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How to Set Up a Best-in-Class Procurement Department

May 20, 2014 by Andres Kuuse

How to set up a procurement department.

If you’re looking to set up a procurement department for a newly established business, take a look at the steps below. The same steps can also be used to restructure existing procurement processes to add value to your business practices.

Preparation is key

Before you can start developing goals and strategies and before you even start putting together a team for the procurement department, it's important to do some research. First of all, you need to define the expectations and needs of your company’s stakeholders.

Once you have gathered the needs and interests of your company’s stakeholders, it is time to start defining your objectives.

What should be the first tasks for setting up the new procurement department?

The first task is to lay a strong foundation for your procurement department. This involves developing a standardized procurement policy, putting together a team with the necessary skills, and selecting the proper tools to carry out your procurement procedures.

This provides you a base for successfully implementing your procurement processes from the get-go. After that, you can concentrate on executing the procurement department's strategic plan.

The following suggestions and tips will help you get started.

#1 Setting up a procurement policy

A procurement policy is made up of the rules and regulations set in place to govern the process of acquiring the goods and services needed by the company to function efficiently. If you do not have a policy in place, this is one of the first things you should do.

Download a free procurement policy template.

Whether you are going to set up a procurement department in a newly established company or restructure an existing one, you should think about the type of procurement organization you want to create:

A) Centralized procurement department that will be responsible for procuring all goods and services for the company.

B) Center-led procurement department that coordinates all strategic decisions while transactional activities are decentralized. For example, all purchases above $10,000 have to go through the procurement department and purchases below that can be decided by each business, functional, or regional unit.

Creating a customized, high-performing procurement department is highly dependent on the unique business goals of the company.

#2 Team building and training

Once you have outlined the goals of the new procurement department, you know how many people you need and what skills are required. It is time to start putting together a team and then, if needed, train them.

Putting the team together:

The first place to look for quality team members is inside your company. Perhaps there are people who have already been performing procurement tasks and can now be involved in the new procurement department team.
 When structuring the procurement processes, there may be people in your company who could be invited to work in the new department. People who already have experience in working in your company are more easily trained and engaged.

For help finding new high-quality team members, you should also consider involving a recruitment and staffing services company. One could be easily found online or you can also ask your managers if they have used such services in the past.

N.B. - It’s important to have at least one person with previous experience in the field of procurement in a young procurement department.

Training the team:

If your team has to deliver specific procurement operations or tasks that exceed their skills or if there is lack of knowledge, training your team is a necessary investment.

This investment will provide you with a high-performing procurement department, providing extra value to the entire company and satisfying the stakeholders’ expectations and needs.

Look into professional procurement institutes like CPSM (Certified Professional in Supply Management) certification from ISM and APICS.

#3 Segment your suppliers and create a central supplier database

One of the most frequently ignored tasks is segmenting suppliers and creating a central suppliers database. A central supplier database is essential to have a clear overview of your suppliers and to establish exactly which of them are your closest partners - i.e. strategic suppliers.

Strategic suppliers play an important role in your company’s success. They are long-term, cooperative business partners who help you execute your business strategies. The nature of your business determines who your strategic partners are - e.g. a strategic supplier may be the one who supplies you with raw materials or components for manufacturin

Identifying your strategic suppliers is essential for

  • Defining their needs and expectations.
  • Lowering supply chain risks.
  • Establishing partnerships and best ways to communicate.
  • Developing customized procurement policies. Applying the standard procurement policy with strategic suppliers may result in an undesirable outcome, like losing them as a partner or interruptions to your manufacturing processes.

Furthermore, a central supplier database helps save time for all of your company’s buyers since they can avoid creating and managing individual Excel lists.

#4 Choosing the proper tools

For a streamlined procurement department workflow and to provide team leaders with a good overview of all department processes, it is essential to use the proper procurement management tool.

The right tool can help your company

  • Create a centralized supplier database accessible by all procurement employees.
  • Provide a clear overview of all RFPs in the company.
  • Save 25-40% of your team’s time running RFPs (compared to e-mail).
  • Establish a central dashboard, so the team leader can follow all procurement processes in one place.

Consider using a modern cloud-based procurement management software. It’s easy to use, requires no training and no external implementation assistance and is a powerful asset for the entire procurement team.

Once these tasks have been carried out and the processes are in place for your young procurement department, it is time to set objectives to help you establish your business strategies and meet stakeholder needs and expectations.

 

Andres Kuuse

Written by Andres Kuuse

I am a co-founder and the Customer Support representative at DeltaBid. I’m passionate about creating an easy to use tool that helps procurement and e-sourcing people do their job better. Just as SalesForce revolutionized sales development, we will revolutionize procurement.

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