Procurement management is the practice of overseeing how an organisation acquires the goods and services it needs to function. It covers everything from identifying a requirement, selecting suppliers, and negotiating terms, to managing contracts and evaluating performance. A well-structured procurement process helps organisations control costs, safeguard quality, and reduce operational risks.
Key Aspects of Procurement Management
Procurement management can be broken down into several core stages that guide the entire purchasing process.
1. Planning
Every procurement cycle begins with a clear plan. This involves understanding the organisation’s needs, forecasting demand, setting budgets, and mapping out timelines. Effective planning ensures that resources are allocated wisely and that purchasing decisions support broader business objectives.
2. Sourcing
Sourcing focuses on finding the right suppliers. This stage may include market research, supplier shortlisting, and proposal evaluation. The goal is to secure reliable partners who can provide consistent value.
3. Negotiation
Organisations establish pricing, payment terms, and service levels at this stage. Strong negotiation helps balance cost savings with quality and ensures both parties enter the contract with clear expectations.
4. Contract Management
Once agreements are signed, ongoing management becomes critical. Monitoring compliance, tracking key deliverables, and resolving disputes all fall under contract management.
5. Monitoring and Evaluation
Procurement does not end with delivery. Measuring supplier performance, assessing outcomes, and identifying areas for improvement help strengthen the next procurement cycle.
Benefits of Effective Procurement Management
When procurement is managed effectively, organisations can achieve a wide range of operational and financial advantages.
- Cost Savings: Strategic procurement reduces unnecessary expenses and ensures competitive pricing from suppliers.
- Improved Efficiency: Streamlined processes save time and resources, helping projects run smoothly and reducing operational delays.
- Stronger Supplier Relationships: Effective management builds trust and long-term partnerships with suppliers, reducing risk and improving reliability.
- Risk Reduction: Organisations can minimise issues like supply shortages or compliance failures by carefully selecting and monitoring suppliers.
- Better Resource Allocation: When procurement is managed well, businesses can redirect time and money into other critical growth areas.
Procurement And Contract Management
While procurement and contract management definitions are different, they go hand-in-hand. Contract management is the art of creating clear documents where each party understands their role and their remuneration amount. Assessing how the contract is upheld is plainly defined.
In pursuing successful project management, project managers aim to provide timely, cost-effective service to their clients. They acquire personnel, goods and services during project execution — or personnel and services may be obtained by others, both within or outside the organisation, to provide a speciality service the organisation doesn’t possess in-house. In both cases, a legally-binding contract achieves the objective. The agreement defines the relationship, duration, nature and extent of service, statement of work, and terms and conditions.
Related Reading: What Is Contract Management?
Why Contracts Are Fundamental In Procurement Management
Many businesses carry out projects entirely in-house, using methods and means at their disposal. But what about large infrastructure projects that constitute massive exercises in teamwork? Managing such an undertaking in-house is impossible — the project is too large for one organisation to handle alone. Completion requires expertise your team does not possess. In this case, procurement management becomes necessary; the organisation must hire other contractors and subcontractors to accomplish the project work.
Since it’s unusual for one company to complete the work on a large construction project using their employees, successful completion requires the help and expertise of many organisations. Relationships will exist between the different organisations, and contracts govern these relationships. Think of contracts as the cement that legally binds the disassociated elements of a project together and stops it from collapsing.
Procurement management gets a construction project started by developing these contractual relationships with careful consideration. With the procurement strategy in place, the general contracting structure looks like this:
- A project manager or developer engages a head contractor (sometimes called a general contractor) from an external organisation.
- The head contractor engages subcontractors from other organisations.
- Subcontractors engage subcontractors from other organisations.
Getting this contractor network in place and synergistically functioning is the art of procurement management.
Three Steps In The Procurement Process
As we’ve established, the procurement process is how an organisation acquires the goods, services and expertise it needs to complete a project. When we do our monthly food shop, procurement is straightforward. But when we’re acquiring all of the supplies necessary for a construction project, the procurement process becomes complex.
Three general steps are involved in procuring the goods and expertise needed to complete a project, with careful consideration at each stage.
1. Can We Accomplish This In-House?
Not all goods and services need to be purchased from outside the organisation. Likewise, depending on the size of the project undertaking, not all work will need to be subcontracted out to external contractors. The procurement team is concerned with one central question: is it cost-effective and necessary?
How much risk a company is prepared to be responsible for also plays a role here. Procurement of contractors and subcontractors mitigates risk by handing over legal responsibility.
2. What Do We Need?
This stage can be thought of as the resolution of the strategy.
The project manager needs to be sure of the many elements necessary for project success. Once confident, they’ll defer to the procurement manager, who will look at the options available for acquiring the expertise. Careful research into prior contractual relationships will show which suppliers and contractors are best suited to the nature of the project.
3. Which Supplier Should We Choose?
The next step calls for bids, where suppliers and contractors provide the project manager with quotes. Service providers, contractors and suppliers submit their proposals. The procurement management team weighs and discusses the merits of each bid.
As we’ve defined, procurement management is the art of securing the necessary goods and services needed to complete a project. The procurement manager will select suppliers and contractors with an eye to:
- Meeting deadlines
- Maintaining quality
- Reasonable pricing parameters
- Minimising and mitigating risk
- Effective communication and administration.
Once providers are chosen, terms are settled, contracts ratified, and the services are executed or the goods provided.
When service providers, contractors and suppliers have been procured, construction procurement schedules make clear how and when the resources are to be managed with suitable milestones defined.
Related Reading: The Benefits Of A Consistent Supply Chain?
What Should Be In The Contract?
The contract procurement strategy should first be determined during the project development phase and depends on several factors. These factors include corporate needs, environment, time and cost considerations, and available resources’ quantity and location.
The Importance Of Procurement Management
Procurement is a crucial component of supply chain management. However, procurement management as a distinct business function began in October 1983 when Peter Kraljic, former director of McKinsey and creator of the Portfolio Purchasing Model, identified purchasing (procurement) as a distinct strategy rather than just another tool in the supply chain management process. Before this, company directors treated procurement as a sub-category of supply chain management.
Procurement has become much more than a subsection of the supply chain as getting procurement right is critical for delivering project success. How a company goes about its procurement strategy may have substantial legal implications and significantly impacts project outcomes.
Procurement Management And Project Success
Project and procurement managers liaise to construct overall project objectives, including discussions around safety (risk management), budget and schedules. They then engage the market intending to meet these objectives and ultimately select subcontractors and suppliers that meet the criteria at the lowest possible cost.
Large infrastructure projects have complex supply chains with multiple options to deliver each work item. As such, various risks need to be managed at each step. Procurement management ensures an organisation selects the right subcontractors and defines their scopes correctly to get the best possible project outcome.
Procurement And Risk Management
Procurement management is one of the best ways to mitigate risk — a massive part of a major construction project is risk management. Risk here means foreseeable unfavourable outcomes: monetary, health and safety, environmental or productivity issues. How a project plan allocates risk between parties is vital in procurement management.
Self-Complete Or Subcontract?
If a company opts to self-complete, they’re responsible for sourcing the labour and materials. They’re also responsible for coordinating the work and monitoring and controlling the quality of the work. Ultimately, the company holds the cost and quality risks. So there’s more risk to self-completing certain areas of the project. So why self-complete anything? Because it’s cheaper.
If we contract out the work, we pay a subcontractor a fixed fee to complete the required work within a timeframe. All the risks now sit with the subcontractor. Ultimately, this route has less risk, but the costs will be higher.
Getting this delivery methodology correct is critical for achieving a successful outcome.
Who Is Responsible For Procurement Management?
The person or team responsible for procurement varies depending on the industry and the organisation’s size. For example, many software companies delegate procurement responsibility to another department or manager. Management onus will also depend on procurement’s importance and how much sourcing the organisation can handle in-house.
Companies often have a procurement manager (or procurement team) overseeing the procurement and sourcing function in other industries, such as construction. The procurement manager finds and negotiates with suppliers and contractors to secure the best available pricing.
Taking control of your business’s purchasing process and introducing better procurement and supply chain management can significantly improve efficiency and deliver a better bottom line.
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