Procurement Management for Business Users

All management plans start with assessing a need that follows or aligns with business objectives. In procurement, the team then develops a process lifecycle that defines the sourcing and delivery of direct and indirect products and services. The procurement management plan details contracts, delivery timeframes, necessary documentation, associated purchasing, and predefined suppliers, as well as vendors and contractors and how they performed and were managed.

Here are some steps to take as you build a procurement management plan:

Identify elements already in place, such as systems, documents, or vendor agreements.

Perform a “make or buy” market analysis.

Assess supporting elements, such as contracts, automation, and software.

Develop selection criteria to find and qualify vendors through RFPs or RFQs, negotiations, and contracts.

Define a contract and statement of work (SOW) for each type of procurement.

Build a purchasing process that automates ordering, delivery, and payment.

Document everything.

Measure the success of the acquisition process. This includes assessments that audit for fraud or misappropriation, identify areas for innovation, and pinpoint risks to the supply chain.

Your procurement management plan should also address contract development. Different types of contracts help make the relationship between the business and vendor as fair as possible. These include the following:

Fixed price: The client always pays the same amount regardless of work effort.

Cost reimbursable: The supplier charges the cost of doing the work plus a fee for profit.

Time and materials: The supplier charges a rate for the time spent plus all material utilized.

Here is a procurement management plan that you can use to manage and track all your procurement-related activities.

‌ Download Procurement Management Plan - WORD

Procurement Management in the Business

A procurement management process supports overall operational requirements by delivering the right products at the right time and in the right amount. The Chartered Institute of Procurement and Supply (CIPS) discusses the “five rights” of purchasing and procurement: Goods and services should be of the right quality, in the right quantity, delivered to the right place, at the right time, and obtained at the right price.

Every department in an organization depends on the timely, accurate delivery of the tools and services they need to perform their jobs. With the help of the procurement team, individual departments won’t have to coordinate their own sourcing and acquisition. This not only streamlines the business process, but also simplifies the relationship with the vendors, which saves both time and money.

Whether a company procures services or materials for software engineering, a construction company, or a manufacturer building the latest must-have toy for the Christmas season, the process is very similar. The procurement team acts as the primary contact with the suppliers that deliver goods and services. They work directly with outsourcing entities to identify key opportunities that enhance operations. It is part of the job of the procurement team to develop and maintain outside relationships that benefit project management and operational efficiencies.

Dealing with Procurement Fraud

Fraud can be extremely disruptive to the procurement management process. What constitutes fraud? It is any form of manipulation to the procurement process for dishonest gain. An often-used example is a kickback or "thank you" payment made to a decision maker for selecting a specific supplier. It can also be someone benefiting from insider information.

Other forms of fraud include inflated invoicing, dividing requirements to avoid contract review, collusion, sole-source contracting, exclusion of qualified vendors, or delivery of inferior goods. Fraudulent payment practices can be as simple as bestowing a favor, providing a valued gift, or making direct cash payments to assure a procurement order or contract is awarded.

While fraud can exist in almost every business – public, private, or government – there are ways to mitigate risk. The first step in prevention is having strong procedures and controls that educate employees and hold them accountable. Policies that encourage the reporting of fraud also need effective detection techniques that can range from automated alerts to regular auditing and internal segregation of duties and responsibilities.

To Make or to Buy: How to Decide?

There are times when a business will need to decide whether to make or buy a product or service that is necessary in the procurement process. This is especially critical as companies scale up. Building or authoring in-house solutions is needed when the workforce is idle, proprietary information is at stake, or a business wants to retain full control, but more and more cost-effective solutions for common problems are available through outside contract or purchase. A thorough analysis of pros and cons is the best way to make this decision. Consider the following:

Operational abilities

Timelines

Availability of resources

Cost

Control factors

Internal capabilities

These elements take into consideration the proprietary needs, organizational capabilities, and the perceived effectiveness or value of the solution. Purchases with unusual elements such as licensing or leasing also benefit from the make-or-buy analysis criteria.

Kenneth Ballard of Source One Management Services, a procurement services provider, suggests the following in order decide whether to make or buy: “The way to approach this decision is to conduct a total cost of ownership (TCO) analysis to evaluate both qualitative and quantitative factors. Qualitative factors may include availability of materials, labor force sills, and cultural alignment. Quantitative factors include cost of labor, materials, machinery, material acquisition, and additional overhead.”