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What is procurement management and why is it important?

Posted: 22 July 2021
What is procurement management and why is it important?

In an increasingly complex commercial world where businesses need to be dynamic, fast-changing and efficient, it is important to streamline internal business processes to accommodate this environment. In many businesses old, convoluted workflow patterns and outdated manual processes can waste both time and money, which is something every business is keen to avoid.

There are plenty of different ways to improve business efficiency throughout the entire organisation. As a process, it is something that should be constantly evaluated to find improvements and areas of inefficiencies in the way a business conducts commerce. One of the key areas that a project manager might examine when evaluating the efficiency of a business’s processes, is their procurement management strategy. The reason for this is that procurement management plays a key role in how profitable a business is.

What exactly is procurement?

Procurement is the process within a business for managing supplier relationships, as well as selecting and negotiating with suppliers for the best rates and services. Procurement plays a key part in a business’s processes, from retailers who work with their suppliers, manufacturers and distributors to source the goods that they sell, to manufacturers having to source the raw materials they need to manufacture products. Contract management and getting the lowest pricing on purchase orders are key areas that procurement teams need to be able to address.

However, procurement can have a much wider reach within a business since other types of procurement management can take place within an organisation. For example, another common form of procurement is travel procurement, where hotels, flights, auto hire and train travel might be booked by an individual within a company. This kind of procurement can fall across multiple departments, from dedicated procurement managers to Human Resources (HR).

In some cases, many of these procurement options might be handled by employees themselves and paid for by the company via the expenses system. This is not always the most preferable way of handling these kinds of purchases since employees do not have access to preferable supplier rates, so they (and in turn the business itself) can end up paying more for these ad hoc expenses. This can also take employees away from their actual job role, as they must spend time on booking travel.

Types of procurement

There are a range of different procurement types, which is why procurement can involve various teams in a business. Procurement practices typically fall into these categories:

Direct procurement — relates to the raw materials and products that a company uses to make, sell and retail.

Indirect procurement — this typically covers all aspects of the products and services that are required to run a company, which can cover office supplies to business travel expenses and even marketing costs.

Services procurement — covers all procurement requisitions relating to people. For example, this can range from hiring contractors to dealing with third-party agencies and consulting services.

As it is clear from the above types of procurement, it is common for different teams and people to deal with various aspects of a business’s procurement needs. This raises the question about whether there are good cross-departmental strategies in place to handle this, and how efficient the business’s procurement management system is.

Business efficiency and the procurement management process

Often, when a business is looking to become more efficient, the procurement strategy and supply chain management process is high up on the agenda. The main reason for this is because procurement can be a manual process, so it can be very time-consuming. Since procurement professionals sometimes need to work with other departments in a business, such as accounts and HR team members, any inefficiencies in the procurement process can lead to delays and extra work for multiple individuals and teams.

Another important reason why businesses need to examine their whole procurement process is because they could be paying much more than they need to for the goods and services they use. These small additional costs add up over time.

Of course, when negotiating key procurement contracts with potential suppliers, a much more hands-on approach is required to get the best deal from the supplier. However, not all procurement activities require this high level of attention, and can instead be dealt with in a more efficient and simple fashion. This is where using dedicated specialist companies — utilising software, cloud-based tools and automation — come into play to help purchasing departments and stakeholders facilitate purchasing and goods in a fast, easy way.

How travel procurement has its own challenges

Other areas of procurement, such as travel procurement, can both be time-consuming, complex and require specific strategies. Travel management team members face specific challenges when it comes to arranging business trips for employees. Each trip is unique, time-sensitive and is subject to last-minute changes. This means a travel management solution needs to be dynamic, so that trips and travel arrangements can be changed if necessary. It is hard to follow a simple purchase requisition template under these circumstances.

Travel managers may also need to be in the position to combine multiple modes of transport together in a global environment, along with finding quality accommodation and hotels for employees.

Risk management and safety have also become key drivers when it comes to planning travel for business. With the impact COVID-19 has had on business travel, it has shone a light on some of the fundamental issues when it comes to business travel, such as traveller safety and dealing with risk. Fast-changing travel restrictions have also caused numerous problems when it comes to business travel, with cancelled plans due to countries imposing lockdown restrictions, quickly changing the travel landscape.

Even without the challenges of a global pandemic, travel managers have always had to react to a quickly changing world and environment, from having to deal with natural disasters affecting travel to terrorism. Travel procurement has always needed to be dynamic and quick to implement in real time. This is quite different to the traditional challenges that direct procurement and the supply of goods face, where each project tends to have a much longer life cycle than the typical business trip.

Often, the best price wins for direct procurement. However, that is not always the case with travel. Quality and traveller satisfaction also play a key role in how well the travel arrangements are perceived.

For example, factors where traveller satisfaction come into play include issues such as whether flights are at a convenient time or not. It might be cheaper to book a flight earlier or later in the day, but is that inconvenient for the employee? For the business, an important consideration is whether individuals reach their destination wide awake and feeling refreshed, instead of arriving tired and unable to perform as well as they might. The same considerations can be applied to hotels. Are they comfortable, quiet and located in a convenient location? Some of these factors may cost the business more money but these issues can impact employee performance when out in the field. This is often overlooked, but is something that needs to be considered to maximise effectiveness and efficiency.

When project teams are reviewing a travel procurement solution, how do they ensure that the overall project will end in your business saving money, while maintaining quality standards, improving business operations efficiency and maintaining employee satisfaction and safety?

Speeding up the travel procurement process.

How do you speed up the travel procurement process whilst maintaining traveller satisfaction and cost-effectiveness? When it comes to travel management and travel procurement, it can be hard for a company to negotiate the best deal from suppliers. This is why issues surrounding vendor management are typically handed to third parties and specialist services that manage this aspect of purchasing flights, rail, vehicle hire and hotels.

When it comes to travel, supplier sourcing can be time-consuming, but travel management services can handle this aspect for a business in a much more effective way than if they went it alone. Risk management is also handled by travel management companies, since they work closely with their travel providers to get the best rates, flexibility in booking travel and by only allowing approved and high-quality suppliers to be listed.

How Egencia can help with your travel procurement performance

When it comes to procurement management for travel, there are many benefits to using Egencia’s corporate travel management. Egencia offers a global travel management solution across 60 countries, that will help improve the return on investment (ROI) of your business’s travel procurement.

Businesses can quickly and easily book travel using our preferred, curated suppliers that help with risk management and traveller satisfaction. Egencia’s travel solutions are designed to help you easily track employee travel expenses with an integrated solution that provides key data, reporting and analysis on your travel activity.

Egencia’s travel management solution can form a key role in your company’s overall procurement management strategy. For businesses that are looking to streamline their internal procurement processes and need to improve the way travel is managed and sourced, Egencia can help.

Looking for better business travel solutions? Get in touch with us.