Contrary to what folk rock duo Simon & Garfunkel crooned in their 1960s hit “I Am a Rock,” no person is an island. The same goes for a business. Big or small, it can’t reach its goals entirely on its own accord. From the employees that work for you to the customers that buy your organization’s products, maintaining a successful operation is a joint effort. And regardless of your specialty, your employees wouldn’t be able to produce the merchandise and services that buyers want without having the equipment, raw materials and workflows that make it all possible. After all, you can’t get something out of nothing.
But as your purchase management team can attest, the procurement process is often riddled with obstacles that can make purchasing problematic, tedious, lengthy and unnecessarily costly. However, procurement solutions available through information technology can make the preparatory aspects of bringing goods and services to the marketplace more seamless, affordable and expeditious. Here, we’ll discuss what procurement technology is all about, how automation can positively influence the supply chain, the procurement lifecycle and why Varis – combined with Microsoft Dynamics 365 Business Central – can dramatically improve the purchase management and procurement capabilities of your organization.
What is procurement technology?
As defined by the Chartered Institute of Procurement and Supply (CIPS), procurement technology refers to the integrated set of systems that collect, store and process data to support the performance management and decision making aspects of purchasing. From team collaboration solutions to procure-to-pay solutions, e-procurement to strategic sourcing and enterprise resource planning (ERP), the procurement technology options enterprises have available to them are nearly as expansive as the supply chain itself.
Bottom-line: Procurement technology leverages the incredible power of automation to simplify complex procurement processes, which increases efficiency and reduces the costs associated with production.
What is the difference between sourcing and procurement?
Since a considerable portion of the procurement involves obtaining materials from a source, sourcing and procurement may seem like they’re indistinguishable. While similar, they’re not synonymous. Sourcing represents one component of procurement – i.e. finding and vetting suppliers. Procurement, however, is much broader in scope, including planning, sourcing, placing orders, receiving said orders, paying for delivered assets and more.
What are the steps within a procurement lifecycle?
It’s true that no two businesses are alike, and the same can be said for each organization’s purchasing and procurement process. The nuts and bolts of each one is largely influenced by the item that’s being produced, whether it’s cut-and-paste easy or highly intricate. But the procurement lifecycle a procurement team goes through follows a similar path. As CIPS points out, the procurement lifecycle ideally has 13 steps or stages. They include:
- Define and identify business needs
- Market analysis
- Develop the strategy
- Develop tender documentation
- Select suppliers
- Issue tender documents
- Bid and tender evaluation
- Contract award and implementation
- Warehouse, logistics and receipt
- Contract performance and improvement
- Supplier relationship management
- Asset management
Let’s briefly go over each one of these stages to provide added context.
- Define and identify business needs: Perhaps the most important stage of all, defining business needs “sets the stage” for how to proceed with procurement by specifying what it requires to produce. This is best determined by coordinating and engaging with all relevant stakeholders, inside and outside of the business.
- Market analysis: Market analysis refers to the research a procurement team performs to assess the company’s options as they pertain to finding the right supplier – or suppliers if more than one is necessary. Additionally, market analysis also entails what the organization can afford to spend to partner with a supplier and if outsourcing is a worthwhile option.
- Develop the strategy: This stage refers to putting together a procurement strategy or roadmap, which is informed by the needs of the business and the results of the research. A successful procurement strategy outlines what actions and spending are necessary to ensure a company has all the material and equipment it needs to produce in accordance with demand.
- Procurement testing: Once a strategy is formulated, it may not be time just yet for procurement to get underway. Procurement testing helps determine if the time is right. Factors that can play a role include seasonality, laws or bills passed by the federal government and what competitors are doing with respect to their procurement activities.
- Develop tender documentation: Tender documentation lets a potential supplier know about the full extent of your supply needs, including what you seek to purchase, how much you intend to purchase, your expectations and as terms and conditions. This lets the supplier determine if there can be a business relationship.
- Select supplier(s): This stage involves creating a working list of suppliers who may be interested or capable of servicing your supply needs.
- Issue tender documents: As its description suggests, this stage entails the active distribution of tender documents to all suppliers or vendors that have either bid for your business or are hoping might do so. Requests for pricing and requests for quotations are included among those tender documents.
- Bid and tender evaluation: Once the signing documents have been disseminated, filled out and sent back, it’s time to make a decision about the best supplier(s). It’s important for this process to be carried out in an unbiased way so you can make a decision solely on the best fit for your organization. As part of this stage, analyzing any of the vendors’ previous engagements with competitors – and whether those partnerships proved to be successful – can help inform your decision on whether or not to move forward. If available, you may also want to see their work, which can provide context on how much they prioritize quality.
- Contract award and implementation: The contractual stage spells out precisely what the business relationship between yourself and the vendor will look like, including details on considerations like key performance indicators, logistics, invoicing, supply dynamics as well as terms and conditions. Upon signing of the contract by both parties, the partnership is officially underway.
- Warehouse logistics and receipts: For inventory, the warehouse logistics and receipts stage is where the “business” aspect of a business relationship truly gets underway. Here is where the supplier must live up to its end of the agreement, including the delivering of materials – and in the proper amounts – in accordance with what was agreed upon at contract signing. Warehouse logistics helps make the delivery and inventory management process smoother, through best practices like product coding, picking and packing, product classification and racking.
- Contract performance and improvement: Whether it’s once a month, quarterly or several times over the duration of the agreement, this stage enables both parties to review the success of the vendor-customer relationship, if the terms of the agreement were abided by and where there may be room for improvement in terms of performance or the relationship. In short, this stage focuses on assessing supplier performance.
- Supplier relationship management: Supplier relationship management refers to all the activities associated with maintaining a free flow of communication and interaction with vendors.
- Asset management: Whether due to new challenges, competitors, market shifts or opportunities, the equipment and materials you need to produce at one time may be different at another. As such, asset management involves staying abreast of your procurement needs so procurement processes can be adapted accordingly.
Clearly, procurement and procurement management is a highly involved process that requires a great deal of planning, coordination and reliable data to inform decision making. It’s little wonder why so many enterprises these days assign an entire procurement team to addressing these business critical functions. But because these tasks are frequently manual, the benefit of having a procurement team may be insufficient.
Procurement technology makes procurement management simpler and turnkey. And a great technology procurement solution is Varis, which is available to you as a Microsoft Dynamics 365 Business Central user.
What is Varis?
Varis is a centralized, software-as-a-service platform that connects business owners and relevant stakeholders with the supplies and suppliers they need— seamlessly and conveniently. Accessible through the Microsoft Dynamics 365 Business Central dashboard, Varis integrates with existing workflows to automate the purchasing process and manage all the activities and steps that fall under the procurement banner digitally.
Furthermore, implementing Varis is point-and-click quick, includes an exhaustive marketplace of trusted suppliers, several of which specialize in pre-negotiated contracts. These same suppliers also offer discounts to interested businesses. This results in lower costs, time saved and enhanced convenience thanks to Varis’ consumer-like shopping experience.
The TM Group is proud to partner with Varis and even prouder to make you aware of this procurement technology resource. For additional information on Varis and what Varis combined with Microsoft Dynamics 365 Business Central can do for you and your procurement processes, watch this brief video. If you’re unfamiliar with Microsoft Dynamics products, this e-book can help explain why it truly is an all-in-one solution.