What is procurement management and why is it so important?

Summary

Procurement management is the act of obtaining goods or services for a business by working with an external source. This article discusses the basic outline of the procurement management process and why it's important for project managers to understand. Always check with your internal legal team before beginning the procurement process.

When you have a small team, choosing tools that you want to use for your day-to-day is as easy as knowing what you want and then purchasing it.

But when companies start to grow, this process may become unsustainable. The need for tools becomes more complex and companies want to minimize the amount of risk they take on when working with a potential partner.

This is why companies have teams dedicated to the procurement process.

What is procurement management?

Procurement management is the process of obtaining goods or services for a business through the acts of purchasing, renting, or contracting with an external resource to complete a project.

This process involves a variety of procurement activities, which can include identifying the needs of a project, sourcing potential options, submitting a request for proposals (RFPs) if needed, and administering procurements back to the team. This process may be done by a team separate from the one requesting the product or service in an effort to protect the company from any potential risk. However, always check with your internal legal team to confirm the specific procurement process at your organization.

Procurement teams are typically experts in contract management. Your internal procurement team will likely be the one responsible for negotiating contracts to best fit your company’s  needs, negotiating pricing and packaging information with your potential partner, and running a risk analysis to protect your company from any potential threats.

There are typically two main sides to procurement: the front-end strategic sourcing and the operational side of procurement management.

Front-end sourcing is how the team goes about identifying the different partners and businesses that your company wants to work with. This process usually involves setting minimum qualifications that potential vendors should meet and identifying why the company needs to bring a third-party vendor in for a project.

The operational component of procurement management is the individual steps a company needs to take to begin working with a third party. These steps vary depending on your internal company practices, but they may include using purchase orders, submitting RFPs, choosing bidders, or going through a quoting process.

4 steps of the procurement process

There are four main steps that procurement teams will take in a procurement management process. Here is a basic outline of how a procurement project team would go through the steps of procuring materials required to complete a project. Always check with your internal legal team for guidance on your company’s procurement practices and policies.

1. Create a procurement management plan

This is the initial stage of procurement management. Procurement teams typically work with stakeholders to identify what resources the team needs to complete a project. The procurement team will look at the overall project as a whole and identify potential solutions. Tools like procurement management systems or work management systems can help your procurement team keep important documents like RFPs and purchase requisitions in the same place.

Your internal procurement professionals will likely evaluate resources the company currently has on hand in comparison to what the team is looking for. If it's more cost-effective to use resources that the team has on hand, they will likely suggest it in addition to negotiating costs down when they discuss options with bidders.

This stage will also answer basic questions about the procurement plan. These questions may include:

Do stakeholders need this resource by a specific date?

Will there be a specific process for how the team evaluates different options?

Will your team release an RFP to potential suppliers?

2. Conduct procurements

During this stage, the procurement team will typically execute on a decision. Your internal legal team will guide you on how to gather bids and help your team evaluate the different options available.

Look to your internal team for guidance about which option best fits your needs. Once you have selected a vendor, your internal legal team will help you move onto the negotiations and contract signing as soon as the contract matches the project needs. This process typically ends with a document like a purchase order to seal all of the details of the deal––the purchase order may include details on the price, quantity, product delivery timeline, and how the payment will be made.

3. Administer (or control) procurement

Depending on the type of product your team is procuring, this is the stage in which the team implements the newly procured purchase into your project plan . This could mean managing and training a new team of contractors, installing new software, or moving raw materials to turn them into a new product.

During this stage, it's a good idea to implement some form of change management into your process. This is especially true if you're adding additional team members into your workflow. This will allow you to monitor your business operations and verify if the new procurements have changed anything. For example, if a team procures new automation machinery for an assembly line, it's important to monitor the difference in production before and after adding the machinery. This difference represents exactly how much impact the machinery did to your operation.

4. Close procurements

During the negotiation stage, your internal legal team and vendor will mutually agree on what constitutes “completed work.” Then, once both parties reach the stage where the actual work is completed, your internal legal team typically will finalize any paperwork and may perform a release of liability, if necessary.

Typically, both sides will ensure that everything is completed according to the contracted agreements.

The project manager's role during the procurement process

A project manager is responsible for moving a project along the project schedule , and managing updates for stakeholders and other team members when it comes to the procurement process. However, the bulk of the procurement process should be run by your internal legal team, in accordance with your company policies.

The project manager's main responsibility during the procurement process is to help coordinate information to the procurement team and anything they may need to push an RFP or a contract forward into the next stage. If the procurement team needs specific information regarding the needs of the project, the project manager can help gather and share that information.

Some companies use dedicated procurement management software to keep information for the purchasing department organized. Others may streamline information using a work management tool that can keep major project milestones , vendor information, and stakeholder status updates all in one place.

Work management tools like UDN Task Manager can help keep documents like procurement contracts, RFPs, and important audits in one place where stakeholders can access that information. If you’re ready to get started, try our free RFP template today.