It is hard to disagree that numerous major corporations depend on goods, services, materials, and products purchases from suppliers or other businesses. In case these purchases are not made in a timely manner or at lower costs, organizations face numerous consequences, including reduced profitability. Therefore, it is of vital importance for corporations to manage their procurement departments properly. The purpose of this paper is to explore this process, provide some strategies helpful in procurement management, and identify the key risks associated with this department.
Managing the Procurement Department
First of all, it is important to describe the process of procurement to then identify management strategies and steps. Overall, major businesses need to perform specific operations to remain competitive, have high performance, and attract new vendors and customers (Michigan State University, 2022). For these operations to be in process and have no delays or issues, some materials, services, or goods can be required, which is where procurement’s significance appears. Procurement managers are responsible for identifying the products and services their company needs, making sure that the firm can afford them at the moment, and finding the best suppliers at lower costs (Hong, Lee, and Zhang, 2018). They also have to complete all the further steps to ensure that the order is received promptly. Effective procurement management depends greatly on whether managers have a good and trustworthy team that follows the guidelines and feels their responsibility. To direct all the involved processes correctly and efficiently, procurement managers coordinate purchasing agents’ activities and make sure that all other departments related to the process are informed and adhere to the set principles.
Managing the Risks Associated with the Process
To begin with, one needs to mention that procurement managers have to distinguish between actual threats and those that do not pose any real danger. While ignoring the latter, at least in the nearest future, managers need to reduce the likelihood of the occurrence of severe risks. One general way to do that is to keep all teams responsible for eliminating particular dangers and obstacles organized and ready.
One of the primary risks that the procurement process faces is price instability; to address it, managers are required to ensure that the firm has the additional budget to cover unexpected costs. What is more, they need to be prepared to negotiate the price increase or cooperate with other vendors with the same high quality but lower prices (Hong, Lee, and Zhang, 2018). Another risk lies within complex tasks and projects because each stage depends on previous ones, and it is easier to make a mistake or miss something crucial. Procurement managers are recommended to maintain clear communication, double-check and evaluate all the steps and phases of the project, and have backup plans and additional budget if they need to change the strategy (Shuler, 2021). Finally, the third risk to be explored here is the possibility of fraud, when stakeholders can take advantage of some weaknesses or blind spots in the process (Shuler, 2021). High transparency, accountability, and reporting can help avoid or solve such a situation if it happens.
To draw a conclusion, one may say that the success, image, and competitiveness of a firm depend greatly on whether it has strong and effective procurement management. The team should be able to control numerous factors and operations, maintain productive and transparent relations with vendors, and avoid or solve significant issues associated with the process. When successfully managed, the procurement department allows the company to strengthen its position and meet customer needs.
Hong, Z., Lee, C. K. and Zhang, L. (2018) ‘Procurement risk management under uncertainty: a review’, Industrial Management & Data Systems, 118(7).
Michigan State University (2022) What is procurement management?
Shuler, K. (2021) 10 procurement risks (and how you avoid them).