- Business and Employment»
- Business Management & Leadership
Duties of a Procurement Manager
A Business & Its Divisions
Any organization that works with the motive of producing and selling goods for a profit is said to be in a business.
For any business to run successfully it requires the support of various functions or divisions.
Some of these divisions may be-
Finance & Accounting: they manage all the book keeping, keep tabs on costs and manage the Profit & Loss Account as well as carry out forecasting and budgeting for the future of the business.
Sales & Marketing: they take care of marketing the product or service the business provides to the customers. Effective marketing and reaching the right target audience for the business leads to closure on sales deals.
Human Resources: these folks manage the hiring, recruiting, compensation & benefits and career development opportunities of people working for the business.
Procurement: this team is responsible for procuring or purchasing the material and services the business requires to function smoothly.
Goods & Their Types
Goods that need to be procured can be of two types- Direct or Indirect
Direct Goods are those that are used as inputs (or ingredients) for the production or manufacturing of the main product that is being produced for sale in the market. Example: Wood used for making furniture.
Indirect Goods are those that are required to support the main production process. Example: Office Supplies or IT infrastructure (desktops, printer)
Thus, depending on the type of product being procured, the process is termed as Direct or Indirect Procurement.
The Sourcing Cycle
Let us see what role does the Procurement Manager play in the case of Indirect Goods?
In order to procure any good, it needs to go through the rhythm of a few steps as depicted below. This is the ideal step by step process that a procurement of any good should go through. (Why it is important is a whole new article in itself!)
Step 1 - Purchase Requisition (a document or request raised by a division for a good or service to be obtained from suppliers)
Step 2 – Selecting a Supplier (A supplier is a company or business which sells or supplies goods or services)
Step 3 – Creation of a Request for Quote (RFQ) (a document prepared by the supplier stating the description of the good or services they are providing and the price for the same, as well as terms & conditions)
Step 4- Price determination (comparing quotes received from various Suppliers and choosing one supplier based on varying factors as quality of good or service, price, negotiations etc)
Step 5 – Purchase Order creation (a document that is a contract between the Supplier and the Buyer stating the terms & conditions, price, quantity of the good they are providing)
Step 6- Expediting (the steps involved in ensuring the goods are received as per the requested delivery date from the Supplier)
Step 7- Receiving of the good (the documentation entered once the good is received at the receiving dock or warehouse by the Buyer and copy provided to the Supplier as well- for proof of supplying the good)
Step 8- Invoice (a bill sent by the Supplier requesting approval and payment for the good provided to the Buyer)
Step 9- Supplier Performance Tracking and Evaluation (the process of assessing the Suppliers’ services based on various factors such as quality of goods provided, timeliness of supply and adherence to terms and conditions)
A Purchasing Manager is responsible for ensuring that the above cycle functions smoothly and in the best possible interest of the business.
This involves multiple things such as –
Firstly, forecasting the needs of the business. He is responsible for gathering necessary inputs from various departments and gauging the future requirements for the company. This is an important aspect to ensure that material and services are available in sufficient quantities in a reasonable period of time.
There will be certain good and services that are continually in demand, hence an efficient Procurement Manager will work with his Suppliers and enter into contracts that will provide the company an assured flow of these items and also at a good price. By negotiation and signing a contract with the most promising supplier, one creates a win-win situation of receiving good quality material at a great price and for the Supplier a fixed Customer for the period of the contract. In this manner the successful procurement manager is able to build and maintain relationships with his supplier base.
He is also responsible for facilitating the overall ‘procurement process flow’. How do various divisions raise a purchase requisition? What approvals do they need? How will these approvals be obtained and documented? What thresholds, if any, in terms of quantity need to be set in place? Are requisitions raised in a manual – email or paper format or does the size and demand of the company warrant investment in a comprehensive procurement platform? These are some of the key questions that a Procurement Manager will be responsible to solve for.
Once the Procurement Process Flow is established, he needs to measure the effectiveness of this flow and set Key Performance Indicators in place for the same. He needs to monitor and track the performance of his team that are either working on the Purchase Requisitions or Purchase Orders, or expediting with the Suppliers or document/ entering the ‘good receipt’ into the system etc. An efficient system will have defined Turn Around Times between requisition to receipt of good. If too many wrong items are being received then there might be a need to validate the Purchase Orders for accuracy before they are sent to the Suppliers. There also needs to be audits and checks to see if procurement is happening as per the organizations Compliance and Purchasing policies.
Communications & Training - For the various cycles that work within the different divisions of the company, the Procurement Manager has to also ensure that everybody who is involved in these cycles or flows are adequately trained. Folks need to know how to raise a requisition, they need to be given access and training on how to fill the forms, obtain approvals etc. If there are any changes in these processes, the Procurement Manager has to ensure communication and training is provided well in advance to make sure no operations are hampered or slowed down.
The Purchasing division interacts a lot with the Accounts Payables division and helps in the smooth flow of the invoicing and payments process. One of the efficient invoice matching processes is the three way match between the invoice, purchase order and good receipt. Whenever there is a match exception in such a case, it is resolved together between Purchasing, Accounts Payable and Good Receiving. To support this process, the Procurement Manager has to ensure every buying or purchase is transacted via a set process or through the purchasing system. Accurate and complete documentation and closing of purchase transactions will help in solving any disputes that might arise in the clearing of invoices.
Just like in an everyday buy and sell scenario, there will often times goods received that are not of good quality or to the satisfaction of the buyer. The Procurement Manager is also responsible to gather all such feedback regarding various good or services and follows through with the Suppliers on the same. He needs to discuss and formulate a strategy for handling such cases.
With all the above responsibilities, a Procurement Managers overall aim is to provide his company, the best possible goods and services, in a timely fashion and at a great price! He needs to keep a sharp eye on the various options in terms of substitute goods, the many suppliers and constantly negotiate for competitive prices for his goods. It is a very challenging and exhausting role and one that always has scope for raising the bar.
The Procurement Department has a huge impact on the overall costs of the business and has the potential to make or break their entire financials.