In today’s era where construction is going digital, ERP for construction helps in technology and streamlines the operations. Modern technologies have been developed to address industry challenges and issues like project management, health, and safety. Construction companies can now see their financial statements, assets, timelines, and workforce. An ERP solution enables rapid change adaptation and provides access across the entire business. It allows for more precise and meaningful decisions.

ERP for Construction focuses on providing technology solutions that improve industrial, commercial construction, engineering, and field service industry efficiency and effectiveness. Contracting firms must rely on cutting-edge business solutions that can streamline complicated construction processes to compete in today's global market, where administrative burdens are mounting and innovation is a top priority. Use the Best ERP system in construction to lower costs, improve productivity, and meet projects deadlines.

How does ERP help in construction?

We have mentioned some points how ERP for construction industry and infrastructure helps in growth of the organization: 

1. Payroll for construction workers
2. To-do lists and time management
3. Smart budgeting and planning based on predictive capability
4. Analyses of financial data
5. Management of subcontractors and contractors
6. Designed to be simple to use by people of all technological backgrounds
7. CRM and prospecting
8. Experimental procedure recognizing and billing income

What is the advantage of construction ERP software?

Below are the key advantages for evaluating the best ERP for construction industry: 

#1. Optimum Planning
Mismanagement of a construction company's resources can result in project delays and even leads to the company's downfall.
ERP Software can help you optimize resource allocation, raw materials, labor, architectural design, and schedules. It can also help control costs and budget allocations. As a result, wastage and contractual troubles with clients are kept to a minimum.

#2. Simplifying Project Management
Project management across multiple worksites has always been difficult in construction. Construction managers can easily track various activities using an ERP system. It can track employees' time spent on each task using real-time data projects, and assign tasks to the right people.

#3. Estimating Costs and Revenues
Clients have varying priorities. The best bid is selected depending on the design, the company's public image, and, most importantly, the estimated costs. ERP for the construction industry can accurately estimate raw materials, designs, labor, and project duration. The construction ERP software helps determine each project's revenue and loss. So they can better manage future projects' time and costs.

#4. Boosting ROI
Contractors do occasionally want to improve their ROI. Return on investment can be measured in terms of money, but it can also be measured in terms of other benefits, and ERP software can help boost ROI.

#5. Enhancing Decision-Making
The ability to see the big picture before making decisions is a big benefit of centralization. The ERP software helps personnel extract data from various sources, and it can also identify criteria that need to be adjusted before granting a request.

#6. Health and Safety Management
ERP system in construction industry helps in the well-being and safety of your employees is the top priority. The ERP software tracks, investigate, and analyze all types of incidents, people, equipment, inspections, etc. Depending on your ERP software, you can photograph every incident and upload it to the device.

#7. Reporting
Reporting is critical to making good business decisions. A reporting system provides easy access to all business information, and real-time operational reporting enables you to make data-driven business decisions. The ERP system must be implemented in any construction company in building projects that require effective operational, management, and accounting tools.

Best ERP for Construction Company in India

We have mentioned the list of Best ERP for construction companies in India. Along with the criteria on how to evaluate Which software is best for construction?

#1. TYASuite
TYASuite is a cloud-based ERP software that is curated by keeping in minds the need of construction industry. TYASuite ERP software is suitable for small and medium-sized businesses (SMEs) as well as large corporations and it had more than 4000+ Plug & Play features allowing the user to enable or disable them via admin panel as per the business requirements streamlining every process

#2. Construction Edition of Acumatica's Cloud ERP
Acumatica helps the team on board with the newest project findings, contracts, budgets, plans, specific requirements, change orders, invoices, purchase orders, and job costs.
You can access reports, reporting tools, and data analytics from your phone, tablet, or PC anywhere with this safe SaaS solution.

#3. Microsoft Dynamics SL
Microsoft Dynamics SL is designed for project-based businesses and has long been a favorite of contractors. However, Microsoft has redesigned this product to give construction firms more flexibility in deployment and integration.

Conclusion 

Overall, there are a number of options available when it comes to Construction ERP Software. However, in this blog we were able to highlight how ERP software can help in the construction industry. If you’re looking for cloud ERP software for your construction business then TYASuite is the most affordable option available in the market. TYASuite is a prominent ERP system provider for a wide range of industries, including construction. It helps in increasing project efficiency by real-time integration of project modules. Residential and commercial building projects alike can benefit from their ERP software. There are project reports, budgets, plans, and specifications as well as change orders and invoices, purchase orders available in the system at all times. Get a free demo today and check for yourself!

As a key participant in the supply chain, vendors are one of the most important stakeholders in the procurement process. Successful companies focus a lot on their vendor management process and get benefited from it in the market and are always one step ahead of any risks they could encounter. This blog will help you understand the importance of the vendor management lifecycle including tips and tricks for effective vendor management.

What Is Vendor Management Process? 

The vendor management process refers to the strategic approach that enables organizations to keep valuable vendor relationships under their control and hence improve resilience and drive success. It includes selecting the right vendors as well as negotiating their terms of service and monitoring their performance to reduce risks and costs.

What Is The Role Of Vendor Management? 

In addition to choosing the correct vendors for your business, vendor management is about forming strategic partnerships that will benefit both parties. By managing vendors effectively, companies can control costs, minimize risks, provide outstanding service to customers, and generate maximum profits from the relationship.

The Vendor Management Process Workflow

If you think of a step-by-step formula for your vendor management process it would definitely look like the points discussed below.

1. Finding vendors

This step involves finding qualified vendors that have the skills or capability to meet your needs. You need to develop profiles for the goods or services provided by these vendors along with the prices they charge.

2. Selecting the right vendors for your business

Once you’ve found potential vendors, it’s time to select one that best meets your needs and for the best prices. You may wish to request that they submit a contract proposal in order to be considered for your business.

3. Negotiating price and terms

This is where the service conditions and terms are negotiated as per the business needs and preferences that both can agree upon. For instance, the quality standards, delivery instructions, and prices are negotiated in order to create a mutually beneficial agreement.

 
4. Monitoring vendor performance

Here starts the more strategic approach to the vendor management lifecycle. Keeping up with your vendor’s performance ensures you are aware of any changes that may affect your company’s cash flow or reputation (e.g., late shipments, defective products).

5. Controlling expense

Ultimately your business shall move on with the extent you have decided for costs. By effective vendor management, you can ensure the expenses are monitored closely and controlled whenever required.

Why is Vendor Performance Management important? 

When you spend so much time and effort on-boarding the right vendors and look forward to doing business with them, you should constantly monitor their value. Vendor performance management entails having the right KPIs (Key Performance Indicators) and regular reporting so you are aware of the value your vendors are providing. 

How To Measure Vendor Performance?

In order to track the vendor performance of your business, you need clear strategies and smart vendor management systems. Systems like these help you segment vendors according to your priorities, track and monitor their performance according to KPIs, and report the results in the way the department desires.

5 Reasons why you need a Vendor Management Software 

It's 2022 and it becomes paramount for businesses to have more productive strategies. Thank god, we are equipped head-to-toe with technology for everything we do. Vendor management systems can truly change the way a company does business and is of immense value when it comes to Vendor Performance Management. Such a system can align with your strategies and provide a fail-safe mechanism to vendor risk management as well. 

Here are 5 reasons, Vendor Management System is a primary need to your business

1. To simplify the invoicing process
One of the challenges facing any company is getting paid on time by its vendors. This can be especially difficult if your vendors are located worldwide, or if you are buying goods from multiple countries. The problem is compounded when you factor in language barriers, currency exchange rates, and cultural differences. Vendor management software simplifies this process by allowing you to automate invoice processing.
 
2. To manage risk
Vendor performance management software allows you to develop a comprehensive risk management system. The system allows you to monitor and evaluate the performance of suppliers at any time. This gives you better insights into the risks your business faces with regard to the quality of products and services provided by your suppliers.
 
3. To improve visibility
A vendor management system provides visibility into the performance of vendors by giving managers access to real-time supplier data in one single place. This allows for informed decision-making about suppliers, ensuring that you are always working with the best ones for your business needs.
 
4. To streamline internal processes
Vendor management systems help streamline communication between internal teams and external vendors. Such systems make it easier for companies to collaborate with their supplier community because they have easy access to relevant information on the system.

5. To improve communication
With the help of a vendor management system, it is easy to communicate with vendors. There is no need to send emails or write letters. You can simply start communicating with your vendors directly from the system. They can also communicate with you directly through their own accounts. This makes communication very easy and fast.

The Bottom line 

One of the biggest advantages of vendor management software is that it gives you an insight into data related to all aspects of your business relationships with vendors. A good Vendor Management Software can help you better manage your cash flow and save you both time and money! Moreover, it can be a game-changer for your business as it can help automate any of the tedious and time-consuming portions of the vendor management process.

With the new technology trends and advancements, it's almost impossible to say no to something that can make things easier for you in the business process. Procurement Automation software is one of the most vital software requirements that you shall be checking out soon if you are a growing small or medium enterprise business. 

The Procurement Process and Complexities involved 

The terms Purchasing and Procurement are often used close to each other, while they hold a slightly different series of processes.
In any business, there are requirements of goods and services, either for external purposes (mostly with firms involving manufacturing or remanufacturing) or for internal purposes (goods/services used with daily operations within a business environment). 

The process of obtaining these goods with a series of events can be addressed as the purchasing process, wherein the processes like requisition to purchase order generation, receiving the goods, and invoice approval and payments for the same can be referred to as Procurement.

Every organization can have its own set of contexts for this process based on its business operations. The procurement process cycle is important to be followed in a pattern that itself makes it complex. 

The first step is the identification of requirements, which is followed by the generation of PR (Purchase request or purchase requisition), which, once approved by the Procurement department, takes the form of a PO (Purchase Order). Once the PO is ready, there is an RFQ (Request for Quotation) that is sent to various Vendors to get their quotes and offerings, and then begins the comparison phase for the department, where they need to compare all the quotes to get the best deal in hand.
Once a supplier is selected, there is a negotiation of a deal, which finally leads to an agreement between both parties if things are falling towards the positive. This agreement is known as the contract, which in general contains all required information about the supplier and the deal, including the price, description of goods and services, the quantity and time of delivery, and other terms and conditions. Once this is all in place and the order is received, the invoice generation, approval, and payment come up in the line. 

With the above sequence of procedures, there is complex accounting and paperwork involved, which needs to be taken care of on both ends for a smooth business operation. And here comes the need for robust procurement process automation software to capture all the information and documents in this complex business process right from the beginning to the final payment.

What is Procurement Automation? 

Procurement automation refers to automating all the manual processes that are repetitive and time-consuming. Procurement process automation speeds up the process by using automated request generation and letting them flow smoothly between departments for approvals, which saves a lot of time and effort for your team and makes the whole complex process streamlined with a seamless experience. 

Procurement automation software is a digitally accessible hub that includes all your procurement to pay needs and saves data at every point of the process. Purchasing automation software brings the whole procurement process online with multiple accesses, i.e. to the team as well as vendors, respectively, on their part. Such software helps the team to get more time to focus on the strategic part of the business operations planning and management and also helps reduce cost and increase savings.

The Need For Best Procurement Software In 2023

The procurement process has been through multiple phases of evolution when it comes to the strategic management or the technological advancement part. 

In the beginning, paperwork was used to record data, then spreadsheets were used to store the data, then on-premise management systems, and eventually SaaS-based hassle-free systems with high scalability, efficiency, and flexibility were utilized. 

Now it's 2023, and we see procurement more as strategic procurement, considering every redundant and time-consuming task to be taken care of by automated systems. 

The ultimate question to ask is whether your business needs procurement automation software. Before adopting top procurement software, it is necessary to analyze your automation requirements, but in addition to this, several factors can affect this decision for you.

If you see the smaller picture, you will have certain points to notice, like, your team is having a lot to do manually, and there are transparency issues, information gathering from various vendors, and storing the same for the management, making things worse for them, so and so.

Well, you can have a view of why to care for the department if it's their job. But, coming back to the organization's goal, you had the answer that yes, you care! 

Statistics speak out that procurement professionals spend more than 30% of their time doing routine tasks, which usually involve creating, approving PRs, POs, reviewing quotes, and all. In this highly competitive market, everyone wants to get the best in their hands and you will never want your department to struggle with things that don't let them focus more on the brighter side of cost-cutting and savings with a process like Procurement.

So when is the right time to automate your process—if not now!

Benefits of procurement automation software 

When you incorporate procurement automation tools into your business processes actively, you receive various benefits. Let's mark the core benefits that any business start to witness with procurement process automation projects on run-

1. 360-degree Visibility and Spend Control

Purchasing automation allows you to gather all the necessary information at every step involved in your function, from sourcing to final pay, and this information is easily accessible from any touch point within seconds. 

You have your supplier data and costs and complete insight into your overall process along with order tracking, which gives a sense of control and security over all your spending. 

2. Better Resource Management and Increased Efficiency 

Automating the procurement function helps the process to become swift and seamless and the leaders can have better utilization of their human resources, leading to higher efficiency. 

Enhanced order process helps the team to set priorities on tasks of higher importance than struggling with various works that usually require less involvement of human brilliance. All reports are easily accessible and data can be fetched from any department when required, as per the given controls, which makes a fine-tune sync between departments like procurement and finance, which is important for business operations to run smoothly.

3. Higher Cost Savings 

Procurement functions that yet don't work on automated systems have a catalog of their previously trusted vendors, which they often consider to go with for their purchase. Such organizations could not try out more in the market and explore to get the best deals for their goods/services requirements, as it's complex to gather the right information which they can trust on.

With Procurement automation software, we get better-calculated supply needs and can reach several suppliers to get the best possible business deals, landing in a higher amount of savings for the contracts. 

The seamless operations with procurement process automation allow you to reduce any mistakes and hence decrease the add-on costs with contracts and bring up your whole procurement into confidence with deals they make. 

4. Better Decision Making 

With all the vendors' data and costs in hand and a greater number of quotes, there are more chances of negotiations and getting the deals with lower purchase costs without hampering the quality.

The vendor data allows making better decisions in favor of business finance and the organization's savings goals.

5. Risk Mitigation 

Procurement experts have always claimed the best way to avoid risks is to find out the potential risks at every stage and be better prepared for the worst in each case. With procurement automation software, you get the best visibility across your whole procurement cycle, thus helping you identify the risks and prepare robust strategies to tackle them.

How do you automate a procurement process? 

Frankly, you have two ways to go here if you haven't automated your procurement process yet. The first is quite a lengthy procedure and would cost you more than your obvious budget for this, which is going for an on-premise system. This involves hiring a team of experts to be a part of your organization forever to build systems that require constant monitoring and maintenance. The other way is to move with the world and opt for SaaS.

Statistics from Better IT research show that 38% of companies are running completely on SaaS-based systems, and around 80% of business are planning to adopt SaaS by 2025 for all their software needs. 

There are various cloud-based procurement automation tools that are fast to implement, affordable, and highly scalable, which can help make your process break records of cost-cutting and savings. A cloud-native procurement process automation software can prove to be a great asset to your business in facilitating the development, assigning, and managing of tasks that will eventually standardize your business process operations. 

The TYASuite Procurement software can be the end to your search for the best procurement software that you can get for an affordable price with an easy and quick implementation cycle in 2023.

Well, with ERPs it's not just about selecting and going live with a software service as others. This is highly crucial as your ERP implementation phase decides what benefits you are going to derive from it.

When it comes to ERP, the implementation cycle is a long process and it can take ample time and participation of you and your service provider. The ERP implementation process begins from gathering your business’ requirements for ERP, choosing the right software, customization and system deploying cycle, data migration, pieces of training, going live, and managing the ERP support.

In This Article:

1. ERP implementation process overview
2. ERP implementation phases
3. When should ERP be implemented?
4. Why do you need an ERP implementation?
5. Various trends in ERP deployment
6. How long does it take to implement ERP system?

ERP implementations can be complex and challenging undertakings, even under the best of circumstances. The process includes a number of steps that must be performed in a specific order and can take anywhere from 6 to 18+ months to complete. Full ERP implementations will require organizational change and user adoption, detailed planning, accurate requirements gathering and preparation, proper planning for system customization, data migration, data integration across disparate systems, end-user training for new processes, and effective project management.

Implementing a new ERP system successfully is complex and time-consuming.

Let’s explore the steps in the implementation process and examine what you need to know about managing change.

Importance of a well-planned ERP Implementation Process

According to Global consultancy McKinsey, more than 70% of all digital transformations fail. A recent study over several ERP implementations in the past 10 years reveals that around 60% of ERP implementations took longer than expected and around 75% of ERP projects exceeded the allocated budget.

The main reasons behind these failures were found to be revolving around the business's interest during the implementation process of ERP. Unclear project requirements with core team members not caring to give enough time for the project and the core team consisting of the wrong people are some major issues in this regard.

Well, all such causes can be nullified if we take our ERP implementation process as a priority during the project tenure. The leadership participation to help set up the correct requirements and get the right system deployed becomes important when it comes to the Enterprise Resource Planning implementation process.

If we have thought of ERP implementation for our business, we are close to achieving the benefits of streamlining our business process with automation. But to get the best out of our investment, the ERP implementation process should be as efficient as possible at all stages. An error-proof ERP implementation life cycle with effective participation and a clear approach can do wonders. 

Let's see what these phases are?

1. The Discovery Phase

Discovering the needs of ERP implementation is the first and foremost step towards your process automation planning. Before going through the multiple phases of ERP implementation, the two most common yet important aspects are 'When' and 'Why' ERP? 

There may be a global buzz towards business process automation, tougher competition, and some process optimization requirements that might bring up the thought of ERP implementation but how we'll come to know when is the best time for us to automate our business processes?
Well, multiple signs can help us decide this. There may be multiple software on which different departments are running, there may be less transparency and sync between processes and require a manual tally mechanism to match up with data from different departments, data becoming unmanageable, scaling up of business, etc. and all of these shouts for the requirement of a centralized ERP software needs.

Keeping track of your business processes manually is time-consuming and prone to errors. With a cloud ERP implementation, you can eliminate repetitive tasks and make better decisions based on the real-time analysis of the most recent data. A cloud-based system offers the enhanced ability to streamline business processes while keeping in tab with production demands. A digital transformation is necessary to change your business processes, keep up with the latest technology, and get ahead of the competition.

2. The Project Planning Phase

A well-planned project is a must for ERP implementation. From the appointment of an efficient project team to examine all the current workflows and define goals for ERP service, to budget allocation at first place, all becomes mandatory in the project planning phase for ERP.

The project team shall be appointed with the necessary leadership to carry on with the ERP implementation process journey. Such a team generally includes an executive for budget allocation, project managers, business process experts, or the concerned department representatives along with IT leaders. From preparing the project plan, important timelines, resource allocation, and daily management, the project team shall be responsible.

The business process experts (can be leaders from concerned departments) in the project teams are mostly into defining requirements for ERPs along with possible improvements in the current workflow with all possibilities of growth and scalability in the future.

The executives may help decide the budget allocation based on the requirements set by the process leadership. The team shall collaboratively document all the specifications and KPIs based on which they can monitor the ERP service's benefits and add-ons for the business.

3. The Service Selection & Evaluation Phase

The requirement analysis will provide you with answers for why an ERP system is required and for what goals. Along with this, the requirement analysis will also speak up for the type of service that is required in your case. Based on the goals and timelines, there can be two categories in 2022 that you can choose from, i.e. having an on-premise system or subscribing to a Cloud-based ERP service.

If you are preferring to go for the robust Cloud-based ERP services, the process will deviate accordingly and the next step would possibly be the package selection.

The twenty-twenties is a decade of a high trend for cloud-based ERP solutions that are easily customizable, fastest to implement with high flexibility and scalability as the super-strengths. There are multiple service providers across the globe with all needs brought on a single centralized system for complete resource planning across all departments. But, choosing the best ERP software for your business is highly dependent on your business process. 

Once you are done with the service selection, the next thing is the package selection that is desired. Service providers have ERP solutions for all departments, but your requirements may be more or less. The selection of the right packages may help you to get the SaaS as required along with the best subscription prices.

GAP Analysis

It's a crucial evaluation phase in the ERP implementation life cycle. In this phase, the Gap analysis is done which speaks up for the missing sync between the requirements and the ERP offerings. This gap analysis shall be taken into account with the leadership to ensure you get the ERP to meet all the functional requirements for your business.

Service agreements with ERP vendors can be the final point to discuss here. Your package selection with the number of users may give you a clear idea regarding the subscription price regularly and can help build your contract with the service provider.

4. The Customization and Testing Phase

After the software selection and evaluation phase, here starts the job of your cloud ERP solutions provider. This phase involves work mainly on the service vendor's end yet it may involve multiple meetings and discussions for process improvements and re-designing of customized modules. Complete configuration with safe Data Migration is the critical process involved here. 

Testing can go parallel with the development phase, as the team can monitor and test-verify specific modules that are ready. Various re-testing and amendments can be suggested where required. The better you collaborate with your ERP vendor in this phase; the best results can be brought up with the project. 

Meanwhile, the team is supposed to work on necessary documentation and training materials for their end-users. The project team is not just responsible for carefully listening to the end user's issues and concerns, but needs to also help them understand the reason, goals, and benefits of ERP implementation. ERP implementation is a complex process and hence, you will have to look for well-organized ways of training users, which is only possible with two-way communication with them.

5. The Deployment Phase (Go-Live)

With the final testing of the ERP modules and training of end-users, the ‘day’ has arrived, when you are finally ready for the actual implementation process. Still, we need to keep all the rush aside and be ready for the downtime and other issues on our way. We shall be more patient at this phase and be highly resistant to the changes. 

Organizations adopt different approaches when it comes to going live with a new set of software. 3 key common approaches that can be chosen for ERP implementation include: 

1. The big bang approach: A highly popular approach among various big businesses. With the big-bang approach, the software is installed in one-go on a go-live date for entire teams of the organization including sales, finance, operations, marketing, etc. Thus, requires a lot of planning, as a single mistake has the potential of affecting all business functions. 

2. The phased approach: As the name suggests, in this approach organizations plan phased implementation as per the department, location, manufacturing unit, etc. The risk is lower as it will not have a huge impact on the entire business at a time and things can be quickly tackled in case of faults.

3. The parallel approach: In this approach, teams integrate a new parallel system, while the older one is already in function. This again minimizes risks involved in implementation, as you already have the old system running parallel to back switch to. However, running two systems at a time comes with its own set of technical glitches including issues like data synchronization as well as issues with the end-users.

ERP implementations take six months? No way!

A lot of companies in the late-90’s, 2000’s and early-2010’s thought they would get a company off the ground just by picking up an ERP system from their local reseller and be running smoothly three months after the installation.

Those companies were wrong. Agile, ever-changing business models require agile, ever-changing business software.

With today’s modern Cloud ERP Software technology companies can expect quicker implementations with better integration between their current systems and their new business software.

The Essence

ERP implementation process is a major project that can be an exciting and great learning experience for the whole project team. The inside-out process journey and optimization cycles can boost up the process knowledge along with the real value i.e. automation. The implementation process experiences shared by various industry leaders show how they have gone through the unnoticed finer points of their business process became added a great experience to their profiles.

Remember, it's always teamwork when it comes to optimization and automation. Your ERP implementation cycle if went well, can thrive the business process and help the business touch skies with its real-time cost-cutting and saving mechanism.
 

The literal definition of procurement is the action of obtaining or procuring an entity or a commodity. Here, the term procurement is used in the realm of business. On the surface level, procurement might seem like it is all about acquiring supplies of an organization that needs to function daily. These include vendor management, fraud prevention, payment processing, invoice processing, quality control, etc.
However, there is more than meets the eye.

Procurement can be divided into two niches - direct and indirect procurement. While both are essential to the smooth functioning of any business, it is very important to understand their place in the business so that you can prioritize and emphasize where and how they are required.

What is direct and indirect procurement?

• Direct procurement

Direct procurement is the acquisition of raw materials and goods required for production. Such purchases are made in bulk amounts and are acquired from a supplier based on the best possible price, quality, abundance and reliability. This is necessary for the everyday functioning of a business. For example, For a chef, rice isn't just an ingredient; it's the lifeblood of countless dishes. Similarly, cement is the foundation for a builder, and metal is the backbone of the iron and steel industry. These essential commodities are more than just materials; they're the fuel that drives production and generates revenue through direct purchasing channels. Any disruption in their procurement can grind operations to a halt, sending shockwaves through entire sectors. This crucial need for consistent supply is why robust direct procurement software solutions often originate in the manufacturing industry, where even minor hiccups can have significant consequences. Ensuring a seamless flow in direct procurement processes becomes imperative to maintain the uninterrupted availability of these vital resources, underscoring the pivotal role of procurement software in sustaining essential supply chains.

•  Indirect procurement 

Indirect procurement is the purchase of services that are required to keep the business running. They do not directly influence the functioning of the business, but they do affect the outcome. It is defined as the activity directed at ordering goods and services that support your primary business but do not deliver directly to end customers. For example, in the mobile phone industry, silicon chips are a direct procurement commodity because, without them, a phone will not function, but a proper service center is an example of indirect purchasing. Would the manufacture of mobile phones get halted because of a lack of service centers? Of course not. However, would the outcome of the company as a whole be affected? Absolutely.

So, we pretty much understand the difference between the two in the basic form.

How to manage direct procurement?

Direct procurement process is one of the most overlooked yet important aspects of business operations. It is directly related to the processes involved in purchasing of the raw materials required to make a product. Managing it isn’t very easy, especially when it's across an organization with thousands of products and services.

Direct vs. Indirect Procurement

Procurement software involves the performance of two main functions. First, it is concerned with purchasing the core component of your products. Second, it is concerned with enabling you to meet your customers’ needs more effectively by granting you access to capital that will enable you to increase your inventory levels. Furthermore, this function is concerned with ensuring that the organization’s stock of raw materials has an appropriate turnover rate so as to enable not only efficient meeting of customer demands but also effective exploitation of assets. On the other hand, indirect procurement software functions are aimed at securing goods whose consumption does not have a direct effect on customers or production cycles. 

Here are three core areas of procurement where the distinctions between direct and indirect purchasing are laid-out:

1. Managing Supplier Relationships - Direct purchasing requires  suppliers to be on good terms with the company to ensure long term procurement of goods. However, in terms of indirect purchasing, companies focus mainly on expenditure. Hence, their focus is mostly on managing and reducing it. This is especially true in terms of companies that have little to no direct procurement requirements, such as software companies, digital marketing companies, etc.

2. Managing Inventory - Having the right amount of inventory on hand is essential for smooth production. It can be highly inefficient to hold large amounts of inventory if the expected demand level isn't known. Direct procurement is beneficial when you expect a constant stock level, when the purchasing process is rather traditional, when it takes time to place orders, when you deal with many suppliers and, in some cases, when dealing with very expensive and perishable goods. Indirect purchasing is more appropriate when inventory levels fluctuate dramatically in accordance with production cycles, in environments in which customization is possible and when time-to-market is required

3. Organizational Structure - In most companies, direct costs are managed by centralized procurement and supply chain teams, with category managers focusing on specific areas of spend, whereas indirect purchasing in most large organizations tends to be decentralized in nature. Organizations have multiple stakeholders with independent budgets and spend management protocols, resulting in inefficiency in the indirect procurement process. Lack of centralized structure for indirect spending leads to operational inefficiencies. A significant proportion of global Fortune 500 companies are moving to managed indirect outsourcing, saving 10–18% of their overall operating costs each year.

In a Nutshell

Inefficient procurement management directly impacts the bottom line. Without well-defined and streamlined procurement practices, businesses experience high overhead costs. The objective of procurement is to make the best purchase at the right price for the right item, at the right time and in the right quantity and quality within the organization. Businesses need to invest resources towards understanding about what differentiates direct from indirect procurement. It must be noted that it is imperative that direct and indirect purchasing go hand in hand in industries that require it. One is not more important than the other. By focusing on both direct and indirect procurement, organizations can cohesively grow by honing in on the holistic view of the procurement field.

In today’s competitive business environment, it is very difficult to survive and grow without a good grasp on the core principles of procurement management. Survival and growth compliment each other and cannot exist without one another.

Guide to Procurement Management 

1. What is procurement?
2. Types of procurement
3. Procurement vs. purchasing – what’s the difference?
4. What is meant by procurement management?
5. What are the steps involved in procurement management process?
6. Why you should automate procurement management?

Procurement is the process of buying goods and services from vendors, typically for business purposes. Most companies have a designated buyer responsible for purchases, typically a senior manager with a staff of procurement specialists. The buyer's job is to find the best products and services for the firm at the lowest price, and to find new sources for purchasing a particular item or service when needed.

To understand how procurement can play a vital role in your company’s success, you first need to know the different types of procurement:

1. Direct Procurement - Direct procurement is the process of purchasing goods and services that are utilized in the core operations of a business. The goods and services procured through the process of direct procurement eventually find their way to the end customer or client of the business. These purchases are generally made in large quantities. Examples would include raw materials, components and parts, machinery.
2. Indirect Procurement - Indirect procurement is the process of procuring assets and services for a business that aren't directly tied to the operations or manufacturing wings of a company. Examples would include purchasing equipment repair, office supplies and myriad service sector products and services.
3. Services Procurement - Services procurement consists of an integrated set of proven and economical business processes and practices used to efficiently procure professional services. From law firms to on-site security services, through outsourced HR processes or on-equipment training, service procurement is about procuring the people-based services your company requires.

Procurement is an overarching term that describes the process of identifying the market for a product or service, building relationships with suppliers, evaluating cost savings and constructing contracts. Purchasing is a sub-process of procurement. Purchasing relates to the buying of goods or services, purchase orders, invoicing, shipping notifications, goods receipt and payment. The two terms are closely related but mean very different things in practice.

Procurement management involves sourcing (identifying and selecting suppliers), negotiating (establishing terms and conditions for supply), purchasing (acquiring goods and services at the best prices by following the approved process), monitoring (identifying and managing risks), and reporting.
While procurement management is about strategic sourcing, it also includes a lot more. It has been said that procurement management is organizational body, soul and spirit. It is an organizational body, because it is about enabling an organization to make optimal use of its resources through cost effectiveness and efficient procurement of goods and services. It is soul because the procurement process involves identifying the core competencies of an organization and aligning them with the desired outcome of procurement activities. It is spirit because it empowers organizations to achieve their goals through a holistic approach to sourcing goods and services.

Even when you buy simple items like pencils or clothes, they're often supplied to meet strict specifications. That's why there is a process for purchasing called procurement management. Proper procurement procedure consists of seven main stages:

1. Identifying the requirement for goods or services
2. Identifying and evaluating vendors/suppliers
3. Negotiation of contracts with the selected supplier
4. Raise purchase requisition (PR)
5. Generate purchase order (PO)
6. Quality checking of requested goods
7. Invoicing and payment

Step 1: Identifying the requirement for goods or services

The first step is to define your requirements. This entails listing all of the goods and services your organization needs to purchase, thinking about which of those high priority are and which are not. It’s also important to consider your company’s strategic goals and mission, because procurement decisions are often geared toward supporting those priorities.

Step 2: Identifying and evaluating vendors/suppliers

Once you know what your needs are, it’s time to determine who will supply them. You first need to identify potential suppliers, which usually require you to do some market research.

Step 3: Negotiation of contracts with the selected supplier

The next step is to establish the terms of the agreement. This generally includes pricing, delivery, payment terms and so on. 

Step 4: Raise purchase requisition (PR)

After you’ve identified the vendor and agreed on the details, the next step is to raise a purchase requisition (PR) which is basically an approval from the department responsible for approving purchases that includes a description of the good/service, pricing, quantity and supplier information.

Step 5: Generate purchase order (PO)

Once the PR is approved, it’s time to issue a purchase order to the vendor. This includes assigning a PO number, which makes it easier for your supplier to process your order and for accounting to track it.

Step 6: Quality checking of requested goods

Companies should audit the requested goods to ensure the suppliers have met quality expectations.

Step 7: Invoicing and payment

The final step is to process the payment once the invoice is delivered to your company. This generally involves reviewing and accepting the invoice, then passing it along to your accounts payable department for payment.

The procure-to-pay process management is manual, repetitive and often inefficient, lacking in transparency and quality. Employees spend a lot of time with this activity as they have to review numerous sources, create an extensive spreadsheet or manually collect information from various vendors. Poor spending decisions are made, leading to the unnecessary purchase of products, services or materials at higher costs. On average, procurement professionals spend 30% of their time fulfilling routine procurement processes such as creating, approving and distributing purchase orders.
It doesn’t have to be this way!
The right procurement automation software for small business can shave days off your procurement cycle by streamlining the process of sourcing the right products, simplifying approval workflows and automating tasks throughout the whole purchase journey. It leads to faster delivery times for the business, consistent results and increased visibility over expenditure. This can deliver more value to the supply base, remove inefficiencies within your business, identify savings that can be reinvested, and ultimately help you succeed faster in your marketplace.