Businesses face challenges around supply chain and cash flow in the area of operational procurement. Automation in this industry is the solution to eradicating these challenges and building more prospects. 

Investing and transforming procurement processes is the need of the hour, especially when its market size is expected to value $9.5 billion by 2028. 

What is operational procurement? 

Businesses that see themselves as fully sustainable and streamlined know that proper procurement processes are the wind beneath their wings. With time, they must categorize procurement to maintain a striking balance between quality assurance, cost optimization and an unending stream of operations in the company. The fundamental concept behind all this is operational procurement—the function that promises the timely acquisition of goods and services needed for daily operations. 

From ordering to paying, operational procurement focuses on using and managing the essential resources so that the business faces no downtime. Today, when we see how technology is entering all sectors and moving in the right direction—we can say that in the operational procurement sector, we have SaaS procurement software making waves!

5 examples of operational procurement

Operational procurement and its use-case scenarios are essential to understand their importance for your organization’s vitality. Some examples you can see happening IRL around you are:

1. Office supplies

Operational procurement works when your organization wants to purchase stationery and other must-have supplies for your office at regular intervals. From cartridges to cabins, your supplier will deliver as and when required.

2. Retail stores

Retailers must be on top of their game and ensure their stock is never running low. Whether it’s merchandise or an item needed at the store, operational procurement processes are always active behind the scenes.

3. Employee training programs

If you wish to upskill your employees, you need to have a well-planned training program. It must include training materials, trainers, and access to e-learning platforms for your employees. 

4. Professional services

Professional services like legal, marketing, IT, accounting, and more outsource skills to companies and upgrade their business operations. The selection process examines their track record, industry experience, success rate, and client testimonials.

5. Catering services

No event is complete without its food. Companies need catering services to manage events and meetings every week or month.

These examples illustrate the importance of operational procurement processes in the smooth functioning of a company.

3 benefits of operational procurement

1. Reduced vendor risk

Operational procurement minimizes the issues you can face while dealing with vendors and suppliers. It gains traction in the following areas while dealing with vendors:

  • Finding trustworthy vendors: Always examine the stability, financial performance, track record, industry image, and other vendor factors during procurement. With operational procurement software, vendors are carefully selected and a reliable supply chain comes into the picture.
  • Monitoring performance: You can monitor each vendor's performance before selecting and establishing a relationship with them. From delivery timelines to response rates, from product quality to delivery hassles, effective operational procurement practices detect issues quite early and address them. 

2. Enhanced supplier diversity

Operational procurement fosters diversification by engaging with multiple suppliers, irrespective of their similarity in goods and services. By doing so, businesses will always have a steady second option if their preferred vendor falls short. In this age of inclusivity, organizations are looking to support suppliers from different backgrounds and minorities. 

With supplier diversity, you can ensure that:

  • Small businesses, individual-owned businesses, and other underrepresented groups get a fair chance of becoming a part of the supply chain. 
  • More jobs are available and people have the chance to increase their income. You are also encouraging economic empowerment and employment opportunities. 
  • Suppliers can bring different perspectives and suggestions that benefit the company. Many tech-advanced solutions, like the SaaS operations management model, result from such brainstorming sessions. 

3. Improved operational efficiency

Operational efficiency during procurement leads to more cost savings, less use of the available resources and a more well-structured company culture. Here are some ways we see operational efficiency in the business:

  • Operational procurement streamlines the process of sourcing, ordering, and paying for goods and services.
  • The procurement process enables quicker response time by tracking spending and gaining insights from data analytics, which leads to faster decision-making. 
  • Most importantly, operational procurement helps save more time throughout the procurement stage. With more time in hand, you can utilize it productively in other areas of your business. 

From sustainability to scalability, from time-saving to resource-saving, from inventory to workflow management, operational procurement keeps the company in check when using resources daily. This helps businesses to save and create a sustainable environment within the company. 

The 3 challenges of procurement operations

As described further, the challenges in procurement operations refer to the obstacles you may face while acquiring goods and services from different suppliers. These issues, if resolved slowly, can impact the entire company. 

1. Need to adapt to changing tech

Every other day, a new technology comes up, which puts several companies into a state of confusion. Similarly, in operational procurement, several tools and software have come to the forefront to keep the entire industry efficient and competitive in their standings. Keeping up with the rapidly changing technology, understanding integrations, and enabling data security can be overwhelming for most companies. 

However, businesses need to adapt to changing tech as that will help in their growth and future-proofing. Long-term efficiency and relevance are what companies must aim for whenever they choose a technological solution. For example, procurement automation and its interaction with the SaaS model have taken businesses in their nascent stage from strength to strength.

2. Changing regulations

Another challenge of procurement operations is a “constant change” in the industry's requirements. You must update your processes, comply with the laws, and imbibe specific standards while acquiring goods and services. You must observe and practice these changing legalities and regulations with an eagle's eyes. 

Some of the complications that arise whenever regulations change are:

  • Legally, you must stay abreast of the trade regulations, compliance laws, and other industry-specific laws. It’s a demanding process, right from understanding to implementation. 
  • Geographically, every country has a different law concerning trade and procurement practices. Adhering to this highly diverse platter of laws is tough.
  • Ethically and environmentally, the global market encourages procurement practices that benefit people from all backgrounds and our environment, from fair labor management to carbon footprint reduction.

3. Complex procurement process

Procuring goods and services for your firm's smooth functioning will not always be a cakewalk. It’s a lengthy process that includes the following:

  • Timely approvals
  • Right suppliers
  • Adherence to rules
  • Paperwork and documentation 
  • Team coordination
  • Tracking timelines
  • Ensuring cost and quality efficiency.

Such complex processes can slow down the company, making it inefficient and reducing profits. Procurement automation is one of the best solutions to solving this complexity and ensuring orderliness throughout the company. 

The key elements of procurement operations

Four key elements take care of procurement operations from end to end. They are:

1. Sourcing

Sourcing is the first step, wherein you identify, evaluate, and select the supplier who can provide you with everything you need for your company. This step demands thorough market research and verification of the suppliers. Once you establish credibility with the supplier, you can work long-term with them. 

For example, if you need a supplier for your office, you will first observe that they provide high-quality supplies that fit your bill. You must also compare many suppliers and negotiate pricing to get the best value upon order completion.

2. Contracting

The next step of procurement operations is going formally and legally with your suppliers. You must draft the terms and conditions between your company and the supplier. The contract's decided prices, delivery schedules, and order timelines are clearly defined. 

For example, if you get a contract with a caterer, you will check that the quality of the food and its prices balance each other. The agreement must include the quality standard, delivery timeline, and essential information. 

3. Purchasing

Purchasing is the act of actually placing an order and purchasing from the vendor. The contract must meet the pre-decided factors. This ensures transparency between both parties, i.e., one receives what they need and the other gets the pre-decided amount. 

For example, advertising and marketing agencies provide special services for companies expanding on social media. It could be a blog, a social media calendar, or a template, which, when delivered to the company at fixed prices and quantities, the agency will receive compensation. 

4. Supplier management

It makes no sense when businesses rely on just one supplier for their goods and services. Over time, they need to identify and establish relations with a supply network so that there’s always someone to fall back on. Supplier management includes performance monitoring, updating terms and conditions, resolving disputes, etc. 

For example, when dealing with courier delivery services, you will have to monitor their speed and quality of service to decide which one to go with the next time. If any issue arises, you need to resolve it immediately via the supplier management process. 

These four key elements must blend to carry out your procurement operations successfully. They add structure to the entire process, from acquiring goods and services to maintaining healthy supplier tie-ups.

3 salient segments where operational procurement works best

1. Supplier selection

Operational procurement identifies and chooses the best suppliers to meet your company’s needs. Market research, supplier verification, conditions in agreements, and other negotiations play an active role in this segment. You must never ignore this process, as it ensures that your goods and services come from reliable channels at the best quality and pricing. 

2. Order monitoring

Order monitoring is overseeing the status of orders from their approval to delivery. Upon delivery, the goods and services must be of the promised quality and if any issue arises, the procurement team works with the supplier to resolve it.  

3. Invoice process

Since there are multiple invoices, procurement automation verifies supplier invoices. It ensures that they are accurate, match the order requirement, and are timely closed. These financial transactions find their space for record-keeping and auditing purposes.

How to optimize operational procurement

To receive more value from procurement operations, undertake the following steps to optimize operational procurement:

1. Automate procurement processes

Implement SaaS procurement software to automate routine tasks like order creation, workflow approvals, delivery monitoring, invoice processing, etc. You will minimize procurement risks when the role of manual efforts becomes negligible.

2. Standardize procurement processes

Establish a particular way of operational procurement in your company for your employees to follow. Whether it’s contract management or finalizing payments, this standardization will act as a guide, ensuring clarity and consistency throughout your company. 

3. Use appropriate technology

If you’re hands-on with procurement operations, you will know the advanced solutions you need. From gaining real-time data about operations to deploying vendor intelligence systems, use SaaS management tech that will be your company's game-changer. 

Manage procurement operations with Spendflo

Operational procurement is more than just purchasing—planning, negotiations, and process management are a few of the more weighty attributes. With its user-friendly interface, automation systems, and rich features, Spendflo is your answer to a comprehensive and streamlined approach to the entire operational procurement lifecycle. 

Guru Nicketan
Content Strategist
Karthikeyan Manivannan

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