What is Procurement Management?

Procurement management is the department responsible for purchasing everything the company needs in terms of goods and services to run its business. This process includes: searching for the best suppliers, negotiating prices and terms, formally ordering goods (purchase orders), and tracking their arrival. The primary goal is to purchase what we need with the best quality and price at the right time, while ensuring that supplies are not interrupted and minimizing any problems that may come from suppliers.

The Importance of Procurement Management

Procurement costs constitute a large part of most companies' expenses, and may reach 60-70% of total costs in some factories. This alone demonstrates the importance of managing procurement professionally to ensure business success.

When procurement management works efficiently, the company can significantly reduce its costs through good negotiation with suppliers and purchasing in appropriate quantities. It also ensures that work or production does not stop due to lack of materials, which maintains customer satisfaction and profit continuity. Good management also helps build strong and long-term relationships with reliable suppliers, which reduces financial and operational risks in the supply chain.

In addition, this department contributes to raising the quality of final products by selecting suppliers who adhere to high quality standards, and provides accurate information that helps senior management make important decisions based on facts about costs, suppliers, and the market.

Key Responsibilities of Procurement Management

To achieve its objectives, procurement management performs many tasks that go beyond simply ordering goods. Understanding these tasks helps appreciate the importance of this department in the company:

• Identifying company needs: Communicating with all departments to know what materials and services they need, and determining their exact specifications and quantities.
• Searching for and selecting suppliers: Searching the market to find the best suppliers in terms of quality, price, and reliability, and evaluating their performance continuously.
• Negotiating prices and terms: Agreeing with suppliers to get the best possible price, payment terms, and delivery conditions.
• Issuing and tracking purchase orders: Preparing formal purchase requests and following up on their execution to ensure arrival at the agreed time.
• Managing supplier relationships: Building strong and continuous working relationships with key suppliers.
• Quality control: Ensuring that purchases match required specifications and solving any quality-related problems.
• Inventory management: Collaborating with the inventory department to determine appropriate quantities for storage and avoid shortages or accumulation.
• Cost monitoring: Tracking procurement costs and creating reports on financial performance and amounts saved.
• Contract management: Preparing and reviewing supply contracts and ensuring everyone's compliance with agreed terms.
• Risk management: Identifying potential problems in the supply chain and developing alternative plans to face any supply interruption.

Basic Stages of the Purchasing Process

A professional purchasing process follows clear steps to ensure the best results are obtained. Each step is important to achieve purchasing objectives in terms of quality, price, and timing:

1. Identifying the Need and Purchase Request

The department that needs something starts by accurately determining its request and sending a formal purchase request that clarifies specifications, quantity, and required time.

2. Searching for Suppliers

The procurement department searches for potential suppliers and requests price quotes from more than one supplier for comparison.

3. Analyzing Offers and Selecting the Supplier

Evaluating offers based on criteria such as price, quality, payment terms, supplier reputation, and delivery speed.

4. Negotiation and Formal Purchase Order

After selecting the best supplier, final details are negotiated and a formal purchase order is issued.

5. Implementation Follow-up

The procurement department follows up with the supplier to ensure compliance with delivery dates and agreed terms.

6. Receipt and Inspection

Upon arrival of purchases, they are inspected to ensure they match specifications and are formally received.

7. Review and Payment

Reviewing invoices to ensure their accuracy, then payment is made to the supplier according to agreed terms.

8. Documentation and Performance Evaluation

Keeping all documents and evaluating supplier performance for use in future decisions.

Common Challenges in Procurement Management

Procurement management faces numerous challenges that may affect its efficiency:

• Price fluctuations: Sudden fluctuations in raw material prices make it difficult to set an accurate budget for the future.
• Delivery delays: Suppliers' failure to meet delivery deadlines may disrupt production and affect customers.
• Quality issues: Receiving materials that do not match specifications leads to their return, increased costs, and project delays.
• Dependence on a single supplier: Heavy reliance on one supplier causes significant risks if they stop supplying.
• Weak internal communication: Lack of coordination between procurement and other departments may lead to purchasing inappropriate materials or incorrect quantities.

Frequently Asked Questions

1. What is the difference between procurement management and supply chain management?

Procurement management focuses on the purchasing process (selecting suppliers, negotiation, orders), while supply chain management is a broader concept that includes procurement in addition to storage, transportation, distribution, inventory management, and planning for all logistics operations.

2. What certifications are required to work in procurement?

Working in this field usually requires a university degree in business administration or a similar major, with strong skills in negotiation, financial analysis, and using procurement software. Specialized certifications such as CIPS or CPSM increase employment and promotion opportunities.

3. How do we measure procurement management performance?

Performance is measured in several ways including: the amount of money saved compared to the budget, the number of orders that arrived on time, the number of returned goods cases, the average time taken to complete the purchasing process, the level of internal departments' satisfaction with the service, and supplier performance evaluation.

4. What is the difference between centralized and decentralized purchasing?

Centralized purchasing: All purchasing operations are done through one procurement department, which gives greater negotiating power and reduces costs, but may be slower. Decentralized purchasing: Each department or branch purchases its own needs, which provides greater speed and flexibility but may lose the advantage of buying in large quantities. Many companies follow a system that combines the advantages of both.

5. How do we handle urgent or emergency purchases?

Emergency purchases need fast and flexible procedures while retaining some controls. The company should have a clear policy to determine who has the authority for quick approval, a list of reliable suppliers for emergencies, and an allocated budget, with documentation of all procedures afterward.

6. What is the role of technology in developing procurement management?

Modern technology such as artificial intelligence, big data analysis, and automation are significantly changing the procurement field. These technologies help in predicting demand, analyzing supplier performance, automating routine processes, and increasing transparency, allowing the procurement team to focus on more important tasks.

7. How do we build a strong relationship with suppliers?

Building a strong relationship requires continuous and transparent communication, paying dues on time, providing useful feedback on performance, flexibility in dealing with challenges, and considering them as partners rather than just sellers. Strong relationships lead to priority in delivery, better prices, and greater support during crises.

Conclusion

Procurement management is not merely routine office work, but rather a strategic and very important part that directly affects the company's success and competitiveness. With a good understanding of the importance of this function and applying best practices in work, companies can save a lot of costs, improve the quality of their products and services, and ensure the continuity of their operations, making it a major competitive advantage in today's business world.

Manage Your Procurement Efficiently with Mezan

Are you looking for a better way to manage purchasing and inventory operations in your establishment? Mezan is the Saudi cloud accounting software that helps you organize procurement operations from start to finish. With Mezan, you can issue purchase orders, track suppliers, manage inventory across multiple locations, and issue electronic invoices compliant with ZATCA requirements.

Mezan is designed specifically for small and medium enterprises in the Kingdom, and provides an easy-to-use interface, continuous technical support, and ongoing updates to keep up with your needs. Try Mezan today!