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Home : Articles : Purchasing Software : Procurement Management

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PROCUREMENT MANAGEMENT

With all the discussion of procurement and how it works in businesses, the biggest question is does it actually save money? After all, that's the real bottom line. One large company that had an annual purchasing expenditure of about $10 billion was able to shave over 15% off that amount annually just by leveraging the buying power of all their worldwide divisions. Those numbers clearly illustrate that, when done correctly, a procurement system can definitely save a company money, as well as provide a number of other benefits, particularly to large companies that spend a sizable chunk of their revenue on puchasing goods and services for their business.

Besides the impressive cost savings, procurement management can also save valuable time and can streamline the workforce. With procurement systems, many of the steps involved in purchasing are either not necessary or are automated so that the entire process runs smoother and faster. Also, because most corporations divide up the purchasing responsibilities among their multiple divisions, they typically have several staff members who are technically doing the exact same job in different locations. By centralizing all of a company's procurement needs into a single department or firm, these redundant job positions can be eliminated. Additionally, the excess office space and equipment can either be liquidated or used for more productive business endeavors.

In order to achieve these and the other benefits procurement management offers, companies must be willing to go through many steps. Implementation does require some changes both in technology, in personnel, and in attitude. Without these changes, the procurement system simply won't be effective.

One of the first of these changes is to adopt a positive sourcing methodology. Many corporations simply place orders; they don't form relationships with suppliers. While the distrinction may not seem great, the reality is that these sellers are critical components of a business's success, and they need to be treated that way. The overall goal of a strong sourcing methodology is to achieve a mutually satisfying agreement that will provide the buyer with the goods he needs at a reasonable price and that will secure the seller a steady customer in the future.

Another change with procurement is the workforce. Employees who will be dealing directly with vendors need to be highly trained and experienced in the industry in which the business is involved. For example, a pharmaceutical company would need to hire individuals who are familiar with the types of chemicals used in the creation of prescription drugs. By hiring individuals who are experts in their field and who are then trained in the procurement process of the company, suppliers feel more comfortable doing business with the buying firm.

With a more centralized approach to procurement, large corporations are also in the position to have their purchasing team specialize in certain areas of procurement. An automobile manufacturer may have one team responsible for purchasing machinery, another for raw materials, and a third for temporary employees. This type of specialization would be too costly if all of the purchasing was spread out across the globe but when dealing with billions of dollars in goods and services being handled in one area, specialization is almost a necessity.

Tracking suppliers, using reverse auctions, and evaluating costs are all other important parts of the procurement system. By tracking suppliers, the buyer is able to determine whether or not they continuously live up to expectations. Through reverse auctions, buyers are able to keep prices lower while selecting from a wide array of potential sellers. Plus, continually evaluating costs prevents companies from losing sight of the biggest benefit of procurement management: its cost-effectiveness.

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