Small and medium-sized businesses share a common problem: Stay lean and keep costs low, or follow the best practices that enterprise companies do to maintain competitiveness?
This is the question that often pops up when considering investing in procurement. Many SMBs decide to forego investing in a procurement department and associated practices altogether.
But here's the thing: If you're a business of any size, be it a brand-new startup or a long-established enterprise, you're procuring (purchasing) goods and/or services. As such, you should have some form of procurement management procedures in place, even if that's a simple supplier vetting policy and a purchase order workflow.
In this article, we're going to cover all things procurement management to help you decide which practices are right for your organization's age and stage, and which might be overkill right now.
What is procurement management
Procurement management is a term that refers to all of the activities and coordination that go into procurement. It includes everything from the initial stages of sourcing and negotiation through the recordkeeping and ongoing supplier management.
Think of questions like “what are we buying,” “when are we buying,” “who are we buying from,” and “who needs to approve the purchase.” These are the types of questions that fall under procurement management.
While the tactical tasks like placing purchase orders and matching invoices are the central aspect of procurement management, many of the activities that fall under this umbrella happen before and after the purchase. This includes managing supplier relationships and ensuring contract compliance.
Beyond evaluating suppliers, an integral part of procurement management is the constant assessment and optimization of your internal processes. This could include implementing accounts payable automation software or conducting quarterly process audits.
6 steps of key activities in procurement management
Procurement management involves multiple interconnected activities, working together to ensure the business is buying the right goods and services at the right time and delivering the most value.
1. Strategic planning
Strategic planning is focused on looking forward, forecasting future needs, and establishing the plan to tackle them. It’s the process of aligning the procurement activities with what the business is expecting and aspiring for in the future.
This activity requires collaboration between procurement teams and department leaders to align on upcoming projects, growth initiatives, and changing operational needs. Every purchase needs to be connected to the underlying problem they’re trying to solve.
2. Sourcing & selection
A large part of procurement management is the strategic sourcing of new vendors. If you want lower prices, better quality, or to reduce supplier risks, you need to think about your sourcing and selection processes.
The sourcing process involves reviewing the market and evaluating potential suppliers based on their ability to meet your needs. This is more than simply finding the lower price; you need to think about their ability to fulfill your purchase volume, time to fulfillment, payment security, and supply chain risks.
3. Contracting
After selecting a supplier, the contract negotiation stage begins. The vendor negotiation conversation includes establishing clear terms, pricing structures, delivery schedules, and performance expectations.
Your supplier contract negotiations can net the business significant savings. You could negotiate bulk discounts or early payment discounts, providing incentives for both parties.
This is also the time to protect yourself with dispute resolution terms. These are the conditions you can leverage if a supplier isn’t delivering on their end of the deal.
4. Purchasing
Once the details are hashed out via contract, purchases can be submitted via the procurement process. Purchase requests can be submitted to be processed by department heads and purchasing teams.
Purchasing is typically done by a purchase order process. The person who wants to make a purchase creates the purchase order (PO) and sends it off for approval. If approved, it’s forwarded to the vendor as a formalized order.
Purchase orders have purchase order numbers that are present on invoices for two-way matching or three-way matching.
5. Supplier management
Supplier management is a wide range of practices that involves tending to and evaluating relationships with suppliers. You may want to conduct regular supplier performance reviews, engage suppliers with renegotiations, renew the contracts that are working, and terminate the contracts that aren’t.
Evaluate suppliers based on key performance indicators (KPIs). KPIs are measurable qualities of the relationship that clearly show success or failure. For example, you may have a KPI for on-time deliveries, units provided in the period, or per-unit costs.
It’s important that supplier management is a two-way street. Reach out to suppliers to identify ways to improve the relationship, as their happiness can lead to better terms and favorable treatment down the line.
6. Risk management
Working with a new supplier means taking on risk. There’s the risk that they don’t live up to expectations, the quality is insufficient, that it ends up being more expensive, and the list goes on.
You’ll inevitably take on some risk with suppliers, but you have control of how much risk there is. Strong procurement management involves balancing:
- Security risks like data breaches or misuse of private information
- Financial risks like failed deliveries or fraudulent payments
- Reputation risks like using a supplier who has a PR scandal
- Supply chain risk, like economic or environmental events disrupting supply lines
Combating these risks often involves diversifying your list of suppliers. This allows you to quickly pivot if a supplier relationship goes south and minimize the impacts on your operations.
Why procurement management matters
Not sure if procurement management is worth investing in as an SMB? Effective procurement management directly impacts financial performance, operational resilience, and competitive positioning.
Here are the key reasons that an effective set of procurement management processes can benefit businesses of all sizes.
Cost control
There are two different ways businesses control costs associated with procurement management.
The first form of cost control is the price of goods or services. Sourcing the right vendors and having successful contract negotiations can lead to better prices for the goods or services being procured.
The second form of cost control is reducing the cost of the procurement process with efficient and streamlined systems. Refining your process for minimal manual inputs reduces the costs associated with each purchase, something that adds up over a financial year.
Both are opportunities for you to cut out unnecessary spending and maximize your profitability.
Quality assurance
Businesses have their tried and true suppliers they can rely on. But when you start working with new suppliers, you’re starting from square one again.
Vigorous vetting processes, precise contract terms, and a clear evaluation framework help ensure every relationship starts and stays the best it can.
Grounds for termination and dispute resolution should be included in the contract and discussed in negotiation. This will give you the peace of mind that you have a clear exit if your quality expectations aren’t being met.
Efficiency
Effective procurement management includes streamlined, standardized workflows that minimize the strain on your day-to-day operations. This includes using software to automate repetitive tasks, clear roles for accountability, and open communication channels.
Investing in your internal processes reduces manual tasks and approval times, something appreciated by both suppliers and those within the organization. Plus, consistency cuts down on mistakes, ensuring the business remains compliant.
Risk mitigation
Cut down on risk with clear and consistent processes for supplier selection, contract negotiation, and compliance monitoring. Each of these individual components reduces, but doesn’t eliminate, the risks of working with new suppliers.
Procurement management also includes diversifying the roster of suppliers to minimize the risks of a disruption. Having multiple suppliers reduces the costs of supplier failures, delivery disruptions, or noncompliant purchases.
Improved supplier relationships
Supplier relationship management is a critical aspect of good procurement management.
This encompasses a wide range of practices, such as quarterly business meetings, regular supplier performance reviews, and contract renewal and renegotiation conversations.
By enhancing and fostering the relationships your brand holds with its suppliers, you’ll reduce the likelihood of a contract breach, improve your ability to negotiate a better price, and maybe even get an early heads-up on new features that are in production.
Maintaining compliance
Procurement management is also concerned with a number of legal and compliance aspects related to purchasing, such as the maintenance of accurate financial records.
This can even extend to maintaining compliance with internal company policies, such as only purchasing from suppliers that meet certain ethical or sustainability guidelines.
7 Steps in the procurement process
The procurement process consists of seven steps that take place throughout the lifecycle of a supplier relationship.
Step 1: Identify and specify needs
The first part of any procurement process is identifying the specifics of what is being purchased, how much is being purchased, and when it’s being purchased. This step involves looking at existing data and projections to know how the product will be ordered and reordered. Doing this step effectively means collaborating with shareholders to align on the business’s needs.
Step 2: Research and evaluate suppliers
Review the supplier options on the market to determine who can best meet your needs. This may be from prior vendor relationships, researching new suppliers, or getting recommendations through your network. You may want to use an RFx (or “request for X”) to request information, a proposal, or a quotation as part of the process.
Step 3: Negotiate contracts and terms
Have negotiations with multiple suppliers to get different prices and potentially competitive bids for your business. But remember that negotiation isn’t only for pricing. You also need to ask about service levels, delivery terms, and quality standards. The final consideration is dispute resolution and conditions for termination if the relationship sours.
Step 4: Submit purchase orders
Purchase orders outline all the terms and conditions of the transaction, including the:
- Product or service specifications
- Product or service quantities
- Per unit prices
- Delivery terms
- Purchase order number
The purchase order is the source of truth for the transaction terms. Keep hold of these records in the case of any order disputes.
Step 5: Receive and verify deliveries
Review all received deliveries against the purchase order and contract terms. Every delivery should stand up to the quality standards discussed in negotiation. When the delivery and invoice are received, they should be verified against the purchase order with what’s called a two-way or three-way match.
Step 6: Process payment
If there are no discrepancies between the delivery and the purchase order, the invoice goes through the accounts payable process. The finance team or accounts payable team verifies all received documents before processing payment according to the agreed-upon terms, such as payment method and timeline.
Step 7: Continually manage the relationships
Keep hold of all records for both your internal recordkeeping and for tax purposes. These are valuable resources for tracking your purchasing needs, evaluating supplier relationships, and knowing when it’s time for a strategic shift. Have open communication with your suppliers, providing feedback or suggested changes when needed.
Roles and responsibilities in procurement management
Procurement management is comprised of leaders, managers, and specialists who contribute to the different facets of the practice.
Procurement managers and specialists
The role of procurement managers is focused on finding the best quality materials at the lowest cost from the most reliable suppliers. They cultivate positive, long-term relationships with preferred suppliers while scouring for new opportunities.
Think of procurement managers as the strategic orchestrators of the procurement process. They leverage market knowledge, negotiation skills, and process expertise to ensure the business is getting optimal value from its suppliers, with minimal strain on the business. Any compliance considerations are also owned by the procurement manager.
Department-specific roles
Procurement managers collaborate with department heads or dedicated purchasing agents to keep all purchasing activity adherent to the internal procurement policy.
Purchasing agents are responsible for buying goods and services for the business by translating department needs into purchase requests, collaborating with the procurement manager to find the right supplier. Together, they ensure a purchase goes through the procurement process, finding the best deal based on their needs.
Smaller operations may have this role filled by the department head or another appointed person. What’s important is that someone is accountable for the procurement responsibilities.
Internal stakeholders
Internal stakeholders include:
- Department heads who help define the requirements for their purchase requests and are involved in the approval process
- Finance teams that define the budgets that purchases adhere to
- Legal counsel that help draft and review contracts with suppliers
- Executive leadership who have the final say on all strategic purchases
While these roles don’t fall under the procurement management umbrella, they’re still essential voices that collaborate on procurement practices and policies.
Additional procurement roles
The more a business buys through a procurement process, the larger the team of individuals assisting with the procurement process.
Examples of possible procurement roles include:
- Procurement analysts who use data and reporting to optimize procurement processes, supplier negotiation, and market reviews. The role of procurement analysts is focused on identifying shortcomings and new opportunities.
- Procurement buyers are specialized at finding, evaluating, and negotiating with suppliers to balance both cost and quality.
- Procurement agents focus on preparing purchase orders, requesting goods and services from vendors and managing existing relationships
- Chief procurement officers (CPOs) are found in large-scale operations, acting as the senior executive leader who oversees all procurement roles and owning the strategy and management of procurement responsibilities
How a procurement team looks reflects the scale and intricacy of the operation. Think about the unique complexities of your business and the industry it operates within, connecting procurement roles to where support is needed. For example, the procurement team of a non-profit would need more support on compliance than a single-location retail operation.
Challenges in procurement management
Like all business endeavors, procurement comes with its own unique set of challenges, especially for small and medium-sized organizations.
Supplier management
Ensuring that your vendors meet the quality, cost, and delivery requirements set out in your supplier agreement can be complex. Maintaining consistent performance across multiple suppliers requires ongoing monitoring and clear communication.
Cost control pressures
Keeping costs down while making sure that quality doesn't slip requires constant vigilance and market awareness. Organizations must balance budget constraints with the need for reliable, high-quality goods and services
Compliance and regulatory requirements
Maintaining compliance with legal and regulatory requirements (which are always subject to change), along with internal policies and processes, demands careful documentation and oversight. Different industries face unique compliance challenges that procurement teams must navigate.
Supply chain disruptions
Avoiding and managing disruptions to supply chains related to economic and geopolitical events, as well as natural disasters, has become increasingly important. Organizations need robust contingency plans and diversified supplier networks.
Data management complexity
Keeping data secure, organized, and visible in a way that's useful to improving procurement processes can be challenging without the right systems in place. Fragmented data across multiple platforms hinders decision-making and analysis.
Technology integration
Integrating new technologies as they emerge to remain competitive requires investment and careful planning. Organizations must balance innovation with system stability and user adoption.
Sustainability and ethical considerations
Keeping up with the increasing pressures to prioritize sustainable and ethical procurement practices while balancing this with economic goals presents ongoing challenges for procurement teams.
Stakeholder alignment
Ensuring that all procurement stakeholders, from the C-suite to the department leaders who need the goods being ordered, remain aligned on priorities and processes requires ongoing communication and collaboration.
Integrating procurement with technology
Technology solutions play an increasingly important role in the modern procurement management ecosystem. By automating routine processes, providing spend visibility, and enabling data-driven decision-making, the right tech stack helps businesses scale and optimize their procurement processes effectively.
Automation is a game-changer for teams trying to process purchase requests at volume. When properly integrated, automation streamlines workflows and reduces the risk of errors through human error. This means processing a higher volume of transactions while remaining compliant with internal policy.
Tasks that are effectively automated by technology include:
- Invoice and purchase order matching
- Purchase approval workflows
- Payments to approved suppliers
- Vendor performance reporting
- Spend analysis and categorization
- Key date notifications and deadline reminders
But automation isn’t all that can be solved with technology.
The data collected throughout the procurement process is invaluable in helping businesses make the best decisions at the right time.
Leveraging technology in your procurement management helps turn that data into valuable metrics like lead time, defect rate, price variation, vendor availability, and response times. With this information, you can fine-tune your procurement processes so you’re never left in the lurch by delivery times or poor supplier performance.
Streamlining procurement management with BILL
Procurement is an important business unit for creating healthy relationships with vendors, maintaining compliance with internal policies and legal requirements, and keeping costs low.
Some SMBs, however, see procurement as an unnecessary cost center. The secret here is to take advantage of modern automation and software tools that can help you streamline manual and repetitive aspects of procurement, allowing your team to focus on the more strategic activities that improve overall business profitability.
Platforms like BILL can help you automate aspects of the procurement and purchasing process, from approvals to purchase orders to supplier payments. BILL's integrated platform provides:
- Streamlined approval workflows to speed up procurement cycles
- Automated three-way matching of purchase orders, receipts, and invoices
- Centralized vendor management and payment processing
- Real-time visibility into spending and cash flow
- Seamless integration with popular accounting software
- Secure payment options including ACH, wire, and virtual cards
By implementing BILL's procurement management solutions, organizations can reduce manual data entry, minimize errors, accelerate payment cycles, and gain better control over spending—all while freeing up your team to focus on strategic supplier relationships and cost optimization initiatives.
Frequently asked questions
What is procurement management in simple words?
Procurement management refers to all of the tasks and responsibilities associated with a business’s purchasing process. This includes strategic activities like sourcing and negotiation, and tactical tasks like placing purchase orders and updating records. Everything from identifying a business need through finding the supplier and purchasing goods or services is included in procurement management.
What are the four types of procurement?
The four main types of procurement are:
- Direct procurement: Materials and goods that are an essential part of what the business sells, like tea leaves for a tea company
- Indirect procurement: Goods or services that are a part of the support operations, like office supplies or software
- Services procurement: The sourcing and purchasing of professional services or outsourced functions
- Goods procurement: The sourcing and purchasing of tangible products needed for business operations
What do procurement managers do?
Procurement managers oversee all facets of the procurement process. Their responsibilities include vetting potential suppliers, building those relationships, overseeing the purchase process, reviewing contract points, and tracking logistics. Internally, they work with stakeholders to align on procurement processes and compliance requirements so each department adheres to the internal policies.
What is the difference between procurement and processing?
Procurement is a strategic, end-to-end process that includes planning, sourcing, supplier relationship management, and performance monitoring. Purchasing is the transactional act of buying goods or services.
Purchasing is a part of the procurement process, but not all purchases go through a procurement process. For example, an employee traveling for work may make a purchase for a laptop repair that doesn’t go through the procurement process.
Purchases that are made outside of the procurement process is typically referred to as “maverick spend” or “tail spend.”
Who is involved in procurement management?
Everyone in a business is involved in procurement management in some shape or form. Everyone needs to be aligned on what the procurement process is and adhere to its rules to ensure all business spending is kept in check.
However, the main stakeholders involved in procurement management are:
- Procurement managers and specialists who oversee the strategic process
- Procurement agents who execute transactions
- Department heads who define requirements and needs
- Finance teams who manage budgets and process payments
- Legal counsel who review and negotiate contracts
- Executive leadership who make final decisions on strategic purchases
- External suppliers and vendors who provide goods and services
Successful procurement requires clear collaboration and communication across all of these parties.
