Procurement Management

What is procurement management?

By definition, procurement management is the strategic process of sourcing, acquiring, and managing goods and services within an organization. It specifically involves steps such as identifying needs, selecting suppliers, negotiating contracts, and for physical goods, ensuring that these products are delivered on time, within budget, and to the required quality standards.

Procurement management does, however, go beyond purchasing, and plays a fundamental role in controlling costs, mitigating risks, fostering strong supplier relationships, and aligning procurement activities with overall business objectives.

In fact, by optimizing each of the different stages within a typical procurement cycle, an effective procurement management strategy can help organizations improve efficiency, reduce spend, drive value, and gain a competitive advantage.

The procurement management process

A procurement management process is the strategic approach that plans, executes, and controls all procurement activities within an organization, providing a framework to optimize cost savings, reduce risk, ensure quality, strengthen supplier relationships, and maintain regulatory compliance.

How to develop an efficient procurement management process

There are a number of steps an organization can take to either create a formalized procurement process from scratch, or improve an existing one. These include:

Establishing a structured framework

‍It should clearly define the scope, such as whether it covers all purchases above a certain value or focuses on specific categories, like IT procurement. Additionally, it may be beneficial to establish guidelines for vendor selection to ensure that any potential provider aligns with the company's standards.

Defining procurement roles and responsibilities

‍Clearly outline who is responsible for each task and at what stage of the process. For SaaS procurement, this involves designating specific individuals or departments to oversee and manage different aspects of the approval workflow. For companies that have already defined these roles, it’s important to ensure they are clearly communicated to all relevant stakeholders as roles may be ambiguous.

Developing standardized procedures

‍All procurement procedures should be documented and standardized to ensure consistency across all procurement activities. This should cover all stages, from identifying needs and selecting vendors, right through to negotiation and contract management.

Digitizing procurement

‍A major reason many procurement management processes remain inefficient is their dependence on manual intervention. By automating these tasks, procurement software can streamline workflows, eliminate common bottlenecks such as approval delays, reduce unnecessary spending, and mitigate compliance risks, leading to substantial cost and time savings.

See how one company achieved 55% faster procurement cycles by leveraging automated workflows.

Creating a procurement approval workflow

‍With maverick spending and shadow IT posing a serious threat, organizations need to establish formal approval workflows. These workflows should set clear thresholds for purchasing, establish approval hierarchies, and implement checks to ensure accountability. In many companies, approval workflows will differ based on factors such as value, urgency, and the type of goods or services being procured, ensuring that appropriate oversight is applied at each stage.‍

Tracking and managing spend

‍With companies using an average of 130 different software applications and with prices rising by 11.4% each year, companies not only need a way to track their procurement spend, but they also need a way to optimize this spend for greater cost control.

Building a supplier selection and evaluation process

‍Establishing a structured supplier selection and evaluation process is essential for ensuring that your organization is only working with reliable, high-quality suppliers and vendors.

When it comes to software procurement, start by establishing criteria such as scalability, security features, uptime reliability, user support, and pricing structure. From here you can implement an evaluation process to assess their performance across areas such as system performance, customer support responsiveness, and data security measures. This approach ultimately helps to minimize risk, optimize ROI, and ensure long-term success.‍

Improving visibility and reporting

‍Having total visibility of your procurement management process is essential for better decision making and for ensuring cost-effectiveness. By implementing robust tracking and reporting systems, you can gain real-time insights into your organization’s SaaS usage, renewals, and spending patterns, which in turn enables you to identify underused licenses, areas of overspending, and opportunities for renegotiation.

Get access to the 11 procurement metrics that high-performing teams are tracking.

‍Ensuring compliance and mitigating risks

‍To safeguard against legal, financial, and operational threats, it’s important that you’re taking the necessary steps to ensure full compliance. This involves closely monitoring supplier contracts, adhering to industry regulations, and implementing internal controls to ensure all procurement activities align with company policies and legal requirements such as data protection laws.

Best practices for ensuring effective procurement management

Invest in the right procurement management software

‍While there are a number of tools on the market, we’d recommend choosing one that offers advanced workflow capabilities, as this will ensure that they are adapted to your specific procurement needs – something that will become all the more important as your business scales.

Get a detailed analysis of the SaaS Procurement and Management Platforms in this Lionfish Tech Advisors Report

Optimize your vendor relationships

‍Strong vendor relationships are built on trust, transparency, and mutual benefit. Giving yourself enough time to handle negotiations helps avoid putting unnecessary strain on the relationship and ensures both parties feel valued.

‍Working with a procurement partner who can act as an intermediary also helps facilitate clear communication, resolve potential conflicts, and ensure that both sides understand each other's needs and expectations. This collaborative approach fosters long-term, productive partnerships that benefit both the organization and its suppliers.

Control and monitor procurement spend

‍Keeping on top of procurement spend is crucial for preventing wastage. By implementing a robust SaaS spend management system, setting clear budgets, and regularly reviewing expenditures, you can identify areas of overspending, stay within budget, and prioritize cost-saving initiatives. The right platform will support this by flagging issues such as duplicate spending and underutilization, while also ensuring that you’re never paying more than necessary for any tool within your SaaS stack.

See how one company saved $155,000 on a single contract by improving their procurement process.

Measuring success in procurement management

In order to evaluate the effectiveness of procurement management and ensure that all activities are contributing to organizational goals, procurement leaders should be tracking the right metrics.

While the more obvious metrics include the likes of budget vs spend, completed vs inflight spend, and tool usage, there are a number of additional metrics that are being used by the very best procurement teams.

These include:

• Approval times per function – How long each team or stakeholder takes to approve a contract, helping pinpoint who the ‘repeat offenders’ are for delaying purchases.
• Difference between time to complete renewals vs new purchases – The length of time a renewal typically takes to complete, compared to a new purchase request. This may highlight over-simplifications – or under-simplifications – in your procurement management processes.
• Number of suppliers vs proportion of spend – This metric highlights the suppliers that account for the largest portion of your total spend. These suppliers should be prioritized for contract renewals, performance reviews, and benchmarking to ensure you're getting the best value and managing risk effectively
• Average non-compliant spend vs top non-compliant spend departments – Every business will experience maverick spend, however, it is the procurement team’s responsibility to reduce the amount being spent outside of formal procurement workflows.

You can learn more about each of these metrics – along with guidance on what to do with the information – and access an additional seven more in our recent Procurement Metrics that Matter report. Alternatively, take a look at our insights hub.

Things to consider when evaluating procurement management software

Automation

‍Automation reduces the need for manual intervention, minimizing human error and speeding up procurement cycles. Choosing a provider that is investing heavily in this area is a smart move. Examples of things to look out for include advanced workflow capabilities, and the ability to receive automated reminders and alerts for pending approvals and expiring contracts.

Features and functionality

‍Beyond automation, you should also ensure that any potential procurement platform offers real-time analytics, spend tracking, and contract management functionality. It’s also worth finding out how each one is utilizing AI.

‍Benchmarking data

‍The quality and depth of benchmarking data should be a key consideration when evaluating any procurement management platform. After all, it is this data that will be used to identify improvements and cost-saving opportunities across your entire tech stack.

Negotiations

‍While many providers offer software negotiation services, the approach can vary. For instance, some procurement software providers allocate a dedicated buyer to handle all negotiations on behalf of the customer, while others rotate buyers depending on the vendor involved. It’s important to know this in advance, as companies often experience friction when working with multiple stakeholders. Additionally, you should confirm whether negotiation services are included as part of the platform’s core offering or if they incur an additional fee.

Reporting and analytics

‍The reporting capabilities of any procurement platform should be highly customizable, allowing you to tailor reports to your unique business needs and focus on the metrics that matter most. A robust platform will not only analyze spend, but also monitor compliance, track renewals, and provide a comprehensive audit trail of all procurement activities.

Customer support and vendor reputation

‍In addition to the provider’s quality of customer support, it’s also important to consider its reputation among software vendors. Those with a positive reputation are more likely to provide long-term value and foster reliable vendor relationships.

Cost of implementation and total cost of ownership

‍When evaluating procurement management software, it’s crucial to be mindful of any additional fees that could impact the Total Cost of Ownership (TCO), such as charges for negotiation services or access to benchmarking data. While many platforms include these features as part of their core offering, others may treat them as add-ons. Clarifying these fees early in the evaluation process helps you avoid unexpected financial burdens down the line.