how to make your procurement process robust

“Simplicity is the ultimate sophistication”

~ Leonardo da Vinci

Over the past few years, supply chains have become more dynamic than ever. The pandemic has completely changed the way businesses strategize and perform supply chain operations. As the performance of the business is directly impacted by the efficiency of the supply chain network, businesses are in a constant pursuit to improve their processes and systems to stay ahead of the curve. In this article, let us discuss one of the key processes in the supply chain – Procurement, and what businesses need to focus on to troubleshoot the issues related to this function. Also, the points businesses need to consider before planning to adopt a new supply chain technology. 

Procurement Process

The Procurement process is the combination of all the activities that make up the process of procuring goods or services that will be consumed by the business. An efficient procurement process aids in good financial performance, reduced delivery times and establishes good relations with all the suppliers and partners. The below infographic depicts the procurement process in general.

           Ideally, the procurement process begins with the requirements comprising of all the goods and services of each department. Since there is a fair chance of receiving similar requirements from more than one department, all the similar requirements are clubbed together.

           Once the requirements are finalized, based on the nature of goods and services required, businesses then may Request for Proposal (RFP) to evaluate and qualify the vendors on multiple factors or they may Request for Quotation (RFQ) when they already have a pool of vendors who have already been qualified.

           Once the vendor is finalized, a Purchase Order (PO) is released by the procurement department to the vendor. A PO sums up the requirements of different departments (purchase requisitions) that can be fulfilled by a vendor. This helps businesses to reduce the waiting time and get a better price from the vendor. 

           Once the vendor supplies the goods or delivers the services mentioned in the PO, businesses raise invoices and complete the payment. All the transactions are duly recorded and reported.  All this activity is constantly monitored to analyze the performance of the vendors and manage the new and existing vendors without any hindrance to the business process. 

           However, in day-to-day business operations, the flow of the procurement process is seldom smooth. Multiple departments spread across different geographical locations are in a constant tussle to get their job done. This creates bottlenecks that hamper the efficiency of the entire process. Let us now see how businesses can troubleshoot these issues.

Troubleshooting the Supply Chain Problems

  • Focus on customer experience – All the activities within a supply chain should always be aimed at customer delight. Any issue that negatively impacts the customer experience should be immediately identified and fixed. The customer feedback should always be routed back into the supply chain processes. This helps to build trust, prevents repetition of similar issues, and brings transparency to the whole process.
  • Keep the solution simple – No matter how complex the business flows are, and how advanced the technologies are, the underlying principles of the supply chain always remain the same. A superficial understanding of the issue will only result in unwanted expenditure and adds to the complexity of the business process. The focus of the business should always be to find and eliminate the root cause of the issue. Everything else is should be considered as noise that covers up the actual cause. Once this cause is identified, businesses then need to devise solutions with minimal deviation from the existing processes.
  • Understand the Business Process and Translate to System Solution – Businesses need to have clarity whether the problem is being caused by the system or by a faulty business process. Often, businesses try to fix the system when the issue lies in the business process. This may be due to non-standard work processes, negligence of the employees, or deviation from the standard processes. Hence, first businesses need to separate the system issues from the process issues. Once these issues are identified formulating a solution becomes much simpler. 
  • Manage all the stakeholders – Whenever a new supply chain problem surfaces, businesses first need to identify the key stakeholders, analyze their needs, understand their expectations, and set up proper communication channels. The issue must be resolved in coordination with all the stakeholders and keeping them informed with constant communication. This not only boosts the morale of the stakeholders but also smoothens the whole process.
  • Follow a holistic approach – In the supply chain, no department exists in isolation. It is an interconnected network with physical goods and services, and a constant stream of vital information flowing in and out. In such a scenario, each department fixing its issues with its own methods will only increase the complexity and the scale of problems. To prevent a domino effect on the entire supply chain, businesses need to follow an integrated and holistic approach to solve the issues. Any new change can be deployed in a controlled environment in the form of a pilot where it is easy to identify and fix the irregularities and then scaled gradually.

3 Key points for Technology Transition in Supply Chain

Along with the processes, businesses need to update their IT systems at regular intervals to take the advantage of the latest and emerging technologies and retire obsolete systems. This gives them an edge over their competitors. However, the latest does not always mean effective. Businesses need to carefully identify and select the tools or technologies that enhance the existing systems and augment the existing supply chain processes. The below infographic details 3 key points that businesses can consider while planning for a technology transition.

  • Technology Capability – Businesses need to assess the uniqueness of the proposed technology solution. They need to thoroughly understand the problems the new technology is capable of solving which cannot be addressed by the existing systems. Most of the time, the solutions which business are looking for might just be an add-on to their existing application. A comparative analysis of all the available options concerning the key performance metrics such as cost, execution time, and ease of usage will help businesses to choose the best option.
  • Budget – Businesses need to plan the budget which they can allocate for the proposed technology. Investing in software and hardware should be a strategic decision but not an operational decision. Businesses can plan their technology budget based on the criticality, the desired level of automation, and expected return on investment.
  • Volume/Usage – Businesses need to analyze whether the proposed technology would be suitable for the current and expected future volume of business transactions. Selecting a technology that has advanced capabilities for simple processes with minimal transaction volume or vice-versa would be a complete waste.

How to start and not stop at the end of this article piece?

I would recommend starting simply by just taking this approach, which has negligible risk, simple and yet an amazingly effective positive step towards our goal of a proactive strategy

A) Take pen -paper or manual method (start now)

Start implementing the recommended strategy using your existing technology resources for a known and low-risk segment of Suppliers within your supply chain business to find out what works and what doesn’t. Indeed, this causes efforts, but this will pave the way for better clarity around unknown risks.

B) Take help from technology

Work towards making it unattended, assisted by using Super-fast digital solution such that it works autonomously without losing its efficacy by engaging a solid, affordable Business and Technology solution partner.

If you are a CEO/COO/CIO/Managing Director/General Manager who is spending more time in reactive/preventive mode than future-facing, please reach out for an exploratory conversation.

Our Contact details

Pradeep Mishra (Director and Co-founder)

pradeep.mishra@aurionsystems.com.au

Ashok Mulchandani (Partner – Business Success and Strategic Transformation)

ashok.mulchandani@aurionsystems.com.au

Amit Bhagat (Director – Business Strategy)

amit.bhagat@aurionsystems.com.au

Please feel free to leave your suggestions and thoughts in the comment box below!