What Is Procurement Optimization? - Definition

Procurement optimization refers to a holistic approach rather than an individualistic one. It refers to the process of attaining optimum value creation using people, processes, and technology. An approach to procurement optimization could be- Initial scoping, data collection and analysis, improvement and implementation, and follow up and monitoring.

Understanding Procurement Optimization

The role of procurement extends far beyond the belief that procurement’s primary function is to obtain goods and services in response to internal needs. A world-class procurement process aims to optimize the whole process to optimize the procurement process to boost efficiency and create significant business value. Procurement optimization leads to a number of benefits and adds remarkable value to your organization as a whole. It ensures efficiency in your procurement process which in turn has a domino effect of positive reactions within your entire organization.

Since the procurement process touches every organizational department and impacts revenue directly, it is essential to keep the process running smoothly by regularly reviewing what’s working well and what may need to be optimized for greater efficiency.

Six Steps to Procurement Optimization

Here are six areas critical to help companies optimize P2P operations:

• • Information/Insight/Intelligence

    It all begins with data. Make sure you have a solid handle on analytics/data across the entire enterprise. Quality data is the foundation for any successful procurement organization.

  • Strategy/Policy

    A defined policy must be established to ensure your procurement organization is strategic in its sourcing efforts. This policy must be adopted cross-functionally across the entire organization.

  • People/Culture

    Are you staffed adequately, and do you have the right people in the right positions? It’s important to review staff expertise levels and conduct a skill-level assessment to identify gaps or overlaps in these resources.

  • Process/Organization

    Look closely at the operational design and organizational structure of the procurement function. All things must be aligned so that people, process and technology are optimized toward efficiency.

  • Technology Adoption

    This includes p-card utilization, P2P automation and e-commerce initiatives. An effective e-procurement system can significantly improve process efficiencies by eliminating paperwork, expediting contract fulfillment and controlling compliance.

  • Monitoring and Controls

    Organisations must identify ways to monitor and measure these efforts in order to determine ROI. This ROI should be benchmarked against business objectives to drive cost containment, revenue enhancement and performance metrics management.

Explore Additional Resources to Know More

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