No items found.

The 10-step process of operational procurement

Procurement

Discover the key benefits of operational procurement, and learn how to implement this buying approach and boost your profitability in 10 simple steps.

Written by
Taylor Bruneaux
Published on
January 6, 2023
Read Time

Twitter iconFacebook iconLinkedIn icon

As organizations scale, it becomes necessary to segment procurement roles into distinct categories.

Rather than having a whole team of procurement professionals, each working on the same type of purchasing, it's generally more effective to have individuals specialize in a particular form of procurement.

One such form, known as operational procurement, focuses on the sourcing and purchasing of the goods and services that are specifically required to maintain the ongoing operation of a business.

To effectively differentiate purchasing teams, it’s essential to understand what operational procurement is and how it should look in practice.

Discover the key benefits of operational procurement, and learn ten simple steps to implementing this buying approach and boosting your profitability.

What is operational procurement?

Operational procurement is a type of procurement that focuses specifically on sourcing and purchasing the goods and services required to maintain the day-to-day operations of your organization.

Within operational procurement, the exact goods or services you purchase will differ significantly based on the nature of your company.

For instance, consider a company that provides company cars for lease. Purchasing light bulbs, oil, wiper blades, and other servicing items would be the domain of the operational procurement team.

On the other hand, a procurement manager at a company that sells corporate fire protection solutions might also purchase these items to service their company vehicles. But because they aren’t necessary to the actual operation of their business, they don’t fall under the banner of operational procurement.

Procuring social media and email automation platforms, however, would be an operational purchase for the marketing agency (but not for the lease company).

Benefits of operational procurement

Higher profit margins

One of the most significant benefits of investing in operational procurement is improved profit margins.

In operational procurement, your company uses the products and services you purchase frequently and abundantly, meaning even a slight reduction in per-unit cost can hugely impact profitability.

Reduced vendor risk

Every vendor relationship involves some form of risk, such as financial or reputational risk. Financial risk might involve the possibility of a supplier's company going bankrupt. Reputational risk might involve the possibility of a damaging public relations scandal involving a vendor.

For strategic vendors—those that you rely on for the day-to-day running of your business—these risks are even greater.

If you’re a marketing agency and your digital ads supplier goes out of business, for instance, you’re temporarily unable to deliver on your client contracts.

Focusing specifically on operational procurement practices allows you to reduce risk by carefully vetting strategic vendors and maintaining regular contact through vendor performance review meetings.

Enhanced supplier diversity

Supplier diversity is vital for minimizing supply chain risks and maximizing your ability to scale quickly.

When you specifically dedicate resourcing to operational procurement, that team is better able to focus on increasing supplier diversity where it counts: those sources you rely upon most heavily.

Improved operational efficiency

A focus on operational procurement helps deliver greater efficiencies through supplier diversity, minimizing supply chain interruptions, and strategic contract negotiations.

For instance, a smartphone manufacturer might negotiate an express freight agreement with a key supplier of CPU chips. By doing so, they’ll receive this critical component faster, minimizing supply chain disruptions and speeding up production.

How operational procurement works

1. Determine strategic sourcing needs

The first step in the operational procurement process is to understand and clearly define the actual needs of the department.

Let’s say, for instance, that you’re sourcing a new fleet management system for your product delivery team.

Even if you're an expert at all things procurement—vetting suppliers, negotiating contracts, etc.—you’re unlikely to have the same experience as the fleet operations manager.

As such, the critical activity in this phase is to sit down with the stakeholders involved and define the specific needs beyond “find a new fleet management platform.”


Ask questions like,

  • How is our current solution insufficient?
  • What features do we need to prioritize in this purchase?
  • Which functions are a must-have?
  • How will we define successful procurement in this case?

Additionally, meet with your finance or senior leadership team to approve an upper budget limit for this purchase.

2. Identify potential vendors

Next, begin your market research process to identify potential vendors.

The previous step sets out the blueprint for this stage. If, for example, a given vendor doesn’t offer all of the features your stakeholders have defined as non-negotiable, they don’t proceed to the next phase.

You don’t need to dig too deep at this stage. Simply pull together a high-level list of suitable suppliers.

3. Meet with vendors to discuss your requirements

With a list of potential options in hand, arrange a meeting with each vendor to discuss your business needs.

It may be helpful to involve your department stakeholder in this conversation, as they’ll know to lead the conversation from a technical standpoint.

4. Issue a Request for Quotation

Once you’ve held these initial discussions, meet internally to cull any unsuitable suppliers.

Create and send an RFQ (request for quotation) for the remaining options.

An RFQ allows you to collect pricing information on the relevant vendors and refine your consideration list by eliminating any who fall outside your predefined budget.

5. Vet supplier options

At this point, you should have a shortlist of three to five vendors that meet your needs from the perspective of functionality and pricing.

Now it’s time to vet each of the potential suppliers against your internal policies.

This shortlist is particularly critical as part of the SaaS purchasing process to ensure any vendor you bring on board doesn’t present any serious data security risks.

Assess each potential vendor for

  • Financial stability
  • PR risk (any previous negative press)
  • Data handling procedures (such as their GDPR policy)

If any potential service providers fall outside of your compliance requirements, remove them from your consideration set.

6. Choose the most favorable option

In this stage, assess each of your remaining supplier options on the following scales:

Your preferences and priorities should guide you here. For instance, minimizing risk might be more important than securing the lowest price possible.

Determine which vendor appears most favorable in light of your priorities and move forward with them.

7. Initiate negotiation conversations

Negotiating vendor contracts is a critical step in the operational procurement function.

Not only is it essential for keeping costs low—the better you can negotiate pricing, the higher your return on investment and profitability—but it’s vital for reaching an agreement on terms like customer support expectations and delivery timeframes.

Learn more about the procurement negotiation process here: How anyone can lead a successful procurement negotiation.

8. Formalize the relationship

With the final terms of your procurement agreed upon, formalize the relationship by signing an agreement and beginning the contract management process.

Follow your internal approval workflow to maintain compliance with purchasing policies.

9. Integrate with your existing supply chain or tech stack

The procurement of operational goods and services doesn’t happen in a vacuum. That new thing you sourced needs to work nicely with your existing operational processes. Otherwise, it's going to wreak havoc on your efficiency.

As such, it's crucial to design an implementation and integration plan at this stage.


Let’s say you’ve just sourced a new email marketing software platform. You’ll need to:

  • Migrate data from any existing platforms or spreadsheets
  • Set up integrations with your CRM, social media automation, project management, and any other software tools used for marketing purposes
  • Create new business processes that define the use of these tools together

10. Put a vendor management framework in place

Lastly, design a plan for monitoring and managing the ongoing relationship with your new supplier.

Define the KPIs (key performance indicators) that measure success, and design a method for tracking performance against these metrics—for instance, a dashboard in your vendor management system.

Set up regular supplier performance review meetings—quarterly will be sufficient in most cases—to review any concerns with your vendor and to put action plans in place for improvement.

Learn more about managing supplier relationships in our guide: The vendor management best practices you need to know.

Drive procurement operations with Vendr

Modern business operations rely heavily on software platforms to drive efficiency and maintain consistency.

Turn your operational procurement strategy into reality with Vendr, the SaaS procurement system that pays for itself. Benefit from:

  • The most extensive data set of SaaS buying transactions, giving you the competitive advantage you need
  • Vendor management across the entire procurement lifecycle, from sourcing and vendor auditing to invoicing and accounts payable
  • Automated approval workflows to ensure you never miss a purchase order or purchase requisition

If you’re like most businesses, you’re probably overpaying on SaaS. Discover the exact impact on your bottom line with our free cost-savings analysis.

Similar posts

Learn more about finding, buying and managing your SaaS stack with resources from our experts.

The ultimate guide to conducting a procurement audit

Taylor Bruneaux

Procurement

The ultimate guide to conducting a procurement audit

Discover the seven-step process to running a procurement audit that helps maintain purchasing compliance while identifying irregularities and possible fraud.

Read post
Everything you need to know about the source-to-pay (S2P) process

Emily Regenold

Procurement

Everything you need to know about the source-to-pay (S2P) process

Learn the seven most important steps to include in your source-to-pay process, and discover three S2P best practices to reduce risk and increase efficiency.

Read post
Seven ways to maximize procurement savings

Lizzy Brophy

Procurement

Seven ways to maximize procurement savings

Discover seven powerful tactics for generating procurement cost savings that find the sweet spot between minimizing spending and maximizing vendor value.

Read post