Guesswork is a rough road to success, don’t you agree? Doing business is all about mapping out your actions, identifying risks, predicting trends, and budgeting. One of the essential planning tools and approaches, a procurement management plan is a must for any business eager to profit, not just survive. Let’s look at what a procurement management plan is and what to consider when creating one.
What Is a Procurement Management Plan?
Let’s start with the basics’? the procurement management definition. Managing procurement means handling all the resources you need to run your company. This covers buying or renting any materials or tools and hiring contract-based providers.
So what is a procurement plan then? This plan helps you outline all the required procurements, from manufacturing supplies to on-demand services, their cost, deadlines, connected risk, and the responsible employees. It also lists criteria for choosing vendors.
Managing procurement means handling all the resources you need to run your company. This covers buying or renting any materials or tools and hiring contract-based providers.
Even if your business runs online, you still need to buy software and devices, collaborate with various specialists, and take care of your infrastructure. All these expenses should be listed in your procurement management plan.
Sounds like a good plan (pun intended), but will it work out for you, and do you even need a PMP at all? Let’s find out.
Why Do You Need a Procurement Management Plan?
Chaos can be a thing for an artist, but it brings no good to a business. The main benefit of a procurement management plan is that you, as a business owner or manager, have total control over procurements and stay in the loop. Pretty good to begin with, isn’t it?
Of course, that’s not all. A proper PMP helps you to:
- Optimize resources and save your budget. A procurement plan sheds light on how much your company spends on certain goods and services. Perhaps, some of them are redundant, or you can get them for a better price? Some processes might need extra materials, and you can budget them in advance.
- Make the procurement process transparent and predictable. Having a PMP means no alarms and no surprises, as a Radiohead song goes. Each team member can check which supplies the company is getting, how much they cost, and so on. If you run out of certain items, there is no need to search desperately for a long-lost document to check the balance and the delivery date for the next batch. It’s all in the plan.
- Schedule procurement dates and deadlines. With a plan always at hand, you don’t risk running out of supplies when the closest delivery is two weeks away.
- Protect your rights. By signing a contract with each vendor and outlining your conditions, you get a good night’s sleep. You don’t have to worry about suppliers violating agreements or missing deadlines, either.
- Check how effective the procurement plans are. You can compare your plans to see how many resources you budgeted for and how many you actually used. Then you can adjust your procurements accordingly.
A procurement management plan will simplify your business processes and make your interactions with vendors transparent. Question number two is when do you need to draft this plan?
When Do You Need a Procurement Management Plan?
Many entrepreneurs dismiss a PMP as a waste of time, thinking they got everything under control. But a lack of a wide procurement network is not an excuse for ditching a management plan.
You need a procurement management plan:
- When you budget your procurements and need to understand where you stand financially
- When there are numerous separate documents you need to track
- When you want to separate internal and external resources
- When you select vendors by comparing their price range, quality, accessibility, etc.
- When you need to track supply flow and deadlines
- When identifying weak spots and managing risks
- When you need to organize paperwork and automate the signing of contracts
As you can see, a PMP is a must-have for any business, big or small, and at any procurement stage. It’s a reliable way to ensure the project flows as expected and no unpleasant surprises are waiting for you.
Time to move on to the ten steps you need to take to create an excellent procurement management flow.
10 Steps of a Procurement Management Process
Now that you know that a procurement management plan is a must, where do you start? Let’s discuss each step of a procurement management process in detail.
1. Clarify a new system for the team
The first step of any procurement management process is to share your plans with the team and guide them through the new flow. Be ready to highlight the downsides of the current procurement process and explain how a new plan will benefit the company.
You can either organize a meeting or send the written guidelines. Be clear about the procurement steps, the expected results, and how the process should be managed from now on. This stage is crucial because you have to make sure that all the participants are on the same page and clearly understand what you expect from them.
2. Identify responsibilities
To set clear expectations, you first have to decide who is responsible for what. Estimate how many specialists you need to manage the plan and specify their roles.
For example, you need a project manager to supervise the plan, track its progress, and handle the budget and deadlines. Think about the person to sign the contracts and contact the vendors, too.
3. Outline requirements
The next step is to clarify the scope of work. To lay out the requirements, you should decide:
- What procurements you need
- Their volume
- Delivery deadlines and frequency
- Your quality and vendor preferences
- Anything else that you think is important for the process
Once you list all the procurements and their characteristics, you can clearly see the scope of work. This helps allocate enough resources, such as money, employees, and time, to put your plan into motion.
4. Build a timeline
Speaking of time, your next step would be to create a timeline. It’s best to have one for each procurement so you know when to make an order, sign a contract, and expect the delivery. This step helps you avoid unexpected delays or running out of supplies.
5. Manage changes
Even the best procurement management plan will require some changes over time. You may notice that the delivery system is not as effective, or there might appear a better way to exchange documents.
In case of any changes, your team needs to know about them first-hand to tailor the processes and avoid misunderstandings. It’s up to you how to organize this process ‘? through meetings, emails, or documentation. Remember, your goal is to make sure that all the team members are well aware of the upcoming changes and when new regulations come into action.
6. Outline vendor communication and management procedures
Any procurement process involves communication with vendors. Be it only two providers or dozens of them, consistent communication and management style is a must.
After deciding who is responsible for vendor management, discuss how exactly the process should be handled. It’s best to work out the following aspects:
- A communication method and platform: via phone, email, or instant messengers
- Templates of contracts and invoices to use with each vendor
- A platform for document exchange and signing. With numerous online documentation services like AXDRAFT out there, you no longer have to send each invoice by mail
- KPIs (key performance indicators) to analyze the quality of products and services provided by vendors
- Regular procurement management meetings to discuss the results and possible improvements
- Vendor selection criteria to help the project manager make informed decisions and understand the company’s expectations
This step is probably the most crucial one in the whole procurement management process. It builds the core of your operations, so take enough time to prepare your plan well in advance.
7. Establish legal procedures
Signing contracts, invoices, and other types of documents is part of procurement management. It might be hard to figure out which documents you need to prepare, the right way to create this or that form, whether your company and procurement process fall under some specific regulations, and so on.
That’s why we highly recommend either contacting a lawyer to help you with procurement documentation or using ready-made templates specifically designed for procurement management.
8. Identify payment methods
After the contract is signed, your vendors will expect to be paid for their products or services. There are three main factors to hash out at this stage:
- Collaboration system. Is your contract fixed-priced, time- and material-based, or hourly?
- Payment method. Discuss preferred payment methods with each vendor and request their banking details. Make sure to ask about any extra fees or discounts. Don’t forget to specify the payment currency if you cooperate with foreign vendors.
- Payment frequency. Does a seller expect to be paid after every purchase or once a month? It’s important to clear things up at the very start of your collaboration to avoid debts, unexpected fees, or contract termination. If you plan to make regular payments, it makes sense to automate this process through banking services.
Payment deadlines should be an important part of your procurement management plan since the PMP’s whole point is to make your business predictable.
9. Plan your risk management process
The key to handling emergencies with the least impact is to identify risks and plan their management.
When adding risks to your PMP, don’t forget to cover:
- Risk probability
- Risk severity
- Step-by-step instructions on mitigating the risk: who to alert, which actions to take, any back-up options, etc.
- Helpful risk-related documentation
Some of the most common procurement management risks are conflicts with vendors, shipping delays, poor product or service quality, change of deadlines, contract termination, missing products in your order, and new vendor rates.
10. Identify constraints and limitations of the procurement process
Finally, your procurement management plan needs to list any constraints that the project manager and their team might stumble upon. The process has higher chances of success if all the participants know what might limit the project.
Process constraints and limitations might include:
- Time constraints
- Legal framework
- Infrastructure and location aspects
- Vendor’s regulations and contract specifications (e.g., a specific timeframe to produce a certain item)
- Human resources
- Technical details
This part of your procurement management plan helps you steer clear of disappointments and failed ideas. For example, your project manager will know from the start that you can’t order supplies from a vendor from another US state because the shipment fee will be higher than your procurement logistics budget allows.
It’s not all that complicated, is it? Now that you know what a procurement management plan is and how to create one, you’re fully equipped to get right into it and implement a PMP into your business.
Having a solid procurement strategy is only half of the deal’?implementing it efficiently is an equally important part. Document flow automation and digital planning help you stay on top of things, which is crucial for procurements where one missed deadline can cost you a fortune. A clear paperflow prevents errors and expectations-vs-reality situations.
Don’t let mistakes get in your way in procurement management, contract signing, or any other paperwork. AXDRAFT offers ready-made document templates and a platform to manage them to ensure an error-free experience.
Interesting Related Posts
- Procurement Management Plan: What It Is and 10 Steps to Create It
- The Top 10 Essential Procurement Skills
- Contract Lifecycle Management in Procurement: Benefits, Features & Case Studies
Frequently Asked Questions
A procurement management plan should cover information about all the items and services that have to be obtained; the contacts of vendors; the contract approval process; delivery deadlines; payment options; and potential project risks and limitations.
To automate procurements, it’s best to use dedicated procurement management platforms, including procure-to-pay (P2P) and purchasing software. To sign contracts and invoices, choose document management software, like AXDRAFT, where you can draft, edit, sign, and send papers online, as well as analyze data. Budgeting and vendor management software is also available online.
A procurement management plan allows you to organize all the supply-related information conveniently. You get a digital document that your team can access and edit at any time. The purpose a PMP is to standardize and automate your process to save time and reduce errors.