The procurement process is composed of symbiotic moving parts. When components don’t communicate efficiently, breaks in the supply chain occur, causing costly errors, lost time and missed opportunities.
Upper-level management faces the often-daunting task of streamlining this process from the top down, and must implement policies and processes that are mutually beneficial for procurers and suppliers alike. The dichotomy that exists between these two functions can make negotiations tedious, and finding common ground difficult.
This is especially apparent when vetting suppliers for compliance in the areas of contracts, variances and payments, underscoring the importance of establishing common goals to reduce procurement costs and facilitate growth. The challenge to streamline this process demands the question: Even with diligent leadership and the establishment of appropriate policies, can the procurement process be streamlined?
Breaking Up Is Hard to Do
No one wants to lose a vendor due to policy changes and implementation of strategic initiatives. Contrarily, no corporation wants to waste time and money on menial tasks such as reconciling invoices, resolving variances and performing exceptional processing to make on-time payments. Streamlining the procurement process is easier said than done, however, and all hands must be on deck to make it work.
The barriers to streamlining begin with a lack of consistency and deviation from standard operating procedures. For example, Jane Vendor, who may account for 10% of all invoices, refuses to adhere to a standard contract, invoicing and payment process, and is not a fan of lengthy credit terms. As a result, extra labor is involved when reconciling non-contract invoices from Jane with little or zero discounting. This creates a lack of structure in the internal process and allows for human errors due to multiple touch points in the sourcing, procurement and payment process.
In another example, Jack Vendor, who is responsible for 8% of all invoices, has agreed to follow the company-wide standardized contract and payment terms, having been onboarded to an electronic invoicing channel to send invoices that are attached to a procurement document. Additionally, Jack signed up for a no-purchase-order-no-pay policy, thus eliminating erroneous payments. For vendors that don’t wish to streamline, a risk-to-benefit analysis can aid in the decision of whether to renew or terminate contracts. Every contract has an end date; if better pricing terms are available from another supplier, it may be time to sever ties and move on with a fresh contract that meets the desired vendor profile.
It’s no secret that some suppliers are irreplaceable and have strong bargaining power. The streamlining process begins with identifying these vendors and negotiating contract benefits. Irreplaceability may be due to volume, supply and demand, or long-term relationships, but the bottom line is that these suppliers are crucial to ongoing operations, and contract negotiations must be handled with utmost care. Ideally, they’ll be onboarded with favorable payment terms and contracts which clearly state expectations.
Seeing Is Believing
In an unstructured procurement process, communication is difficult, timely and costly. Contracts may or may not exist, and could be stored as a printed copy in a file cabinet that is miles away. A main goal of streamlining is to have real time transparency. PO matching, electronic invoices and auto-rejections for incorrect invoices are tools that allow suppliers and procurers to quite literally be on the same page. Pre-determined approvals allow for the processing of invoices without downstream reviews and authorizations. In a streamlined process, performance is easily monitored by procurer and supplier. If expectations are not met, measurable data is available to upper management, allowing for strategic intervention.
As in any relationship, procurement is fluid, and working it out via communication is key. Leadership must oversee both static and dynamic discounting practices, reaping as much benefit as possible for the best return. If this relationship exists with a voluminous vendor, the benefit to the organization is ongoing and reliable. For those who like to play the field, dynamic discounting may be the option.
What’s not to love? There’s action and excitement as both supplier and procurer find payments that are mutually beneficial. In a streamlined process with utmost visibility, it‘s possible to benefit from dynamic discounting due to the ability to easily pick the target vendors that will maximize returns, while weeding out those who don’t warrant compromise.
The most difficult part of an all-hands-on-deck initiative is, quite frankly, getting all hands on deck. Onboarding vendors and standardizing payment terms across the board are tasks for skilled upper-level management. This is a leadership-driven initiative that must be handled with the utmost diligence. As with any undertaking of organizational change, there is a process:
Completion of the above steps is a leadership-driven initiative with one goal: getting paid. The development of payment processes is the final step in the move to a streamlined process. Cutting checks manually leaves room for errors, increases costs and draws out the payment process. Electronic payment methods abound, and if not utilized, leave rebates on the table.
Each organization must choose the payment process that complements its internal process. Electronic payments are standard but have many variations. Utilized properly, they contribute to the reduction of uncleared checks, hence less unclaimed property. Third-party hosts have gained in popularity because of their absorption of liability and reliability of updated banking information; however, the use of virtual card processing is emerging as the most user-friendly option with rebate potential. The added security of a pre-set payment amount and expiration date pairs nicely with a perfectly matched PO.
Happily Ever After
Streamlining, by definition, is the act of altering an item to make it simpler or more efficient. In procurement, streamlining consists of complex leadership-based initiatives that must be measurable and transparent across the organization. Audits of these processes can be costly, but are necessary to ensure that value-added procurement processes are performing to their expected outcome. Ownership should be assigned to evaluate individual processes, with proper oversight of these owners being performed by upper management on a pre-determined, consistent basis.
Equally important to auditing internal processes is the ongoing monitoring of adherence of suppliers to negotiated contract terms. These contracts are the foundation of the procurement relationship, and failure to meet expectation of all deliverables must be recognized to ensure that strategic goals are met.
Procurement is a fluid process that must be monitored. In 2021, supply availability has been impacted in an unprecedented manner due to the global pandemic. And shortages beget more shortages. This trickledown effect impacts manufacturers, distributers and consumers alike. In these competitive times, there’s zero allowance for error.
Streamlining the supply chain process is an avenue to maximizing revenue generation while reducing operational costs. In the end, both leadership by example and meticulous oversight are essential and must be ongoing.
Megha Gupta is a lead systems analyst who has worked with companies such as Oracle, IBM, Amazon and Starbucks.
The procurement process is composed of symbiotic moving parts. When components don’t communicate efficiently, breaks in the supply chain occur, causing costly errors, lost time and missed opportunities.
Upper-level management faces the often-daunting task of streamlining this process from the top down, and must implement policies and processes that are mutually beneficial for procurers and suppliers alike. The dichotomy that exists between these two functions can make negotiations tedious, and finding common ground difficult.
This is especially apparent when vetting suppliers for compliance in the areas of contracts, variances and payments, underscoring the importance of establishing common goals to reduce procurement costs and facilitate growth. The challenge to streamline this process demands the question: Even with diligent leadership and the establishment of appropriate policies, can the procurement process be streamlined?
Breaking Up Is Hard to Do
No one wants to lose a vendor due to policy changes and implementation of strategic initiatives. Contrarily, no corporation wants to waste time and money on menial tasks such as reconciling invoices, resolving variances and performing exceptional processing to make on-time payments. Streamlining the procurement process is easier said than done, however, and all hands must be on deck to make it work.
The barriers to streamlining begin with a lack of consistency and deviation from standard operating procedures. For example, Jane Vendor, who may account for 10% of all invoices, refuses to adhere to a standard contract, invoicing and payment process, and is not a fan of lengthy credit terms. As a result, extra labor is involved when reconciling non-contract invoices from Jane with little or zero discounting. This creates a lack of structure in the internal process and allows for human errors due to multiple touch points in the sourcing, procurement and payment process.
In another example, Jack Vendor, who is responsible for 8% of all invoices, has agreed to follow the company-wide standardized contract and payment terms, having been onboarded to an electronic invoicing channel to send invoices that are attached to a procurement document. Additionally, Jack signed up for a no-purchase-order-no-pay policy, thus eliminating erroneous payments. For vendors that don’t wish to streamline, a risk-to-benefit analysis can aid in the decision of whether to renew or terminate contracts. Every contract has an end date; if better pricing terms are available from another supplier, it may be time to sever ties and move on with a fresh contract that meets the desired vendor profile.
It’s no secret that some suppliers are irreplaceable and have strong bargaining power. The streamlining process begins with identifying these vendors and negotiating contract benefits. Irreplaceability may be due to volume, supply and demand, or long-term relationships, but the bottom line is that these suppliers are crucial to ongoing operations, and contract negotiations must be handled with utmost care. Ideally, they’ll be onboarded with favorable payment terms and contracts which clearly state expectations.
Seeing Is Believing
In an unstructured procurement process, communication is difficult, timely and costly. Contracts may or may not exist, and could be stored as a printed copy in a file cabinet that is miles away. A main goal of streamlining is to have real time transparency. PO matching, electronic invoices and auto-rejections for incorrect invoices are tools that allow suppliers and procurers to quite literally be on the same page. Pre-determined approvals allow for the processing of invoices without downstream reviews and authorizations. In a streamlined process, performance is easily monitored by procurer and supplier. If expectations are not met, measurable data is available to upper management, allowing for strategic intervention.
As in any relationship, procurement is fluid, and working it out via communication is key. Leadership must oversee both static and dynamic discounting practices, reaping as much benefit as possible for the best return. If this relationship exists with a voluminous vendor, the benefit to the organization is ongoing and reliable. For those who like to play the field, dynamic discounting may be the option.
What’s not to love? There’s action and excitement as both supplier and procurer find payments that are mutually beneficial. In a streamlined process with utmost visibility, it‘s possible to benefit from dynamic discounting due to the ability to easily pick the target vendors that will maximize returns, while weeding out those who don’t warrant compromise.
The most difficult part of an all-hands-on-deck initiative is, quite frankly, getting all hands on deck. Onboarding vendors and standardizing payment terms across the board are tasks for skilled upper-level management. This is a leadership-driven initiative that must be handled with the utmost diligence. As with any undertaking of organizational change, there is a process:
Completion of the above steps is a leadership-driven initiative with one goal: getting paid. The development of payment processes is the final step in the move to a streamlined process. Cutting checks manually leaves room for errors, increases costs and draws out the payment process. Electronic payment methods abound, and if not utilized, leave rebates on the table.
Each organization must choose the payment process that complements its internal process. Electronic payments are standard but have many variations. Utilized properly, they contribute to the reduction of uncleared checks, hence less unclaimed property. Third-party hosts have gained in popularity because of their absorption of liability and reliability of updated banking information; however, the use of virtual card processing is emerging as the most user-friendly option with rebate potential. The added security of a pre-set payment amount and expiration date pairs nicely with a perfectly matched PO.
Happily Ever After
Streamlining, by definition, is the act of altering an item to make it simpler or more efficient. In procurement, streamlining consists of complex leadership-based initiatives that must be measurable and transparent across the organization. Audits of these processes can be costly, but are necessary to ensure that value-added procurement processes are performing to their expected outcome. Ownership should be assigned to evaluate individual processes, with proper oversight of these owners being performed by upper management on a pre-determined, consistent basis.
Equally important to auditing internal processes is the ongoing monitoring of adherence of suppliers to negotiated contract terms. These contracts are the foundation of the procurement relationship, and failure to meet expectation of all deliverables must be recognized to ensure that strategic goals are met.
Procurement is a fluid process that must be monitored. In 2021, supply availability has been impacted in an unprecedented manner due to the global pandemic. And shortages beget more shortages. This trickledown effect impacts manufacturers, distributers and consumers alike. In these competitive times, there’s zero allowance for error.
Streamlining the supply chain process is an avenue to maximizing revenue generation while reducing operational costs. In the end, both leadership by example and meticulous oversight are essential and must be ongoing.
Megha Gupta is a lead systems analyst who has worked with companies such as Oracle, IBM, Amazon and Starbucks.
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