Procurement processes and tools, or maybe more correct PMT (Processes, Methods and Tools), are important parts of the procurement manager’s agenda. 

As a procurement department you certainly need tools to support your day-to-day business. In your Procurement strategy, it is recommended to have a dedicated workflow around PMT and PMT development. The choices of tools depend on the type of business and categories required.

Let us start from the very beginning with definitions of the three fundamental elements: process, method, and tools. Understanding these components and how they interconnect is crucial for any procurement professional looking to elevate their practice. Let’s delve into each of these elements to uncover their definitions, significance, and how they intertwine to create a robust procurement strategy.

Process: The Blueprint for Success

A process in procurement refers to the sequence of steps or activities undertaken to achieve a specific procurement objective, such as sourcing goods and services, selecting vendors, or managing contracts. Think of a process as a roadmap or a blueprint that outlines the journey from need identification to payment and performance evaluation. It provides a structured approach that ensures consistency, efficiency, and compliance with organizational policies and regulatory requirements.

Key Characteristics of a Procurement Process:

• Sequential: Steps are followed in a logical order.
• Reproducible: The process can be repeated to achieve similar results.
• Measurable: Each stage of the process can be assessed for efficiency and effectiveness.

Method: The Approach to Execution

While the process outlines the steps to be taken, the method delves into how those steps should be executed. It encompasses the strategies, practices, and techniques employed to carry out each phase of the procurement process effectively. Methods can vary widely depending on the organizational context, the nature of the procurement, and the goals to be achieved. They are informed by best practices, industry standards, and the unique requirements of the organization.

Importance of Method in Procurement:

• Flexibility: Allows adaptation to different procurement scenarios.
• Innovation: Encourages the adoption of new and efficient techniques.
• Optimization: Focuses on achieving the best outcomes with the resources available.

Tools: The Enablers of Efficiency and Effectiveness

Tools are the tangible assets or software applications that support the procurement process and methods. They range from simple templates and checklists to ERP and sophisticated procurement software solutions that automate and streamline procurement tasks. Tools are essential for implementing the process and methods effectively, enabling procurement professionals to achieve their objectives with greater accuracy, speed, and transparency.

Examples of Procurement Tools:

• Electronic Procurement Systems: Automate the end-to-end procurement process.
• Supplier Evaluation Frameworks: Assist in assessing and selecting vendors.
• Contract Management Software: Streamlines the administration of contracts.

The Synergy of Process, Method, and Tools

The true power lies in the integration of process, method, and tools. A well-defined process provides a clear framework for procurement activities. The method brings strategic thinking and innovation to how these activities are performed. Finally, tools enable the efficient and effective execution of the process and methods. Together, they form a cohesive system that enhances the procurement function’s ability to deliver value to the organization.

• Process ensures consistency and compliance.
• Method brings adaptability and continuous improvement.
• Tools offer efficiency and effectiveness.

Example using Purchase order creation

One of the key procurement processes and tools are the process of placing a purchase order (PO) is a critical function within the procurement cycle, enabling businesses to formally request goods or services from suppliers. This process not only ensures a legal commitment between the buyer and the supplier but also sets the foundation for subsequent procurement activities, such as receiving and payment. Below is a detailed description of the process, the method involved, and examples of potential tools that can streamline and enhance the efficiency of placing a purchase order.

Process Description

1. Need Identification: The process begins with the identification of a need within the organization, which could be for goods or services required for operational purposes.
2. Supplier Selection: Based on the identified need, the procurement team selects a suitable supplier. This decision is often made after evaluating multiple suppliers on criteria such as price, quality, delivery times, and service levels. Most often you have a specific process for sourcing activities where purchase order parameters are agreed with the selected supplier.
3. Purchase Order Creation: A purchase order is created, detailing the specifics of the purchase, including descriptions of the items or services, quantities, prices, delivery instructions, and other pertinent terms and conditions. Learn more in the course The Purchase order.
4. Purchase Order Approval: The purchase order is then reviewed and approved by authorized personnel within the organization. This step is crucial for ensuring that the purchase aligns with the budget and company policies.
5. Purchase Order Issuance: Once approved, the purchase order is issued to the supplier, either electronically or in hard copy, serving as a formal offer to buy the products or services under the agreed terms.

Method

The method involves systematic coordination between the procurement, finance, and receiving departments, ensuring that each step is executed according to internal policies and procedures. It emphasizes thorough documentation and communication, both internally and with the supplier, to prevent misunderstandings and errors.

Potential Tools (examples)

Supporting procurement processes and tools are several digital procurement tools that can streamline the purchase order process:

• ERP Systems (e.g., SAP, Oracle): These comprehensive platforms manage various business processes, including procurement, and can automate many aspects of the purchase order process.
• Procurement Software (e.g., Coupa, Ariba): These specialized tools offer functionalities specifically designed for procurement tasks, including purchase order management, supplier communication, and spend analysis.
• E-Procurement Platforms (e.g., Medius, Basware): Cloud-based solutions that simplify the creation, issuance, and tracking of purchase orders, often with user-friendly interfaces and integration capabilities with other business systems.
• Document Management Systems (e.g., DocuSign, Adobe Sign): For electronically signing and managing purchase orders and related documents, ensuring security and compliance.

Summary Procurement processes and tools

The process of placing a purchase order is fundamental to procurement and requires careful management to ensure accuracy, efficiency, and compliance. By leveraging appropriate methods and tools, organizations can optimize this process, reduce errors, and improve relationships with suppliers, ultimately contributing to smoother operations and cost savings. 

Understanding and effectively integrating the procurement processes and tools is essential for procurement professionals aiming to contribute significantly to their organization’s success. By continually refining these elements in response to changing organizational needs and market conditions, procurement can become a strategic asset, driving value, innovation, and sustainable growth.

Learn more about Procurement Management in LHTS introduction course.

About Learn How to Source

Learn How to Source (LHTS) is an online platform based in Sweden, offering a range of procurement courses accessible globally. It serves as a community where procurement experts share their knowledge through online courses, designed for various experience levels from introductory to expert. Courses are concise, about 30 minutes each, and cover different aspects of procurement, tailored for different buyer roles. The courses focus on practical knowledge, presented by seasoned professionals, and includes quizzes and certificates. They can be accessed from any device, emphasizing microlearning for flexibility and efficiency.

Note: Illustration of “Procurement processes and tools” was created by CHAT-GPT on February 7, 2024.