What is procurement management? Egencia’s Complete Guide to Procurement

In an increasingly complex commercial world where businesses need to be dynamic, fast-changing and efficient, it’s important to streamline internal business processes to accommodate this environment. In many businesses, old, convoluted workflow patterns and outdated manual processes can waste both time and money, which is something every business is keen to avoid. This is why it is important to know how each step of the procurement process works.

There are plenty of different ways to improve business efficiency throughout the entire organization. As a process, it’s something that should be constantly evaluated to find improvements and areas of inefficiencies or discrepancies in the way a business conducts commerce. One of the key areas a project manager might examine when evaluating the efficiency of a business's processes, is their procurement management strategy and approval workflow. This is to avoid potential bottlenecks and excess since procurement management plays a key role in how profitable a business is.

What exactly is procurement? 

Procurement is the process within a business of managing supplier relationships as well as selecting and negotiating with suppliers for the best rates and services. It plays a key role in a business’s processes - from retailers who work with their suppliers, manufacturers, and distributors to source the goods that they sell, to manufacturers having to source the raw materials they need to manufacture products. Contract management and getting the lowest pricing on purchase orders are key areas that procurement teams need to be able to address.

However, it can have a much wider reach within a business since other types of procurement management can take place within an organization. For example, another common form of procurement is travel procurement, where hotels, flights, auto rentals, and train travel might be booked by an individual within a company. This can fall across multiple departments, from dedicated procurement managers to Human Resources (HR).

In some cases, many of these options might be handled by employees themselves and paid for by the company via the expenses system. This isn’t always the most ideal way of handling these kinds of purchases since employees don’t have access to preferable supplier rates, and they (and in turn the business itself) can end up paying more for these ad-hoc expenses. This can also take employees away from their actual job role, as they must spend time booking travel.

Managing procurement: Types of procurement

There’s a range of different types of procurement, which is why it can involve various teams in a business. Procurement practices typically fall into these categories:

Direct procurement 

Relates to the raw materials and products that a company uses to make, sell, and retail. The core purchasing process likely falls here.

Indirect procurement

Typically covers all aspects of the products and services that are required to run a company, which can cover office supplies to business travel expenses and even marketing costs, it might even involve various bidders and involve the procurement department a bit more.

Services procurement

This covers all the procurement requisitions relating to people. For example: from hiring contractors to dealing with third-party agencies (such as the RFP - Request for Proposal process) and consulting services. This is more common when there is a set timeframe or project schedule to adhere to.

As it’s clear from the above types, it’s common for different teams and people to deal with various aspects of the procurement needs of a business. This raises the question of whether there are good cross-departmental strategies in place to handle this and also how efficient the procurement management system the business operates is.

Business efficiency and the procurement management process

When a business is looking to become more efficient, the procurement strategy and supply chain management process is often high up on the agenda. The main reason is because procurement can be a manual process and can be very time-consuming. Since procurement professionals sometimes need to work with other departments in a business, such as accounts and HR team members, any inefficiencies in the procurement process can lead to delays and extra work for multiple individuals and teams.

Another important reason why businesses need to examine their whole procurement process, is because they could be paying much more than they need to for the goods and services they use. Over time these small additional costs add up.

Of course, when negotiating key procurement contracts with potential suppliers it requires a much more hands-on approach to get the best deal from the supplier. However, not all procurement activities require this high level of attention, and can instead be dealt with in a more efficient and simple fashion. This is where using dedicated specialist companies, utilizing software, cloud-based tools, and automation come into play to help purchasing departments and stakeholders facilitate the purchasing and goods quickly and simply.

How travel procurement has its own challenges

Other areas of procurement, such as travel procurement can both be time consuming, complex, and require specific strategies. Travel management team members face specific challenges when it comes to arranging business trips for employees. Each trip is unique, time sensitive, and is subject by schedules and company needs that could change at the last minute. This means implementing a travel management solution that needs to be dynamic, so trips and travel arrangements can be changed if necessary. It’s hard to follow a simple purchase requisition template under these circumstances, and the procurement management software, along with its support, needs to be more flexible.

Travel managers might also need to be in the position to combine multiple modes of transport together in a global environment, along with finding quality accommodation and hotels for employees.

Risk management and safety have now become key drivers when it comes to planning travel for business. With the impact COVID-19 has had on business travel and its bottom line, it has shone a light on some of the fundamental issues when it comes to business travel - such as, traveler safety and dealing with risk.

Fast changing travel restrictions have also caused numerous problems, with canceled plans as a result of countries suddenly imposing them.

But this isn’t new - travel managers have always had to deal with global events affecting travel, so procurement has often needed to be dynamic and quick to implement in real-time. This is quite different to the traditional challenges that direct procurement, and the supply of goods face, where each project tends to have a much longer life cycle than the typical business trip.

Often, for direct procurement audits the best price wins, but with travel, that’s not always the case since quality and traveler satisfaction also play a key role in how well the travel arrangements are perceived. For example, traveler satisfaction comes into play with issues such as whether flights are at a convenient time or not. It might be cheaper to book a flight earlier or later in the day but is that inconvenient for the employee?

For the business an important consideration is whether individuals reach their destination wide awake and feeling refreshed, instead of arriving tired and unable to perform as well as they might. The same considerations can be applied to hotels. Are they comfortable, quiet, and located in a convenient location? Some of these factors might cost the business more money, but these issues can impact employee performance when out in the field. This is often overlooked, but is something that needs to be considered to maximize effectiveness and efficiency.

When project teams are reviewing a travel procurement solution they need to consider how they make sure that the overall project will end in saving money, while maintaining quality standards, improving business operations efficiency and maintaining employee satisfaction and safety.

Speeding up the travel procurement process

How do you speed up the travel procurement process while maintaining traveler satisfaction and cost effectiveness?

When it comes to travel management and travel procurement, it can be hard for a company to negotiate the best deal from suppliers. This is why issues surrounding vendor management is typically handed to third-parties and specialty services that manage this aspect of purchasing flights, rail, vehicle hire and hotels.

When it comes to travel, supplier sourcing can be time consuming, but travel management services can handle this aspect for a business in a much more effective way than if they went it alone. Risk management is also handled by travel management companies since they work closely with their travel providers to get the best rates, flexibility in booking travel, and by only allowing approved and high-quality suppliers to be listed.

How Egencia can help with your travel procurement performance

When it comes to procurement management plans for travel there are many benefits to using Egencia's corporate travel management. Egencia offers a global travel management solution across 60 countries, that will help improve the ROI of the travel procurement in your business.

Businesses can quickly and easily book travel using our preferred, curated suppliers that help with travel risk management and deliver on overall traveler satisfaction with the Egencia experience. Egencia's travel solutions are designed to help you easily track key data for traveling employees with reporting and analysis on travel activity.

Egencia's travel management solution can form a key role in your company's overall procurement management strategy. We can help you if you’re are looking to streamline your internal procurement processes and need to improve the way travel is managed and sourced.