Proper procurement and supply management are some of the necessary fundamentals to ensure that daily business processes are carried out. A procurement plan that is not implemented and managed properly can seriously hamper your supply chain and make a dent in already tight budgets. Refining your procurement plan can result in a greater sense of transparency and also help to accurately predict future spending. Furthermore, keeping track of your procurement allows for smarter fiscal management and addresses regulatory compliance concerns.
Be prepared – plan ahead and do your research properly.
Not planning ahead forces you to make hasty and sometimes pressured purchases that aren’t line with the company budget. Procurement should be a considered and measured approach that requires detailed forecasting and needs analysis. Getting a CFO to sign off on a purchase order for a large capital expenditure that is not well researched and motivated can prove to be a near impossible task. Thus, the incentive behind every purchase should involve an extensive amount of research, planning and motivation.
Determining the exact purchasing needs of each department should form the basis of your procurement plan. Furthermore, you should be able to financially justify the purchase; ensuring that it aligns with budget forecasting and that provisioning is in place.
Get the right provider for the job and maintain the relationship.
Finding the right external provider for products or services is crucial to the success of your procurement plan. If you are putting out a request for proposal it’s important to ensure you comply with the regulations that require transparency about the procurement process. It also helps to avoid any form of corruption and the delivery of subpar services. When a large sum of money is involved, the problem of corruption often rears its head. Procurement officers are the first line of defence against the issue of corporate corruption and a procurement plan is the main weapon in their arsenal.
Similar to customer relationship management, maintaining and monitoring the relationship between your suppliers and the business helps determine whether the conditions of the service level agreement are being upheld.
Also, remember that price is not the only determining factor when it comes to the provider you select. There are a few important factors to keep in mind like warranties, servicing, and maintenance costs as the seemingly cheaper option might end up costing you more down the line. Add to this a lengthy contract that yields more frustration than a quantifiable service offering and the need for diligence becomes quite apparent. In certain scenarios you might also find that renting equipment for an extended period of time, rather than purchasing it once off, is best suited to your budget and the scalability of the business environment. The fortunate thing is that with some creative thinking and clever negotiations, procurement plans can yield great returns for businesses.
Approach your procurement plan with the end goal in mind.
The procurement of services, commodities and assets is primarily geared at assisting the execution of daily business processes and it’s these processes that transform into profits. Thus, your procurement plan should motivate a reasonable return on investment. Think about a company that sells a great product and enjoys a significant profit margin each month, but is burning though that revenue due to an operational and procurement plan that lack structure and vision. Thousands if not millions of Rands can fall through the cracks of an ill-conceived operational and procurement strategy.
Due to the unfavourable global financial outlook, businesses have all had to implement their fair share of downscaling. The tightening of budgets has also increased pressure on procurement departments to extensively substantiate large capital expenditures. This is especially true for large enterprises with astronomical operations budgets and procurements that total billions annually. This means CPOs have to be more motivated than ever to avoid any irresponsible spending and ensure that procurement plans clearly demonstrate ROI. To sum up, here are some of the key steps to keep in mind when setting up a fail proof procurement plan:
- Properly define the business’s procurement needs and ensure that it is in line with budget projections and will ultimately benefit business processes.
- Continue to develop and adapt your procurement strategy to the changing needs of your business.
- Rigorously evaluate all prospective suppliers and ensure that they meet your purchasing needs and support your procurement plan.
- Negotiate the terms of the purchase agreement thoroughly and finalise the contract with the set out deliverables.
- Once the procurement process is completed, evaluate the performance of the provider and determine whether deliverables are being met.
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