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What is Procurement?

Procurement is defined as the act of obtaining goods or services for business purposes.

Consider procurement as a three-legged chair that supports process, technology, and people. These three legs support the organization’s profitability and long-term value.

There are several stages involved in the procurement process, from identifying a need, sourcing and choosing a supplier, signing a contract, and placing payment.

The procurement process can be divided into two parts:

1. The upstream procurement process includes sourcing activities.
2. The downstream procurement process includes purchasing activities. 

Scanmarket's source-to-contract software addresses the needs of the upstream procurement process.
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People First

Procurement has often been regarded as a back-office function and roadblock to other departments’ spending, rigidly reactionary to disruption and devoid of strategy outside of cost-cutting. The role often reported to various departments that eventually rolled up to senior leadership. That is all changing as digitalization has brought procurement out from the shadows and into the spotlight and, in some cases, reporting directly to the CEO. Today’s procurement leaders have an innate sense of curiosity that touches every level of the organization.

Project management and negotiation skills are essential to the procurement leader, but so are active listening, conflict resolution, and empathy. The best procurement officers possess tactical hard skills as well as strategic soft skills. For those interested in going into a career in procurement, many colleges and universities now offer majors in procurement and supply chain management. 

The Evolution of Procurement

Procurement is a profession with a deep-rooted history. As long as humans have been trading and purchasing goods and services, they have been engaging in some form of procurement. But procurement encompasses much more than a simple textbook definition of acquiring the lowest cost for goods or services. Procurement entails a wide range of activities required for an organization to operate profitably and create value.

Procurement functions create value beyond savings in other areas of the organization and supply chain. A more comprehensive explanation comes courtesy of the CPO at Thyssen Krupp in Procurement and Supply Magazine.

Procurement value can be defined by:
  • Connecting commercial and technical capabilities

  • Activating key supplier relationships

  • Reducing supply vulnerability

  • Accessing new products

  • R&D and innovation

  • Lowering costs

  • Delivering high-quality goods and services

  • Creating transparency in spend activities

Quick Answers

    Digitizing the Upstream Procurement Process

    Optimizing the upstream procurement process with source-to-contract technology can save hours or even days of work. Stop reinventing the wheel for every sourcing event and managing suppliers manually by updating spreadsheets or creating complex pivot tables to view spend analytics. Information is now accessible to all stakeholders with automated workflows and templated contracts in a central cloud-based repository where suppliers are responsible for updating their own information.

    Increase visibility in the supply chain and manage risk more effectively. Mine savings throughout the entire source-to-contract process while reducing costly errors, and streamlining communications. Reduce redundancies to create shorter cycle times for each sourcing event.

    Procurement Team Structure

    How a procurement team is structured depends on many factors, including the maturity level and size of the organization’s procurement department. Most procurement teams have either a centralized or decentralized operating model.  In a centralized operating model, the decision-making process is held by senior leadership.

    In a decentralized operating model, decision-making is more distributed. Both models have their unique advantages, but the visibility brought about by digitization and automation has enabled more of a hybrid operating model.

    eProcurement Technology

    An e-procurement platform addresses the flow of ordering, receiving, and payment of goods and services. Companies can track purchases made by all departments and ensure compliance with company standards.

    Example: An employee might want to buy a new laptop. Without e-procurement software, he might just go to the local store to buy the laptop and submit the invoice to the purchasing department for reimbursement. Such purchases are difficult to track. With an e-procurement platform in place, the entire purchase would run through approval workflows, and the person who approves the need for a new laptop would ensure it is bought using the correct contract.

    Procurement, Purchasing & Sourcing

     The most concise explanation of the differences between procurement, purchasing, and sourcing is:

    • Sourcing is everything BEFORE the contract. 
    • Procurement is everything AFTER the contract. 
    • Purchasing encompasses all buying activities, including both sourcing and procurement.

    Procurement Process: Upstream and Downstream

    Simply put, the upstream procurement process is everything that happens from sourcing to awarding the contract. Downstream procurement is everything that happens after the contract is awarded. However, it is the activities that occur in the upstream process that have the most significant impact on the downstream outcomes. The upstream procurement process generally includes the following:

    • Issuing a request for proposals once a business need is determined to get qualified information from bidders
    • Holding e-auctions to negotiate pricing from qualified bidders
    • Negotiating contract terms and conditions with suppliers
    • Managing the supplier network to ensure compliance and consistency
    • Analyzing spend data across categories, vendors, and business units to support decision-making

    For many years, procurement managed the entire upstream process with spreadsheets or disjointed databases that do not easily communicate. Now, the entire upstream process can be digitized with source-to-contract technology that makes procurement teams more proactive and agile with better market intelligence and visibility. 

    The Future of Procurement

    There has never been a more exciting time to be a procurement professional. Procurement functions are essential to organizations working tirelessly to manage the flow of goods and services at optimal prices. The procurement industry has evolved from a back-office, cost-cutting function to one that is strategically necessary to the organization. With visibility into all areas of the business, procurement is in a unique position to advise executive leadership on solutions that cut costs and increase cash flow while generating long-term value for buyers, suppliers, and customers alike. The procurement evolution journey continues with new advanced technology being developed every day. 

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