Procurement Benefits — Everything You Should Know

You might have heard of Procurement, its definition, its process, and the people executing it. We all know how vital Procurement is to an organization and how beneficial it is, but what are its benefits? 

For this article, we will dive into the benefits procurement provides to an organization. From cost savings, mitigating risks in the process, streamlined process, or improves supplier relationships.

After you finish reading this article, you will have an in-depth knowledge of just how beneficial Procurement is to your organization and how it is not just a process of getting goods or services.

Procurement Management

Procurement itself does not give benefits to an organization unless it is managed and utilized properly. As a procurement manager, it should be common knowledge by now that Procurement itself is the entire process of obtaining suppliers and acquiring goods and services. However, for the process to be initiated and executed, smoothly, procurement management comes into the picture.

Procurement Management is where how each and every step of the procurement process is handled, thus, how it is handled determines the benefits it can give to your organization.

The goal of Procurement Management is to effectively and efficiently procure goods and services all while achieving the benefits such as minimizing risks, maximizing the value, and improving the supplier relationship.

Procurement Management: Why does it Matter?

You may have been asking, what does procurement management have to do with procurement benefits? Well, procurement management is the dictator of how well and beneficial the ongoing procurement process will go. 

There will be circumstances where many decisions by different departments of your organization have an implication on the procurement process that may impact the overall costs and profitability of the organization, which is one of the biggest benefit an organization can aim for, profit. And how are you gonna handle and use the decisions to your advantage? By managing it and aligning it to the goals of the organization.

Procurement vs Sourcing and Purchasing

Why do you need to incorporate Procurement into your organization and hope for its benefits when it sounds like Procurement is the same as Sourcing and Purchasing?

Well, Procurement is much bigger than both sourcing and purchasing combined. Sourcing is just a part of the whole procurement process. In sourcing, you identify and select the best supplier that meets your company’s requirements and specifications. It focuses on who is making or providing the supplies for the supplier.

Purchasing on the other hand, although mostly used synonymously with procurement, is also just a part of the whole procurement process. Purchasing means a set of functions that are associated with buying goods or services that the organization requires.

Benefits of Procurement

Now, let’s dive into the well-known benefits of procurement and the ways to possibly achieve it. 

1. Cost Savings 

Procurement’s ability to generate substantial cost savings for organizations is one of its main benefits. Procurement professionals can identify opportunities for cost reduction, e.g. by exploiting economies of scale, finding alternative suppliers, or applying effective procurement strategies on the basis of strategy sourcing, negotiations, and supplier management. Significant savings can be achieved for an enterprise through careful analysis of the expenditure patterns and purchasing decisions, which in turn will lead to improved profitability and financial performance.

2. Improved Supplier Relationship

Procurement plays a key role in promoting and fostering mutually beneficial relationships between organizations and their suppliers. In order to guarantee favorable terms, a satisfactory supply chain as well as access to Innovative Products and Services, it is necessary to strengthen relationships with suppliers. In order to ensure that the suppliers comply with quality standards, delivery schedules, and pricing expectations, effective procurement practices such as contractor evaluation and performance monitoring may be used. Building trust, supporting innovation, and enabling organizations to compete in the marketplace is a benefit of establishing cooperation relationships.

3. Streamlined Procurement Process

By eliminating barriers, shortening lead times, and improving the efficiency of the supply chain in general, effective procurement processes help to ensure that operations are streamlined. Organizations can optimize their supply chain, reduce stock levels and improve order fulfillment through effective inventory management, demand forecasting, and procurement planning. Additionally, by aligning the procurement activities with the objectives of the organization as well as by implementing advanced technologies, organizations can automate pretty much everything including repetitive tasks.

4. Risk Management and Compliance

Procurement also plays a crucial role in mitigating risks and ensuring compliance with regulatory requirements. A big part of the procurement process is conducting and monitoring due diligence by the organization and the suppliers, including assessing their financial stability, certifications, and adherence to ethical practices, organizations can minimize the risks associated with supplier failures, quality issues, and compliance breaches.

5. Innovation

The priorities of businesses change when they have an effective procurement management strategy. In particular, if enterprises are inefficient at managing the purchase of goods and services, their attention is directed toward short-term objectives whereas efficient procurement management facilitates high-level focus. On the other hand, companies can create innovation in ways they had not been able to before through this birds-eye perspective.

6. Market Insights

Procurement managers are able to gather market information and gain insights into emerging market trends. Procurement Managers and teams will be able to identify new product types, alternate materials, or innovative markets through active involvement with suppliers, participation in industrial conferences, and market dynamics analysis. This knowledge gives businesses the power to make informed choices, embrace innovation and compete on a level playing field. In addition, joint innovation initiatives in which both parties work together towards the development of new products or improvements to existing ones could be created by closer collaboration with suppliers.

Conclusion

Procurement management, as the orchestrator of the entire procurement process, is the linchpin that determines the extent of benefits an organization can derive. By skillfully navigating the complexities of procurement, management ensures that each step contributes to cost savings, risk mitigation, supplier relationships, and overall value maximization.

It’s crucial to differentiate procurement from its subsets, sourcing and purchasing. Procurement encompasses a holistic approach, covering sourcing as the identification of suitable suppliers and purchasing as the act of acquiring goods and services. Embracing procurement as a comprehensive process allows organizations to tap into a spectrum of benefits that extend far beyond individual transactions.

The benefits of procurement are manifold and impactful. The ability to achieve cost savings through strategic sourcing, negotiations, and supplier management can bolster a company’s financial stability. The cultivation of strong supplier relationships, built on trust and collaboration, opens doors to innovation and competitive advantage. Streamlined procurement processes optimize operations, while effective risk management and compliance safeguard against potential disruptions.