Procurement Process that Streamlines & Optimizes Spending
In addition to quality and delivery, the goals of a well-managed procurement process are to optimize spending while achieving greater efficiency and accuracy. Which procurement processes and strategies are best for your organization depends on the size and nature of your business. Of course, part of your strategy will include the formal procurement management steps of
- Identifying your business needs
- Sourcing, supplier evaluation and selection
- Negotiation and awarding contracts
- Managing vendor relationships
Beyond accomplishing these objectives, without effective methods in place to manage your procurement process, your costs can get out of hand as business volume scales and intensifies. Below are four high value processes and systems that our team has helped businesses establish and utilize in order to streamline, improve procurement accuracy and control costs.
Easier Replenishment with Kanban Systems
A Kanban system is just about the simplest inventory management system that small and midsized manufacturers and distributors can set up. The system will help you to better manage procurement, at least for those goods that are stocked. Driven by consumption, the Kanban system relies on an instruction card that is placed with each stocked item. Upon reaching an identified level of depletion, the instruction cards for the stocked goods are then returned to purchasing so you can replenish the goods noted on each card. Kanban systems help organizations better manage their replenishment processes. For the items that you must stock and replenish, you’ll be able to reduce shortages and prevent over-ordering.
Companies that have been using Kanban systems tend to transition more easily to ERP. With your stock already organized and min/max levels for those goods identified, the effort to set up bins and locators in an ERP for those items is easier.
Procurement Process in Enterprise Resource Planning (ERP)
If you are currently managing multiple vendors through emails and phone conversations, you can realize significant time savings and improve your accuracy with ERP. Solutions like Trek Cloud ERP allow you to fully automate your Procure to Pay process for greater efficiency and accuracy. Steps in this process that become automated in your ERP include
- Material Requirements Planning
- Vendor Selection
- Request for Quotation
- Purchase Requisition
- Purchase Order
- Receipt of Goods
- Invoice Verification
- Vendor Payment
Significant automation occurs in an ERP as it relates to procurement. For example, you can automatically generate purchase orders based on defined min-max levels. Your purchase orders will utilize information in your system that includes negotiated terms, tiered pricing and delivery schedules.
Your ERP will also help you gain control over your spend. Purchase requisitions in the ERP allow you to automate the approval process, ensuring that the request to procure goods and services along with costs are authorized. You can set purchasing thresholds and rules and easily enforce them in the system. Your purchasing staff will also be able to negotiate quantity-based terms because they can consolidate multiple requisitions into a single purchase order.
Vendor Managed Inventory (VMI)
Utilizing VMI requires partnerships with trusted vendors. In evaluating the pros and cons of VMI, on the one hand you can greatly improve efficiency by turning over the tracking and replenishment of certain stocked items to your vendor. One issue to look out for involves managing the costs of your vendor managed inventory. This is where having an ERP in place is especially helpful. You can generate reports and view other real-time data in the ERP that gives you the insight and management you need over min/max levels, price lists and vendor costs, thereby assuring that your risk is lowered in a VMI partnership.
Further Automating Using Electronic Data Interchange (EDI)
To further streamline collaboration with your vendors, you may be able to take advantage of EDI. EDI allows you and your vendor to electronically send purchase orders, invoices and other documents directly into each other’s computer systems. Without having to manually receive and input the data from your purchase order into their system, your vendor is able to fulfill your order that much more quickly. Our team of developers can create EDI connections and EDI documents for your company. To learn more about the many benefits of EDI, see our related article, 10 Ways EDI Improves Your Bottom Line.
Need Help Streamlining Your Procurement Process?
With more than 20 years in the distribution and manufacturing industries, our team of consultants is here to help you optimize your business processes. Contact us to learn more.