Whether you're -new to procurement or an experienced professional, everyone faces certain questions related to Procurement function and its processes. Having an easy to refer FAQ list greatly helps in quickly learning Procurement definition and its various aspects. Here are answers to some of the most common FAQs.
Source to Contract (S2C) is a collective set of procurement processes used while sourcing products or services. The process focuses on developing a sourcing strategy, after analyzing the product or service requirement. This process ensures that the activities performed by the procurement team will result in an effective acquisition for the requirement. The S2C process covers: analysis of the requirement, availability of suppliers within the target market, development and execution of sourcing strategy, the entire RFx process, contract negotiations, contract implementation, and supplier performance management. . Read More
Source to Pay (S2P) is a software that covers all activities involved in procurement. It covers the procurement process end to end, right from spend management, strategic sourcing, supplier management to purchasing, performance management, and accounts payable.
It is a vital software for purchasing departments. It enables teams to have a complete view of all activities involved with their suppliers.
The S2P software enables multiple activities such as auctions, spend analysis, purchase management, purchase requisitions, sourcing events, billing, and more.
Source to Pay cycle is used to describe the collection of processes an organization has implemented between placing a purchase order and the payment for said order. The process covers:
- Strategic sourcing between the supplier and organization
- E-procurement processes to support purchase requisition and approvals
- Automation in the PO design and delivery process
- Allows for matching between the PO, Invoice, and receipts
- Helps in timely payment processing and reconciliation
Contract Management is the process of managing contract creation, execution, and analysis to maximize
operational and financial performance at an organization.
The process is as follows:
- Initial requests
The process begins by identifying contracts and pertinent documents to support the contract's purpose.
- Authoring contracts
Creation of contracts through the use of an automated contract management system.
- Negotiating the contract.
After drafting the contract, users should be able to compare versions of the contract and note any discrepancies to reduce negotiation time.
- Approving the contract.
Through the use of tailored workflows, allows for a quicker approval time.
- Through the use of electronic signatures, contracts are able to be executed faster.
- Obligation management.
Tracking the contract progress and the execution of the deliverables from all stakeholders.
- Revisions and amendments.
Revising clauses and agreements basis the requirement. Allows for quicker approval.
- Auditing and reporting.
Contract audits are important in determining the organization’s compliance and adherence to contractual terms
Automated process allows for faster renewal opportunities.
Contract Lifecycle Management (CLM) system automates and streamlines the contract process across stages. Right from the creation and authoring to process and workflow, negotiation, and approvals, as well as in the execution and compliance of a contract.
Companies today have an endless number of contracts to manage, in which a single error can have a significant negative impact. Having a Contract Management tool, provides the following benefits:
- Single source of truth:
Acts as a repository for all contracts and agreements. Allows users to refer to all contracts, and enforces contract compliance
- Financial Optimization:
Helps reduce legal fees and eliminate unplanned renewal of unwanted services.
- Increased visibility and analytics:
Reduce errors and oversights within contracts. Allows users to track and analyze the progress of contracts.
- Process efficiency:
Ensures ease in contract creation, authoring, negotiation process and reduces risk by ensuring compliance with legal guidelines. Has a version control feature, which allows users to refer to changes being made during the negotiation process.
- Shorter approval times :
Reduces the time spent between getting approvals from all parties. Allows for remote contract negotiation and signing.
- Increased transparency:
Allows for the creation of automatic alerts regarding contracts that may be expiring.
The contract management process can be improved, keeping in mind certain practices.
By adopting the following, the CLM process can be improved:
- Reviewing existing processes for improvement
Reviewing processes to identify areas that can be improved.
- Use standardized templates
Having templates to standardize contract authoring, clauses, and more.
- Automate workflows
Ensures quicker contract turnover, while tracking contract progress
- Engage a consultant
Have an external consultant to review the existing processes and identify areas to improve. Also, review methods of improving the usage of the contract management tool.
Some of the best practices to follow for contract life-cycle management are:
- Automate and Digitize processes
- Track contract workflows
- Optimize spends and budgets with reporting
- Standardize contract authoring and Execution
- Conduct regular risk and compliance reviews
- Track key KPI’s and SLA’s
Procure to Pay (P2P) process is a sequential process used to fulfill a requirement in a timely manner
and at a reasonable price. It involves a number of stages.
The process is as follows:
- Requirement planning
- Request for quotation
- Creation and Issue of a Purchase Order (PO)
- Receiving order along with Goods Receipt
- Matching of receipt with order
- Creation of Payment invoice
- Payment to supplier
- Supplier performance reporting
Improving P2P helps companies achieve a better cash flow, improved supplier relations, and
To improve the P2P process, the following can be adopted:
- Improve the working relationships between teams
Have an improved process to streamline the communication between the User, Procurement and Payables. By visualizing the process and rooting out inefficient steps, the P2P process can improve in speed.
- Automation opportunities
Using Process mining, process steps can be identified for automation, to improve the system. Manual processes tend to be ideal to improve the efficiency of the same.
- Optimize payments
Identify and improve workflow inefficiencies which can impact cash flows. Changing terms for invoices to avoid payments occurring either too early or far too late.
- Avoid compromised suppliers
Assess and evaluate suppliers which do not comply to internal regulations. This ensures that your organization adheres to compliance and governance laws.
AP automation is the use of software to digitize the vendor invoicing process. It creates faster,
leaner, more cost-effective AP workflows. Gets rid of manual processes such as paper receipts, email
invoices, and more. Automation lets you eliminate manual AP tasks, increase visibility into spend,
and control costs. Read More
Its benefits are:
- Control costs and reduce unnecessary spend (like invoice processing costs and check fees).
- Gives staff more time for strategic tasks.
- Attract and retain top AP talent
- Reduce errors and duplication that occur due to manual data entry.
- Uses data for making informed decisions.
- Increase policy compliance and strengthen vendor relationships.
Accounts payable automation means finding ways to let technology do the manual data entry for the
process. The accounts payable process involves a lot of repetitive validations and data-gathering.
By automating one or more of these steps, you can minimize errors and save time.
To automate the AP process, the following can be adopted:
- Switch to e-invoicing tools
- Having automated AP workflows for quicker approvals
- Adopting OCR systems to capture data and reduce manual data entry
- Automating the matching and verification process
- Improve GL coding for better classification
It is a series of processes that are essential to get products or services from requisition to
purchase order and invoice approval.
The procurement process is as follows:
- Step 1: Need recognition
- Step 2: Purchase requisition
- Step 3: Requisition review
- Step 4: Solicitation process
- Step 5: Evaluation and contract
- Step 6: Order management
- Step 7: Invoice approvals and disputes
- Step 8: Recordkeeping
The Procurement Cycle is the set of events tied in with processes that are followed in the
procurement of goods. It is a critical process, as it aids the financial efficiency of a business,
in the acquisition of goods & services at the right price, reduces delivery times as well as
mitigates supplier risk.
The procurement cycle covers the following:
- Defining the business need/ requirement
- Developing a list of suppliers for strategic procurement
- Developing a sourcing strategy
- Developing documentation and detailed specifications
- Having a Supplier selection
- Issuing tender documents
- Bidding, evaluation and validation for auctions
- Contract award and implementation
- Contract performance and management
- Developing a Supplier relationship management
Direct procurement is spending on services, goods, and materials that drive profit, performance, and competitive advantage. These are necessary inputs to create the end product for users. Whereas indirect procurement is expenditure on the maintenance, goods, and services needed for day-to-day business operations, which do not directly contribute to a company's bottom line.
Direct procurement is the process of acquiring the products, supplies, goods, or services that are necessary for your business. It deals with the essential products that the organization uses as inputs to process into the end product for users.
Supplier management is the process that ensures maximum value is achieved from the spend an
organization has with its suppliers. As suppliers play an essential role in the smooth running of an
organization, it’s important for both supplier and organization to engage properly and effectively.
The process for supplier management is as follows:
- Step 1: Qualification
Evaluation of suppliers for business requirement
- Step 2: Onboarding
Necessary information regarding the documentation for bringing on a new supplier.
- Step 3: Segmentatio
Classifying suppliers based on a pre-defined set of metrics
- Step 4: Collaboration
Collaboration between vendors and suppliers to increase performance and improve relationships
- Step 5: Evaluation
Measurement of the supplier performance based on metrics.
Strategic sourcing is defined as a method of managing procurement processes in which the procedures, methods, and sources are constantly re-evaluated to optimize value to the organization. It allows organizations to leverage their purchasing power so they can achieve the best value for spend. It can be said that one of the main aims of strategic sourcing is to manage the bottom line while promoting cost reductions.
Strategic sourcing can be defined as a collective and organized approach to supply chain management that defines the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace.
A strategic purchasing manager is responsible for locating and maintaining the best sources of supply for the requirements that an organization may have. While procurement managers have traditionally focused on finding the lowest-cost suppliers, strategic procurement managers consider all aspects : Relationship with suppliers, Quality, Value and the supplier’s ability to respond quickly to changing supply requirements. They aim to select suppliers that can act as long-term partners and help the organization in its growth.
Spend analysis is the process of reviewing current and historic spending with the goal of identifying
cost reduction opportunities, improving strategic sourcing, and reducing procurement costs.
Spend analysis has three pillars:
- Spend Visibility
Having clear data related to spending. Having established KPIs and other metrics to measure and track spend.
- Spend Analysis
Having reports and metrics to measure corporate spending and procurement. Evaluating and highlight areas of spend, in which saving opportunities exist.
- Procurement Process Improvement
Through reporting and analysis, implementing new strategies to bring about reduced spending and better performance
Spend management is a set of practices followed by organizations to ensure that their procurement and sourcing decisions provide maximum value for the spend incurred. Its focus is also on reducing costs, mitigating financial risk, and improving supplier relations.
Vendor Management System (VMS) is described as an organization’s effort to control cost, decrease vendor-related risks, assure the best service and ensure value from vendors. Having an effective VMS is crucial for organizations. An organization might work with a few or even hundreds of vendors, all of them with different contracts, pay rates and points of contact. Utilizing a VMS allows for efficient management of the same while ensuring quality and cost-saving. Read More
To build an effective VMS process, the following are considered vital steps:
- Having a dedicated Vendor Management Team
Ensuring this team is enabled and managing the relationship tp ensure the partnership is financially rewarding.
- Organize suppliers and vendors
Having a comprehensive database of vendors and service providers. This ensures for a better utilization of budgets basis the organization requirements.
Ensuring clear and legal agreements pertaining to data sharing
- Risk Management
Checks and balances to be in place to ensure vendors aren't divulging proprietary information.
- Effective communication
Ensuring a clear line of communication between the organization and its vendors.
- Build a long-term relationship
Establishing a strong vendor relationship, to help achieve long term plans and projects.