Operational Procurement — Everything You Should Know
Operational procurement sustains every business to do its daily operation. But many people are not familiar with this term.
Do not worry if you do not know operational procurement as this article will help you understand it. We will talk about its definition to help you grasp its meaning. Additionally, we will discuss how it works, how it can be optimized, and the benefits you can gain from operational procurement.
Once you reach the end of this article, you will have a better grasp of operational procurement. Additionally, this article will help you to optimize your procurement which will contribute to the growth of your business. So without further ado, let us start diving into the world of operational procurement.
The Definition of Operational Procurement
Operational procurement is defined as the procurement of the goods or services that are needed to sustain the daily operation of a business. Some referred to it as MRO purchasing which pertains to maintenance, repair, and operations due to its significance to keep the business running.
You may think that this is the same as tactical purchasing. However, it is not true due to the fact that tactical purchasing is focused on short-term transactional activity. The operational procurement takes a reactive action concerning the purchase of materials, supplies, or services.
It relies on using fast quotes and purchase orders so that the production can continue its efficient and effective operation.
Additionally, it should not be confused with strategic sourcing which is more focused on the long-term approach. Strategic sourcing promotes the timely supply of goods or services that are needed to meet the objectives of an organization.
Usually, operation purchasing managers work to enhance contract management, delivery management, and managing any feedback. Operational procurement streamlines purchasing processes so that the business can easily access the resources whenever it needs them, in the right place, right quantity, and best possible price.
Its most important role in the business is to coordinate with other processes and cut costs. Additionally, it works more in real-time. Thus, requires a system to support real-time inventory reporting, purchasing, and electronic document transmission.
Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
Want to take your negotiation results to the next level?
How Does it Work?
1. Know the demand
The first step in this approach to procurement is to know the demand. It involves a lot of time to know what materials or services the company needs to continue its operation.
Once you have found out all the details of what the company needs, it’s time to determine the sources. In this phase, you will answer the questions of who will be able to deliver the materials or services when needed and where they will be used.
2. Selecting a supplier that best suits you
It is necessary to make supplier selections based on the current purchase time, quantity, and quality.
If the procurement department or team does not currently have a contracted supplier to meet the needs of the requisition, they can send out a request for quotation (RFQ) to ask suppliers about their terms for the specific order.
Suppliers that can meet the requirements will provide a quote that lists their exact terms and conditions for the order delivery. This transaction becomes the first binding document of the operational procurement process.
If the quote is accepted but the terms aren’t complied with, then it can be considered a breach of contract which may constitute legal action.
The procurement department will compare the quotes and select the best offer. The factors in selecting the best supplier are that it is the most affordable price, offers the highest quality, and can deliver the goods or services on time.
3. Order Monitoring
Once you have selected a supplier, it is time to convert the purchase requisition to a purchase order so that it can be a legally binding document.
Of course, while waiting for the orders to be delivered, the orders should be monitored. This phase involves checking to see if the stocks are going to be available on time.
Once the goods arrive, they are registered in the inventory and checked against the order to ensure that the supplier fulfilled it correctly.
If there are inconsistencies between the purchase order and the goods that arrived, you can call your supplier to resolve the problem. If the supplier will not comply, it may be necessary to pursue legal action.
Once the goods have been received and match the purchase order, then it’s time to move to invoice processing. The invoice is the final document in the procurement process.
The payment should be processed immediately after receiving the order receipt from your supplier. Late payments can damage your relationship with your supplier which leads to costly late fees and delayed repeat orders.
How can it be Optimized?
Integration and training in the ERP system and order management software are needed for efficient operational procurement nowadays. These systems handle the completion of some tasks and reduce process effort.
Additionally, contractual conditions, suppliers, and product specifications can be handled by procurement and delivery conditions, and sizes can be preset. These software tools can greatly reduce process costs without neglecting the procurement’s control of condition and specification.
To efficiently support the monitoring and control of costs in procurement, there are analysis dashboards that can be integrated into operational procurement.
How can Companies Benefit From it?
Companies can gain financial benefits from operational procurement because larger contracts can be negotiated with suppliers for goods or services utilized in a different company location.
Additionally, a company can save on labor costs as the entire workflow runs smoothly and procurement processes do not need to start over and over again from scratch. The history of the procurement process is accessible and shared within the organization.
Furthermore, a company can see improvements in its reporting capabilities as it can extract data from the system and generate reports on a variety of key performance indicators that pertains to the entire procurement process.
Frequently asked questions
1. What is operational procurement?
Operational procurement refers to the procurement of the goods or services that are needed for the daily operation of a business.
2. What is its most important role in every business?
Its most important role is to integrate with other processes and cut costs.
3. How can I optimize it?
You can optimize your operational procurement by integrating ERP systems and other procurement software.
"Very useful course, many actionable strategies"
Want to close better deals? Prepare faster and achieve deal results you have been dreaming of? This course is a perfect fit for ambitious procurement & sourcing professionals. Enroll now and equip yourself with the full range of skills needed to master the deal.