What is the Importance of Procurement Planning in Supply Chain Management?

Your business requires an uninterrupted flow of activities as per a well set plan to support the overall growth ambition. In the growth mix, there are many crucial things that need careful planning and execution. Procurement planning is one such thing.

This brings us to the question: What does procurement process or procurement planning entail? There are many elements but sourcing vendors, predicting demand, determining quality standards, negotiating prices, managing contracts, etc are seen as crucial steps that need strategic focus for improvement. Rapid advancements in digital technologies are reshaping the supply chain and thereby transforming the function of procurement. According to Deloitte, integrating disruptive technologies into the supply chain can enhance procurement planning in supply chain management.

Procurement planning in supply chain management is a business process that identifies and consolidates your supply chain partners. The procurement planning process seeks to answer the following questions:

• What goods or services do you need to purchase?
• When should you purchase them?
• Which vendor should you buy it from?

The procurement planning process is cross-functional — multiple departments need to collaborate to aid the decision-making process. Procurement planning serves as a guideline to all teams to track timelines of purchase and avoid overspending on goods or services. Digital procurement platforms can help you quickly strategize and create procurement management plans for your business. Through digital platforms that maximize your stock availability and accelerate negotiations with vendors, your enterprise can have more time to focus on building a better procurement process.

The procurement planning process also takes into account vendor applicability, cost and quality of materials, supply and payment schedules, compliance, contracting, etc. If properly implemented, a procurement management plan aids in lowering overall procurement costs, ensuring high quality of outsourced materials, and keeping your manufacturing operations running.

Role of Procurement Planning in Supply Chain Management

A good procurement management plan means setting timelines for selection of suppliers, predicting potential obstacles in the supply chain, and improving procurement visibility across the board. A few reasons why you need effective procurement planning in supply chain management as as follows:

Procurement Planning Minimizes Costs

As part of procurement planning in supply chain management, enterprises can strategically source products and select suppliers that would lower overall production costs. When you are planning the procurement process, there is plenty of time to manage operations and negotiate prices with vendors. If a business has not taken the time to set up a procurement management plan, then they will have a smaller time frame to get quotes from multiple vendors, negotiate prices, and potentially reduce the cost of the goods.

Digital procurement management platforms accelerate this process by showing the inventory levels of different departments. Using this information, you can check with every department and take stock of their supplies to project demand. This will save time during the procurement planning process, which will further free up time to negotiate prices with vendors.

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Procurement Planning Predicts Extra Resources

Procurement planning in supply chain management takes into account extra stock that would be needed during peak periods. Supply chain management often involves predicting demand according to past data. Demand forecasting, in combination with the procurement planning process, can help to source the extra materials so that you do not have to scramble to complete the manufacturing process at the last minute.

The procurement management plan is made by analyzing market trends, peak seasons, and past transactions to understand the surge in demand. Knowing when your business will receive increased purchase requests will help you better prepare with extra resources and make sure that the acquisition of these materials fits within your budget.

Procurement Planning Enhances Transparency

With procurement planning, your business gets a better overview of the supply chain, and every stakeholder can easily collaborate to optimize this process. As the procurement plan is created with inputs from every department, it improves the transparency and predictability of the process. For any reason, if you encounter an obstacle during supply chain management, there will be no ripple effect across the whole supply chain. As there is a clear pathway defined for the procurement and every stakeholder is informed throughout the chain, any barrier can be addressed quickly.

By comparing real-world activities and timelines with those in the procurement plan, you can understand the performance of the supply chain and use that comparison to improve the process. Things could happen that are beyond your control, like a global pandemic or geopolitical conflict. While we cannot predict such events, you need to keep room for flexibility in your procurement management plan. Your procurement planning can involve options for alternative suppliers with potential cost negotiations, or you can purchase extra raw materials and set up backup delivery options to account for unpredictable events.

Procurement Planning Aids Long-term Strategy

Through procurement planning in supply chain management, you can measure the performance of the current strategy in comparison to your previous procurement management plan. This will not only help you in perfecting your procurement planning but also help you create a model that you can re-use and modify for future projects. For every iteration, you can take what works and discard what does not work to optimize your procurement plan and, thereby, the whole supply chain management process.

A digital procurement platform will help ease this process of comparison of all your procurement strategies to get quicker insights into the steps that are delivering better results. Through a digital platform, your business can iteratively improve your procurement planning process on the basis of data collected from your supply chain. Analysis of past procurement management plans can also indicate patterns or methods that can be merged with your current procurement planning to create an effective, optimal strategy.

Procurement planning in supply chain management is just one part of the puzzle to building successful supply chain solutions. If your business wants to perfect this process using a digital platform, then Bizongo’s ProcureLive solution is the answer for you. With ProcureLive, you can manage multiple vendors in one place efficiently and execute your procurement plan more effortlessly. Contact us to know more.

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