What is procurement?
Procurement is the process of securing necessary goods and services for the business. There are two main types: direct procurement and indirect procurement.
Direct procurement is when companies obtain parts or materials that go into their end products (usually manufactured). In product-oriented organisations, management of sourcing and procurement is often handled by the manufacturing or operational teams. For Hong Kong businesses, this often involves managing suppliers across the Greater Bay Area and broader Asia-Pacific region.
Indirect procurement occurs more often in services-oriented companies, which typically see sourcing in categories such as contingent labour, consulting services, advertising, janitorial services, office supplies or anything else that keeps the company running. This "indirect" spend often represents a considerable percentage of an enterprise's expenses. In services-based companies, the team that manages the acquisition process typically reports to the finance department.
What is sourcing?
Another key piece of procurement is sourcing: the process of sending out requests for proposals (RFPs), vetting bids, negotiating with suppliers and managing contracts for goods and services. Sourcing is the upstream process that helps enterprises make strategic supplier and cost decisions, whilst procurement is the downstream process that facilitates the receipt of and payment for goods and services.
More and more, businesses are elevating the leader of procurement to the C-suite in the form of a chief procurement officer (CPO) to drive strategic spend management across their organisations.
What is procure to pay?
Procure to pay (P2P) is the process by which organisations secure and pay for the goods and services they have sourced from their suppliers. Typically, it starts with the procurement department defining what suppliers an organisation will contract with and what services they will provide. Then, employees create requisitions and select the goods or services needed. Once requisitions are processed, procurement creates purchase orders (POs) and pays invoices for the selected goods or services. P2P also includes catalogue and inventory management, purchases, receipt and stocking, and invoice processing and payment.
What is source to pay?
Source to pay (S2P) encompasses all of the procurement functions preceding P2P. These consist of sourcing specific products and services, including the internal management of procurement projects and external engagement in the RFP stage. Tools such as Workday Strategic Sourcing can help simplify:
Project intake
Sourcing pipeline
Contract and supplier management
RFx (Requests for information, proposals or quotes)
Reverse auctions
What is procurement software?
Procurement software automates the process of securing goods and services and enables faster, smarter decisions across spend analysis, strategic sourcing, procurement and payment. Procurement tools started with pen, paper and calculators, and progressed through spreadsheets, still a primary tool for many smaller companies. Now though, procurement technology has evolved into an integral component of many enterprise resource planning (ERP) systems.
Enterprises can also monitor whether preferred suppliers and contracts are being honoured and identify opportunities to create a new contract, or to enforce and reduce off-contract spending. An integrated system also enables insight into spending broken out not only by department but also by project, supplier, marketing campaign and even by employee.
Real-world benefits of automating procurement.
Automating procurement can greatly improve process compliance. That's because disjointed manual systems force sourcing and purchasing teams to spend an unreasonable amount of time dealing with data and process challenges. Consequently, frustrated employees often bypass the purchasing process, which leads to rogue spend and increased risk to the business.
For most companies that automate procurement, the biggest benefit is strategic cost savings and increased efficiency. By reducing the hassle involved in buying from approved suppliers, especially where volume discounts have been negotiated, the cost of purchased services and goods can go down via increased use of approved suppliers.
Also, simplifying the invoice-matching process can enable companies to take advantage of early pay discounts. On the efficiency side, procurement automation can help reduce the risk of human error by taking manual tasks such as data entry off employees' plates. This in turn frees up more time for employees to tackle more strategic initiatives such as contract negotiation and supplier management.
For Hong Kong businesses managing procurement across multiple jurisdictions, automation becomes even more valuable in handling different currencies, compliance requirements and cross-border regulations with suppliers in mainland China and throughout the Asia-Pacific region.
How does technology transform procurement?
By using software to help manage the procurement process, especially automating workflows, approvals and reviews whilst ensuring access to accurate and timely data, companies can achieve these benefits:
Process simplification: Technology simplifies the procurement process by integrating disparate and disjointed elements into one cohesive process.
Increased visibility and control over spend: With a streamlined sourcing process, enterprises can better optimise spend and engage with key stakeholders. Sourcing and procurement leaders find the most success with platforms that enable cross-functional teams to quickly and efficiently share information, establish a record of their deliberations and centralise data in a single hub. Such a system gives all interested parties ready access to purchase information, saving the time it usually takes to hunt through scattered spreadsheets and email messages.
Time savings: With the right solution, sourcing and procurement teams can automate previously tedious activities and provide instant visibility to stakeholders and business partners. Companies can also support on-the-go purchasing with mobile-enabled business processes. Automation allows all parties to get things done as efficiently and effectively as possible.
Better decision-making: Strategic sourcing software centralises data and collaboration capabilities needed for analysis and decision-making, including visibility into future spend. Access to reliable data also enables an organisation to better evaluate the effectiveness of its spending. And by enabling teams to collaborate using their knowledge of products, vendors and markets, they'll more likely select and source the best materials, products and services from the most appropriate vendors. Digitally transformed sourcing and procurement departments have greater insight into markets and vendors, enabling sourcing and procurement to advise business stakeholders on pricing trends that may impact product cost, quality and more.
High adoption: With intuitive sourcing and purchasing tools that are easy to use, companies can increase enterprise-wide adoption and thereby drive compliance with procurement policies.
Increased value: By eliminating tedious and low-value work, sourcing and procurement experts, as well as accounting departments, can devote more time to strategic initiatives as opposed to transaction management.
Improved scalability: Technology and automation play a major role in ensuring that sourcing and procurement capabilities can scale up as a company grows or its requirements shift, particularly important for Hong Kong businesses expanding across the Greater Bay Area.
Increased transparency: With visibility into processes, strategic sourcing leaders can examine supplier relationships and contractual obligations so managing these becomes easier. Suppliers, meanwhile, can get more transparent access to projects and act as strategic partners to the enterprise.
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