5 steps to build procurement from scratch
Don’t think your company has procurement? Well, someone is doing it.
Procurement is so foundational that it would be hard to be in business without it. Buying laptops for employees to work on, the software they need to do their work, offices to work in, desks to sit at, insurance, agencies and service providers to help augment the team, a bank to house and move company money…the list goes on and on. In fact, it can feel endless, and that’s a sign of procurement’s importance.
So what if you don’t have a formal procurement function set up yet? Where should finance leaders start and how can they set it up for success? Here are five steps to get started with procurement—and a few things to look out for:
Step 1: Vendor information
Not sure what, where, when, or from whom you’re buying, much less how and why? You’re not alone. Vendor information is often scattered across the organization, hiding in spreadsheets, emails, Slack channels, disparate systems, and—dare I say—filing cabinets. If you don’t know what you’re spending investing company money on, start here.
Action: Centralize and organize vendor data in a single database. Structure it so that it highlights key elements such as contract dates, terms, contact details, business criticality, category, risk, etc. With a single source of truth for vendor data, you can track, control, report, and take action on spending faster and easier.
Step 2: Contract repository
Contracts are the legal handshake between businesses. If, like the vendor information they’re associated with, they’re littered across the organization, the business is taking on unnecessary risk. Expired contracts with lapsed terms can open the company up to spending on software that’s no longer used. If service-level agreements aren’t tight, you could find yourself with a critical piece of software down that directly affects your client base. And those auto-renewal clauses will mean you’re potentially wasting money on unnecessary tools and services. No good.
Action: Set up a contract repository that provides easy access to legal terms like renewal dates, termination dates, clauses, and service-level agreements to reduce company risk. Use a modern procurement system that stores the documents and gives you the ability to set reminders months before a contract expires so you have time to negotiate. Eliminate unnecessary vendor spend, get visibility into duplicative contracts and vendors, and look for opportunities to consolidate. Get ahead, not behind, your contracts.
Step 3: Workflow automation
If “where do I go to buy this?” or “hey, how do I purchase this?” are all too common questions and happening in Slack and email, your business is ripe for self-serve workflows. Buying never stops, and not having a single intake source for purchasing opens the business up to a lack of accountability, control, and traceability. It’s an auditing nightmare, too. And chasing approvals and signatures across legal and information security can feel like herding cats. It’s a waste of everyone’s time. Stop it before it starts.
Action: Use a modern procurement solution to make the buying process smoother. A “front door” for purchasing makes things simpler for employees across the organization and eases back-end administration. These systems can automatically route purchase requests to the necessary approvers—finance, legal, IT, etc.—saving cross-functional teams significant time and money. Streamline approvals, sign-offs, and communication to speed up buying and add transparency.
Step 4: Reporting and dashboards
If spend under management sounds like business jargon to you, think black box—because you’re in one. Trying to manage current spend and look back at historical trends in antiquated software is painful, leading employees to migrate data and processes to spreadsheets. But this is a recipe for disaster, leading to spreadsheet chaos finance teams know well: stagnant data, version-control issues, and broken macros. You need clarity, and this doesn’t provide that.
Action: Gain critical spend visibility with a modern system that pulls real-time data across your purchasing so you see into important buying decisions before they happen. The best part: You can slice the information by category, department, vendor, project, and more to understand where company money is actually going. Become more proactive and predictive, forecast better, spot trends, and gain control over your investments.
Step 5: Relationship-building
Sitting behind your desk, heads down and clicking buttons, isn’t going to create those cross-functional relationships the C-suite talks about. Nor is firing off Slacks or emails without anyone knowing who the voice is behind them. Businesses are made up of people, and it makes sense to get to know your colleagues so that together you can build it.
Action: Lean on your newfound spend clarity to open doors. Bring value by delivering data and information to your colleagues. Get invited to team meetings and to present at all-hands to share what you’re sitting on with the rest of the organization. Renewals, new vendor options, opportunities to consolidate, big savings, and areas where you can drive revenue growth.
Procurement truly is a unique function, combining business context with finance, and is connected to every department. It happens whether someone is carefully managing it or not and, as a business scales, it gets inherently more complex. Investing in procurement early is critical to setting your organization up for longer-term success and an excellent way to create a competitive advantage.
Find out how Ramp Procurement simplifies and improves intake to pay. And for more practical insights on procurement, follow me on LinkedIn.
