep undesirable companies out of the supply chain. In addition, more and more investors want to know how each company settles on a procurement contract. This comes from a concern that companies pay a fair price for goods and services, while also not overpaying for something. Showing a concern for fairness to both sides is increasingly considered a hallmark of financial responsibility.

Try to remain agile

Even the best procurement strategy sometimes breaks down. Not only do market changes and supply chain disruptions happen, but so do company requirements. For instance, as your company grows there’s a good chance you will need a larger office. You’ll also need more desks and computers so that everyone can work at once.

Another reason you need to be agile is that products might become unavailable through a chosen vendor. In this situation, you’ll need to find a different source. If there isn’t an exact replacement available, it’s essential that you work with the affected department to find an acceptable alternative.

Leverage automation

An important part of supply chain management is automation. For example, shipping companies post tracking information for packages, which lets you estimate how soon something will be delivered. You can be sure that during the Suez Canal disruption of 2021 everyone was on the computer to determine if their shipment was affected. In turn, affected parties looked for ways to adapt while they waited for the blockage to resolve.

Of course, order tracking isn’t the only use for automation. It’s only the tip of the iceberg. Used properly, automation can help you implement many of the other best practices we’ve discussed so far, such as tracking purchase orders and invoices. These applications can save your company hours of work and many of the headaches that come with clerical errors.

Learnings

For hardware-centric, procurement-heavy startups, managing the procurement process can be a daunting task. This is especially true in times of global supply chain disruptions, which can have a significant impact on business operations. This article emphasizes the importance of careful supply chain management and the implementation of procurement best practices to mitigate the impact of these disruptions.

One of the most critical procurement best practices is timely purchasing. While it may be tempting to order a large quantity of goods at regular intervals, this approach can increase the total cost of ownership, tie up more company capital, and take up more warehouse space. Instead, it's essential to order only the supplies needed for a short time and to train department managers to request supplies in enough time to get them delivered soon before use.

Another critical aspect of procurement best practices is careful supply chain management. To mitigate the risk of running out of supplies due to shipping delays, companies can implement strategic sourcing to find and select vendors based on specific criteria. Before the pandemic, companies seldom considered the role of distance between suppliers and customers, but now, they are more likely to pay more upfront to have something travel a shorter distance, mitigating supply chain problems.

Corporate responsibility is another crucial consideration in procurement best practices. In today's world, purchasing the cheapest suitable item from a random supplier is no longer desirable. Companies must consider social responsibility and environmental sustainability. This consideration should be part of strategic procurement, along with supply chain reliability and other factors.

To ensure accountability and compliance, it's essential to account for each purchase order carefully. This means having one purchase order for each supplier invoice and making sure that each resulting invoice gets associated with the same purchase order. Furthermore, companies must communicate expectations as part of the procurement process to foster strong supplier relationships.

Procurement contract management is another important aspect of procurement best practices. Companies should continually improve contracts to ensure a win-win situation for both parties, with the seller making a profit and the buyer not paying too much. Automation is another critical part of supply chain management. By implementing automation, companies can track purchase orders, invoices, and shipping information, saving time and avoiding clerical errors.

Finally, using modern procurement software like ControlHub can streamline the procurement process, making it easier to manage each procurement function from requisition to payment. ControlHub helps track department budgets, issue one-time cards, and approve requisitions quickly, among other things. It also provides alternative sources of supplies in case of a sudden issue with a supplier, thus ensuring the maximum possible protection for supply chains.

In summary, by implementing procurement best practices and using modern procurement software, hardware-centric, procurement-heavy startups can mitigate the impact of supply chain disruptions, streamline the procurement process, and avoid costly mistakes. By following these best practices, companies can foster strong supplier relationships, ensure compliance, and reduce headaches.

Frequently Asked Questions

Why is procurement such a big deal for businesses?

Great question, visionary! Procurement isn't just about buying stuff; it's the heartbeat of your operations. Getting it right means smoother sailing, happier vendors, and a happier bottom line. It's like the secret sauce that makes your business dance to the rhythm of success.

How can we escape the chaos of supply chain disruptions?

Fear not, we've got the antidote! Timely purchasing is your superhero move. Say goodbye to binge-buying and hello to value-driven procurement. Ordering what you need when you need it keeps things efficient and your business agile. Plus, no more warehouses filled with dust collectors!

What's this "strategic sourcing" jazz all about?

Oh, it's a groovy concept! Strategic sourcing is like curating your vendor dream team. Find suppliers that vibe with your business's uniqueness. And guess what? Choosing local buddies means fewer supply chain hiccups. It's like turning your vendors into your very own support squad.

How can we make ethical choices in procurement?

You're on the right track, conscious leader! Corporate responsibility is about more than profits. It's about embracing products that align with your values and planet-friendly practices. It's like giving your business a shiny halo while attracting customers who want to support a greater cause.

Are contracts really that important?

Absolutely! Contracts are like trust-building handshakes in the business world. They keep your relationships strong and your finances secure. Whether it's a quick purchase or a long-term partnership, solid contracts are your compass through the procurement jungle.

Why is communication with suppliers crucial?

Spot on, communication champ! Regular chit-chats with suppliers are like soul-soothing conversations with friends. If they hit a snag, they'll give you a heads-up, and you'll dodge potential problems together. It's like creating a support network that keeps your supply chain running smoothly.

How can we stay agile in a changing business landscape?

You're thinking like a true procurement ninja! Agility is your secret weapon. As your needs evolve, being ready to switch gears ensures you're always one step ahead. It's like having a backup plan that's always got your back.

Can automation really be our savior?

Absolutely, tech aficionado! Automation is like having a 24/7 assistant that never needs a coffee break. It takes care of tracking, invoicing, and all those nitty-gritty tasks, leaving you time for bigger leaps and bounds. Plus, it's your shield against those nerve-wracking audits.

How do we transform procurement chaos into success?

Fantastic question! It's not just about surviving – it's about thriving. By embracing these best practices and sprinkling in some modern software magic, you'll conquer procurement peaks like a champ. It's like turning chaos into your personal playground.

What is a P card?

A Purchasing Card (P-Card) is acorporate credit card designed explicitly for business-related purchases.It empowers employees to make purchases on behalf of their organization,streamlining the procurement process

P card vs Credit Card?

Credit cards allow users to make partial payments and revolve balances, on the other hand purchasing cards, or P-cards, requireyou to fully pay your balance each month. Their statements generally include more information than credit card statements and often eliminate the need to retain invoices.

What is the expense recognition principle?

The expense recognition principle, a core guideline of accrual accounting, dictates that expenses should be recognized in the period they are incurred, regardless of when the cash payments are made. This principle ensures that financial statements accurately reflect a company's financial performance by matching expenses with the revenues they generate. For example, if a company incurs costs to produce goods sold in a specific period, those costs are recorded as expenses in the same period the related revenues are recognized, providing a clearer picture of the company's profitability during that timeframe.

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