What are procurements? In the business context, procurements refer to the resources a business needs to support its daily operations. They include raw materials and outsourced operations for functions like payroll. 

A stable procurement process is critical for all businesses trying to scale their operations or enter new markets. 

Cost-saving has been one of the perennial mandates of procurement. However, since the COVID-19 pandemic and developments such as AI, the procurement process has changed with far-reaching implications for all industries, including financial services. One notable example is the surge in remote teams and operations. 

This blog explains what the 7-step procurement process for finance teams should look like today. 

What is the procurement process?

‘Procurement’ involves obtaining the goods and services a business requires from external suppliers to support its daily operations and growth.

The procurement process is often long and complicated as it involves assessing the business’ needs, specific requirements, and budgets, determining the most suitable option from various suppliers and candidates, negotiating contracts, and managing healthy relations. 

The 7-step Procurement Process For Finance Professionals

It has become evident through the recent pandemic that a comprehensive procurement approach across all seven procurement levers is crucial for building a resilient business. 

These levers include business needs assessment, strategic sourcing, contract negotiation, procurement process optimisation, vendor relationship management, supplier performance audit, and maintaining records.

Business Needs Assessment

The first step of the procurement process is to evaluate your company’s current operational capacity, productivity, budget, and short-term and long-term expansion goals.

A thorough inward assessment will provide a clear picture of the outsourced resources your business requires, when it may need them, and the spending power needed to execute the procurement process. 

It’s essential to go into the procurement process clearly and understand your priorities. It’s also necessary to carefully consider all the variables attached to them and prepare for various contingencies. 

A thorough business appraisal and cash flow forecast is the foundation of a foolproof procurement strategy. 

Strategic Sourcing

Strategic sourcing involves identifying potential suppliers, evaluating their capabilities, and selecting the ones most conducive to fulfilling your top priorities. 

When making sourcing decisions, it’s crucial to consider factors like cost, quality, reliability, industrial recognition, guarantee provisions, and geographic location. These factors have a strong bearing on risk and sustainability. 

It’s also important to remember that if you’re outsourcing operations, you will require a set of eyes within your organisation to oversee their performance or, in some cases, direct supervision.  Procurement managers need to consider both their managerial capacity and budget and set a maximum limit to the number of remote teams, freelancers, or service providers hired at a time. 

A well-thought-out sourcing strategy ensures that your finance team partners with suppliers who can meet your business’s requirements effectively and at the best value for money. 

Contract Negotiation

Contract negotiation is the process of reaching agreements with selected suppliers. The contract should openly include the terms, conditions, scope of the work, pricing,  timeliness of the delivery, and other legal formalities. 

Setting the expectations and benchmarks at the outset mitigates friction between businesses and outsourced vendors. Contract negotiation is a step that demands lucid communication and awareness of industrial standards in each case to bring about a mutually beneficial set of terms. 

It’s essential to have legal and financial experts involved in this stage to ensure the contracts protect your interests and comply with your local regulatory policies. 

Procurement Process Optimization

Optimising the procurement process aims to make it more efficient and cost-effective. It includes streamlining workflows, implementing technology solutions, and eliminating bottlenecks. 

Automated financial tools for corporate expense management, invoicing, bookkeeping, and data analytics can significantly improve the procurement process. 

Leveraging technology streamlines the payment, bookkeeping, and reporting process, reducing manual asks and allowing finance teams to make data-driven decisions.

Implementation And Vendor Relationship Management

Building and maintaining solid relationships with vendors is crucial after both sides have negotiated and finalised the contract. This goes especially for businesses with complex requirements and services. New vendors would be time-consuming to find and onboard. 

Transparency, communication, performance evaluations, issue resolution, and collaboration are the hallmarks of excellent vendor relationship management. The best way to do this is to eliminate communication silos getting between departments and have timely meetings to keep employees, managers, and vendors in regular touch and on the same page. 

 A healthy business-vendor relationship can improve quality, cost control, and innovation.

Vendor Performance Audit

Regularly auditing vendor’s performance ensures they meet the agreed-upon standards and deliver on their commitments. Audits help identify areas for improvement and hold suppliers accountable. 

Finance teams must consider the following when auditing the performance of outsourced vendors:

• – Regulatory Compliance: In the finance industry, this is paramount. Businesses must ensure that their vendors adhere to the regulations set by local financial institutions and regulatory oversight boards. 
• – Data Privacy: Financial service companies handle sensitive customer data and must evaluate their vendor’s data security and privacy measures.
• – Disaster Recovery: Given the critical nature of financial services, the audit must also assess the vendor’s resilience and ability to maintain services in the face of unexpected disruptions like the pandemic. 
• – Third-Party Risk Management: Vendors may rely on third-party vendors in the financial sector. It’s crucial also to include them in the audit. 
• – Service Level Agreements (SLA): The audit should include a review of the vendor’s SLAs to ensure they align with the financial institution’s requirements and that the supplier consistently meets these agreements.
• – Ethical Considerations: Financial service companies tend to have honest and sustainable commitments they cannot break. The audit should assess whether the vendor aligns with these values, particularly in ESG (Environmental, Social, Governance) practices. 

A robust performance audit process can help finance teams manage vendor relationships effectively.

Maintaining Records 

Maintaining accurate and comprehensive records is essential for compliance, transparency, and risk management. Proper record-keeping ensures that all procurement activities are well-documented, making tracking spending, monitoring contracts, and demonstrating compliance with regulations easier. 

It also helps firms benchmark their procurement performance against industry standards and best practices for continuous improvement. 

Final Thoughts

The 7-step procurement process for finance professionals plays a pivotal role in ensuring the efficient acquisition of resources while managing costs, risks, and vendor relationships. 

Adapting to emerging trends and leveraging technology is essential for modern finance teams to stay competitive and resilient in an ever-changing business environment.

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