How to structure a procurement team

Procurement is the purchase of goods and services that an organization needs to run its everyday operations. It also consists of sourcing, negotiating, receiving, and checking supplied goods/services, keeping a record of all such transactions, and paying the vendor/supplier.

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In this article, we'll shed light on the unique skills and expertise required for each function in a typical procurement team, as well as provide a path for organizations to build an efficient procurement team.

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To achieve its goal, an organization must form a procurement team and explicitly identify the roles and duties. A well-organized procurement team could help the business meet its demand in an emergency or when it's most needed by negotiating an effective deal and lowering costs, as well as projecting future requirements.

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Many people who aren't familiar with its complexities often mistakenly view the role of a procurement team as simply buying goods and services. It isn't just buying goods or services; there are several strategic stages needed before making a purchasing decision that satisfies the needs of the organization.

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A procurement team is responsible for contract management, strategic sourcing, negotiation, risk management, training, budget management, process improvement, and most importantly adhering to compliance.

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Difference between a purchasing team and a procurement team

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When it comes to acquiring goods/services, it's a general practice to use “purchasing” and and “procurement” interchangeably. 

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Let’s see the difference between both here:

What are common responsibilities of a procurement team?

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It's a set of processes that are executed to buy goods/services for an organization. They are as below:

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• Identifying business requirements

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• Identifying, evaluating, and selecting the right vendors

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• Negotiation with the vendors

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• Goods receipt and payments

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• Verifying the supply and ensuring compliance

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What are common responsibilities of a purchasing team

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It's a set of processes that are executed between the organization and the supplier to buy goods/services. They are as below:

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• Placing an order

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• Tracking the order

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• Goods/service receipt and verifying the order

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• Making payment for the order

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In short, the procurement team comes into effect when there's a business requirement of procuring goods/services, whereas the purchasing team comes with placing an order and receiving it.

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To illustrate this point, consider the following example:

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An IT company needs to purchase laptops for a project. The procurement team first determines the procurement demand and then searches for possible suppliers to supply the laptops by analyzing their performance in areas such as financial stability, delivery schedules, feedback, and so on. Once the procurement team has identified a vendor, the rates and other terms and conditions will be negotiated and a contract will be signed.

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The purchasing team then issues the purchase order to the vendor based on the agreement. The vendor will next supply the laptops in accordance with the purchase order, and the team will assess the quality of the material delivered as well as the delivery time.

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Procurement team structure

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The procurement team structure varies based on the volume of business and several other critical factors such as company size, project scope, etc. However, the structure in general comprises the below:

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1. Head of procurement
2. Legal team
3. Regional head
4. Sourcing manager
5. Contract manager
6. Procurement manager
7. Logistics manager
8. Sourcing specialist
9. Procurement specialist
10. Procurement analyst
11. Warehouse team

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A well-structured team would help the company in achieving its ultimate goals by reducing risk and increasing operational efficiency.

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What are the 4 pillars of procurement?

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To meet rapidly transforming expectations, procurement teams must focus on four pillars: people, process, policy, and technology. Technology implementation is critical in today's world, and procurement is no exception. However, without the right people, policies, and processes, technology alone can't solve all of the problems.

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When analyzing purchase plans, the procurement team, vendors, and other departments must come first. The procurement staff must become familiar with their new responsibilities and, if necessary, obtain training. The change will influence vendors, HR, finance, and other departments, thus it's vital to include them in the early phases of the conversation.

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Procurement requires a robust process, and reviewing the process allows a company to find opportunities for improvement. The policy must be established to guarantee that an organization's rules and regulations are followed, as well as to help in avoiding fraudulent actions and promoting ethical behavior inside the organization. 

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What are the roles and responsibilities of a procurement team?

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A procurement team is responsible for managing the entire procurement process of an organization, from sourcing goods and services to making payments to suppliers. The responsibilities may vary depending on the type of business and the size of the business, regulatory compliance, and the organization's global presence, the tasks may also vary based on the type of business. 

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A large IT organization, for example, should have a specific department or personnel to manage their duties effectively when compared to a smaller organization. Therefore, the roles and responsibilities also will change accordingly, however the general ones are as follows:

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1. Sourcing of vendors 

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After determining the requirement, the procurement team must choose a potential vendor to supply the goods/services based on their financial stability, delivery schedules, customer feedback, and other parameters. 

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They also need to develop request for information (RFIs) and request for proposal (RFPs) to collect information from potential vendors. They must regularly evaluate the performance of the supplier for the continuous improvement of the process and also ensure that the ethical code of conduct is adhered to.

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One of the most important metrics used in the RFI and RFP process is the vendor's response time; a high rate indicates that the vendor is interested in collaborating with the organization. The second most important metric is the cost estimate request in the RFI, which indicates how well the vendor estimates the costs.

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2. Contract management

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A contract is a necessary document that must be mutually agreed upon by both the buyer and the seller, and it includes pricing, delivery schedules, scope of work, renewals, and other terms and conditions, among other things. It is critical to obtain legal advice to verify that the document is unambiguous and can be declared final.

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A contract must include the roles and responsibilities of both parties and track the key performance indicators (KPIs) to evaluate the supplier's performance.

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3. Negotiation

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Understanding the business objectives of both the buyer and the seller is critical during a negotiation. This would facilitate a productive discussion and the establishment of a price that is profitable to the business without sacrificing quality.

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4. Procurement

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When the preceding three procedures are completed, procurement is initiated. The procurement team will issue a purchase request and create a purchase order based on the vendor's quotation. After receiving all relevant approvals, the purchase order will be sent to the vendor to deliver the goods/services. 

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The procurement team must closely work with the finance team to ensure the budget requirements‌ are met. They need to provide their quarterly/half yearly/annual requirements to the finance to avoid any risk of non-availability of funds in case of critical requirements. To achieve this the procurement team must closely work with finance, HR, operations, and legal teams to collect the necessary information.

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5. Risk management

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Procurement encompasses all the steps involved in purchasing goods or services. The first step is to select reliable and trustworthy suppliers. This involves assessing their financial stability and evaluating their performance history. Internal controls and fraud prevention to be done, include segregation of duties, regular audits, fraud detection systems, and whistleblower programs to encourage reporting of any suspicious activities.

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6. Category management

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In procurement, category management is a strategic method for controlling and organizing the procurement process for goods and services. Category management's major purpose is to optimize the performance of particular product or service categories, ensuring that the organization optimizes value, lowers costs, and efficiently manages risks. This method entails categorizing the procurement process and handling each category as a separate business unit.

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7. Supplier relationship management

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To assist them in improving, provide timely feedback on their performance, and set key performance indicators (KPIs) to track their progress. Some of the KPIs includes on time delivery, quality of goods/services, adaptability to change management etc. Determine the best practices in the industry and communicate them to the vendor to increase their performance and also to integrate the latest technology that'll benefit either party in the long run.

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The procurement team must encourage open communication and transparency in the process, as well as hold regular meetings to bridge the gap, to facilitate a cross-functional relationship with the essential stakeholders. To effectively collaborate, provide essential training to the team, and exchange information.

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8. Inventory management

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Inventory management deals with the storage of raw materials, finished products, and so on. Procurement must exercise extreme caution while dealing with inventory because these are the company's assets. The team must ensure that the delivered goods/services and quantity are as per the purchase order submitted to the vendor, as well as handle any product quality issues.

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Coordination with other departments such as finance, HR, and operations to understand the need to mitigate the risk of holding stocks in inventory and taking necessary inventory reduction steps. 

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Building an effective procurement team

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Building a successful procurement team can be a difficult endeavor. However, if the goals and essential talents are clearly defined, building a strong team will be a foregone conclusion. 

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The following are some steps to consider while putting together a successful procurement team:

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1. Create process steps

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The first step is to map the complete procurement process, from sourcing to payment, and identify any gaps that need to be filled. This comprises cost-cutting, supplier, and risk-management methods. 

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2. Stakeholders’ involvement

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Include all key internal and external stakeholders, and define their roles and responsibilities. They must express their role in the process.

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3. Recruit the right talent

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It's tough to locate the appropriate talent; right talent is defined as someone who has the right attitude toward the job and is ready to take on the function with minimum supervision.

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4. Provide training

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Provide training to both new and existing employees to keep them up to date on the ongoing process, new developments, and market trends. Encourage them to obtain industry-relevant certifications in order to compete in the market.

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5. Implement technology

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In today's competitive marketplace, technology implementation is critical. Identify the proper software such as Coupa, SAP Ariba, Oracle Fusion Cloud ERP etc can readily interface with existing systems/processes to reduce manual efforts and hence improve process efficiency.

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6. Build supplier relationship

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To achieve their end-business needs, the procurement team must cultivate a positive connection with the supplier. Paying bills on time is an excellent approach to accomplish this, as is holding open discussions regularly to address problems and documenting those discussions for future reference.

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7. Promote a positive team culture

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Because the team is crucial, it's critical to motivate and reward them regularly to keep them focused on the final goal of the organization. Individuals must be made to feel valued by including them in critical decisions and soliciting their feedback.

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What are the 4 main organizational structures in procurement?

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The four main organizational structures in procurement are as follows:

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1. Centralized structure

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All procurement and important business decisions are controlled from a single location, allowing the business to make more informed decisions. It is difficult for large organizations with diverse business models to adopt this type of procurement.

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2. Decentralized structure

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All procurement and business decisions are controlled by the respective unit or the department. The structure allows great internal control and manages the procurement process effectively. 

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3. Hybrid structure

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This is a combination of both centralized and decentralized structure, wherein the central procurement provides guidance and instructions whereas the local procurement team executes the task.

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4. Strategic sourcing structure

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This structure focuses on long-term partnerships with important suppliers as well as enhancing overall supply chain performance. In this organization, the procurement team works as a strategic partner with other departments and suppliers, leveraging data and analytics to make informed purchase decisions.

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How big should my procurement team be?

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The number of transactions handled by the procurement department, revenue generation, and type of organization are the factors that'll always determine the size of the team. As the article has already covered, procurement can be handled efficiently by a variety of roles. Heads, managers, and specialists with a range of responsibilities make up the organization. But when the team size grows or shrinks, that's the crucial question.

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The team size is mostly determined by the current team capability, which will be evaluated before determining whether to grow or shrink the team size. It's also crucial to remember that providing high-quality service will enable you to achieve the best return on investment and won't be affected by peer-directly applied benchmarking

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What are the 5 main responsibilities in procurement and how to map your team to them?

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Procurement is an activity that begins with identifying a demand and establishing a budget to suit the needs of the organization. The procurement team must validate the demand and determine whether it is truly required or can be matched with an alternate measure.

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Once the need has been determined, it's critical to locate a suitable vendor/supplier who can meet the need. To proceed with the requirement, the procurement team must execute the RFP and RFI procedures on a need basis and deliver the RFQ to the vendor.

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Once the rates are mutually agreed upon and negotiated, it's imperative to prepare a contract with the vendor outlining the pricing, delivery timetables, and other terms and conditions.

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The next step is to issue a purchase order to the vendor, which includes the following information: the buyer's data, the item descriptions, the quantity and amount per quantity, the delivery schedule, and additional terms and conditions. In line with the purchase order, the vendor will provide the products or services, and the procurement team will review them to make sure the delivery is made as per the purchase order.

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The last stage in the procurement process is to pay the vendor for the goods/services delivered. A copy of the invoice will be submitted to the buyer, and the procurement team must review it to confirm that there are no errors in the invoice and that the goods/services delivered match the invoice.

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Supercharge your procurement team with Ramp

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Ramp revolutionizes procurement management by integrating seamlessly with popular finance and accounting software, and by curbing uncontrolled spending.

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Ramp offers a comprehensive dashboard for managing subscriptions and eliminating redundant SaaS expenses. Ramp's Vendor Management provides a complete overview of your vendor spend, contracts, and access to Price Intelligence for SaaS vendors.

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Ramp's Price Intelligence feature benchmarks your SaaS contract prices against what others pay, offering insights for better negotiations based on peer-contributed data. It details costs per-user across multiple SKUs, enabling informed software purchases.

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Ramp also simplifies bill payments for vendor contracts, helping you avoid late fees and penalties with quick processing.

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Ramp makes it easy to manage vendors, negotiate better, and save costs. Discover how Ramp can simplify your procurement and sourcing processes.

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