Procurement Transformation of Indirect Costs
  • Complete spend and demand visibility
  • Increased cost awareness, reduced maverick buying

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

Operational procurement: tasks, optimisation and outlook

 

In order to meet requirements on time and at optimal cost, an efficient purchase-to-pay process requires specialised resources for its implementation - the operational procurement department. The main objective of these resources is to ensure efficient material availability at optimal costs. Well equipped with good communication and problem solving skills, operational procurement is responsible for the purchase-to-pay process, supplier relationship management, order quantity optimisation across all departments and general procurement processing. 

In order to check whether your operational procurement is well positioned and how it can be optimised, we address questions such as:

  • What are the tasks and responsibilities of operational procurement and where is it positioned within the organisation?
  • How can operational procurement be optimised?
  • What is the difference between good and best-in-class operational procurement?
  • What are the typical challenges and improvement levers?  

After answering these questions, we discuss the typical pitfalls and solutions facing operational procurement and provide an outlook on its future.

 


 

The tasks and responsibilities of operational procurement: what does it do and where is it located?

 

The daily task of operational procurement is to ensure the purchase-to-pay (sometimes procure-to-pay) process. Therefore, the operational buyer must amongst others be familiar with the agreed terms & conditions, the optimisation of order quantities and frequencies, and the purpose and process steps itself. In addition, the operational buyers act also as counterpart to the operational departments in that they question the departments’ requirements, and, in the event of problems and delays, can focus solely on finding a solution. 

Responsibilities include: determination of requirements; procurement approval within the overall approval process; coordination and checking of stock and order quantities; placing orders with approved suppliers while ensuring optimum order quantities and conditions; support of the order through to goods receipt; complaints management; and payment approval after invoice verification. The aim is to meet demand on schedule and at optimum cost. This is why the elimination of delays, complaints, and disruptions are also included in the tasks of operational procurement.

 

tasks in operational procurement:  the purchase to pay (P2P) process

Tasks of operational procurement alongside the P2P process

 

Every day, operational buyers are entrusted with meeting the business's demand on time. With regard to their location, there are two different drivers: proximity to the departments requiring the goods or services, and proximity to the category managers. Depending on the organisation, this can mean that operational buyers are located centrally or within reach of the relevant department (locally).

 

How can operational procurement be optimised?

 

These days, integration and training in the ERP system and order management software is a prerequisite for efficient operational procurement. Such systems facilitate the completion of certain tasks and reduce process effort.

In addition, there are some useful self-service software tools with which, for example, C-Categories can be procured directly by the operational departments themselves. Contractual conditions, suppliers, and product specifications can be controlled by procurement, and delivery conditions and order sizes can be preset. These tools can significantly reduce process costs without forgoing procurement’s control of specifications and conditions.

As a communicator between suppliers, the specialist departments and logistics, operational procurement also needs efficient communication systems and tools. Communication platforms, video conferencing, integrated and automatically updated contact directories, and supplier portals for the identification of new suppliers are all part of this.

In order to support the control and monitoring of costs and to monitor one's own tasks, there are also analysis dashboards tailored to operational procurement. With these, every individual buyer, and also operational procurement as a whole, can monitor and control their own performance and also identify and alleviate possible supply bottlenecks.

 

What distinguishes a good operational procurement department from a first-class one?

 

An excellent operational buyer is characterised by the ability to act quickly, good communication, and a solution-oriented approach. They are able to nurture the relationship between the supplier, the internal specialist department, and the supply chain managers.

They ensure time-and-quantity-optimised orders through synchronisation with the warehouse, sales, and the supplier. They continuously evaluate and measure supplier performance and maintain a good basis of data in the systems they supervise.

They proactively identify and communicate opportunities for improvement along the procurement process or departmental processes. They control and monitor compliance with framework agreements, procurement guidelines, and maverick buying, thus ensuring compliance not only with the negotiated terms and conditions but also the optimisation measures agreed with the suppliers in past procurement activities.

 

What are the typical challenges and what are the levers for improvement?

 

In the following section, we describe some typical signs that indicate a need for improvement in operational procurement and possible approaches to solutions.

Despite the negotiated conditions, savings may not be realised due to incorrect invoicing. This often only becomes apparent at the end of the year or sometimes purely by chance. It is often down to carelessness, a lack of responsibility, and the auditing body not knowing the stipulated conditions. A further indication of the need for improvement in operational procurement is the persistently late emergence of quality problems i.e. after the agreed post-incoming-goods-inspection warranty has expired. These examples show that human errors in the procurement process cannot be excluded and are entirely normal. But in order to keep them to a minimum, the underlying causes of the errors should be counteracted through testing and control processes.

Operational procurement, as the interface between supplier and department, has the task of ensuring the successful transition of goods at the agreed qualitative and commercial conditions. This includes ensuring that incoming goods inspections have been carried out and that complaints are managed with the supplier, as well as cross-checking invoices to make sure they detail the correct quantities ordered and the agreed conditions. These process steps must be stringently implemented and made measurable within operational procurement in order to highlight errors and correct them. We support our clients in evaluating their operational procurement for compliance with these work steps, and then help to implement and improve them, or automate them through the use of appropriate software.

 

One of the greatest challenges facing operational buyers is the balancing act of maintaining requirements in terms of quantity and time without incurring the costs associated with large inventories or ad hoc shipping and small volume orders. Fluctuations in demand, inaccurate forecasts, and a lack of integration in demand and production planning increase the risk of not meeting a requirement and result in buffers or uneconomical ordering behaviour to prevent a suspension in production.

In order to establish an efficient inventory and order quantity management process, we first help our clients identify costly behaviours and their causes. A common cause is the lack of early integration of operational procurement into production planning and demand forecasting. Further reasons are often the insufficient consideration of, or general lack of awareness of, the monetary impact in demand fluctuations in supplier contracts. 

Once the causes have been identified, we help improve planning through adjustments in communication, the provision of information, and the division of responsibility, and make all the involved parties aware of the associated costs of stock mismanagement through reporting. Additionally, it is possible to anchor alleviating contractual conditions and price mechanisms in supplier contracts. Volume flexibility, shorter lead times, and redistribution of risks can help minimise these additional costs and the likelihood of production downtime.


 

Outlook and conclusion for operational procurement

 

What does the future of operational procurement look like? Digitalisation and Procurement 4.0 will continue to change its day-to-day tasks and responsibilities, as has already happened in the past decade. Technology will increasingly find a way to further support operational procurement. It will be able to facilitate many repetitive tasks. But it will not be able to replace supplier relationship management and the all-important interpersonal element of operational procurement, which intervenes when things do not go as planned or programmed. The future role of operational procurement will increasingly be that of communicator, problem solver, and the operator of fast and precise procurement software.

In summary, operational procurement: often neglected and yet so important.

Only the daily implementation of the agreed procurement processes, contracts, and price agreements ultimately ensures cost optimisation and smooth procurement. Operational procurement is more than just a reliable buyer; it is also a problem solver and daily contact for suppliers, the specialist departments and the supply chain.

One of the reasons why operational procurement may fall out of focus is the lack of high profile, point-scoring moments. The good work of operational procurement only becomes visible when things don’t go well. The consequences of material failures, production delays, and incorrect order management can be immense.

The most important characteristics of good operational procurement are:

  • Functioning quality, quantity, and invoice controls
  • Monitoring & control of inventory & order management to ensure delivery reliability and optimal inventory costs
  • Efficient handling and problem solving along the purchase-to-pay process

OCM offers comprehensive support in the design and optimisation of your operational procurement and in procurement process optimisation along the purchase-to-pay process.

We would be happy to present our approach and project modules to you and discuss solutions based on your challenges.

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

Our project modules at a glance:

Procurement Consulting Modules

Case Studies

This website uses cookies. If you continue to use the website, we assume your consent.