Key Takeaways

1. Procurement is essential for acquiring goods and services required for business operations.
2. Direct procurement focuses on raw materials and goods critical for production, while indirect procurement supports overall operations without directly affecting production.
3. Effective management of supplier relationships, inventory, and organizational structure is crucial for both direct and indirect procurement.
4. A balance between direct and indirect procurement is vital for cohesive business growth.
5. Investing in procurement technology and streamlined processes can significantly enhance efficiency and reduce costs.

Understanding Procurement

Procurement, in the business context, involves obtaining goods, services, or commodities necessary for the organization’s functioning. While it may seem straightforward, encompassing vendor management, fraud prevention, payment processing, and quality control, procurement is more complex and pivotal in operational success.

There are two main categories of procurement: direct procurement and indirect procurement. Recognizing their differences and roles is vital for prioritizing and optimizing procurement strategies.

What Are Direct and Indirect Procurement?

Direct Procurement

Direct procurement refers to acquiring raw materials and goods essential for production. This involves bulk purchasing based on price, quality, availability, and supplier reliability. Direct procurement ensures a steady supply of critical resources, enabling uninterrupted production. For instance:

1. Rice for a chef is a fundamental ingredient.
2. Cement for a builder forms the foundation of construction projects.
3. Metals for the steel industry drive manufacturing processes.

Disruptions in direct procurement can severely impact operations, underscoring the need for robust procurement solutions to maintain supply chain continuity.

Indirect Procurement

Indirect procurement involves acquiring goods and services that support business operations but do not directly affect production. These purchases, such as maintenance services, office supplies, and IT equipment, indirectly influence outcomes. For example:

1. In the mobile phone industry, silicon chips (direct procurement) are critical, but service centers (indirect procurement) enhance customer satisfaction.

While indirect procurement does not halt production, inefficiencies in this area can lead to increased costs and reduced operational effectiveness.

Managing Direct Procurement

Direct procurement focuses on securing raw materials for production. Effective management involves:

1. Building strong supplier relationships to ensure reliable and cost-effective supply.
2. Keeping an eye on inventory levels to prevent shortages or overstocking.
3. Implementing procurement software for streamlined processes, enhanced visibility, and cost optimization.

Managing Indirect Procurement

Indirect procurement requires managing expenditures on non-production-related goods and services. Key strategies include:

1. Centralizing procurement processes to reduce inefficiencies.
2. Implementing cost-control measures to minimize overheads.
3. Leveraging technology for better visibility and tracking of indirect spending.

Direct vs. Indirect Procurement: Key Differences

1. Supplier Relationships

   • Direct Procurement: Focuses on long-term partnerships with reliable suppliers to ensure a consistent supply of critical materials.
   • Indirect Procurement: Prioritizes cost reduction and efficiency over relationship-building, particularly for non-essential services.

2. Inventory Management

   • Direct Procurement: Maintains steady inventory levels aligned with production demands to prevent disruptions.
   • Indirect Procurement: Adapts to fluctuating needs, often involving customized solutions and time-sensitive purchases.

3. Organizational Structure

   • Direct Procurement: Typically managed by centralized teams with category-specific expertise.
   • Indirect Procurement: Often decentralized, leading to potential inefficiencies and higher costs. Organizations are increasingly adopting managed indirect outsourcing to address these challenges.

Why Streamlined Procurement Matters

Inefficient procurement practices directly impact the bottom line. Key challenges include:

1. High operational costs due to poor supplier management.
2. Inventory mismanagement leads to production delays or wastage.
3. Decentralized processes cause inefficiencies in indirect procurement.

Enhancing Procurement Processes

Businesses can optimize procurement through:

1. Adopting Technology: Implementing procurement software to automate processes, enhance visibility, and improve decision-making.
2. Supplier Collaboration: Strengthening relationships with key suppliers for better terms and reliability.
3. Centralization: Consolidating indirect procurement processes to reduce inefficiencies and achieve cost savings.
4. Training: Equipping teams with the knowledge to manage procurement effectively.

The Role of Procurement Technology

Modern procurement software solutions provide tools for managing both direct and indirect procurement efficiently. Features include:

1. Real-time inventory tracking.
2. Automated purchase orders and approvals.
3. Supplier performance analytics.
4. Cost analysis and forecasting.

Balancing Direct and Indirect Procurement

Successful organizations recognize that direct and indirect procurement are equally important. A cohesive approach ensures:

1. Smooth production cycles.
2. Operational efficiency.
3. Cost-effectiveness across all procurement activities.

In a Nutshell

Procurement is a cornerstone of business operations. Understanding the nuances of direct and indirect procurement allows organizations to optimize their strategies, reduce costs, and enhance efficiency. By leveraging technology and focusing on both procurement types, businesses can achieve sustainable growth and maintain a competitive edge.

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.   

Vendor management and supplier relationship are essential for any successful business. It is complex in the case of remotely managed digital operations such as e-commerce or international trade.

There is a reason only in 47% of the cases vendor collaboration makes it up to the mark. Any supplier dealing with multiple vendors usually requires a centralized vendor management solution capable of maintaining the system without a glitch.

The purpose of vendor management software is to minimize complications. It is essential for every business so that they can focus on their core operation and productivity.

However, there are many sub-processes for supply chain management, delivery tracking, and returns management. The Automated Vendor Management Software makes the experience seamless and helps improve the relationship with vendors by streamlining the business.

Let's understand the different ways to redefine vendor relationships with efficient Vendor Management Software.

Expert recommended strategies to maintain a healthy vendor relationship with cloud-based Vendor Management System

1. Flexible Communication Channels

Communication is vital for every business relationship. The vendors have a dependency on suppliers in every stage of the business, be it handling damaged consignments or managing late deliveries. The Vendor Management Software empowers both of them to understand basic delivery requirements and maintain them as per their business standards. An effective feedback mechanism provided by the software solution helps in a better understanding of the operation.

2. They are strategic partners, not vendors

Dedicated vendors are the foundation of any successful business in the long term. A stable and good relationship with the vendors can always help turn your business into a role model. An automated vendor management software would enable business owners to build and maintain a healthy relationship with all the strategic partners and add value to the business ecosystem. An efficient mechanism for responding to their quarries and concerns will help you earn their trust and confidence in your business.

3. Reducing uncertainty and risk

A healthy and long-term business relationship always depends on both vendors and business owners. Hence it is essential to consider all risks associated with the supply chain, like demand fluctuations, and draft a transparent contract accordingly. Vendor Software helps in minimizing such risks and maintains an ideal balance.

How does the vendor management tool exactly help to implement these strategies?

Vendor management software is not limited to mundane database management for the vendors and their respective order status. It can also help you to get their honest feedback from time to time. Apart from this, the tool helps with risk analysis and effective operation management.

Let's talk about the features of a robust Vendor Management System.

1. Efficient management of the vendor life cycle

Since Vendor management itself is a combination of multiple processes, it is essential to manage the entire lifecycle effectively. So there are certain ?must-have? features in any Vendor management software.

1. Vendor's classification: Every vendor is unique, so are their requirements and associated risks. Hence the Vendor management tool must help with the vendor classification so that all the agreements and contracts; are drafted accordingly, keeping the interest of both parties in mind.

2. Assess Risks: We have already discussed the significance of risk assessment and management earlier. Vendor management software helps the same process with a quantitative measurement approach. It enables you to evaluate all factors before making an informed decision.

3. Aid in auditing: Accuracy in report generation and task auditing are the basic features of any vendor management software. Hence a proficient one must generate reports with the list of critical vendors, selection process, and minute of the meeting that can help key stakeholders in decision making.

2. Strengthen collaboration

A vendor management process often involves multiple or all departments of any organization. Hence, the vendor software tool needs to be flexible enough to provide a secure and centralized digital environment for all departments. Such a process always translates into reduced redundancy, transparency among departments, and increased efficiency.

3. Verification at each level of management

It is always possible to have errors or out-of-scope needs in any Vendor Management process. Missing contracts or the requirement of updated reports are some examples. Your vendor management software helps you out there and allows you to monitor those constantly.

4. Access to the entire vendor management arena

Your tool should be able to handle and access the entire vendor management environment dynamically whenever required. For example, if you want to monitor the risk and create a report of critical vendors. Then you should be able to fetch all the vendor details and the labeled categories.

Executive Summary

Make a checklist of these features and any further custom requirements of your business. You will know if your tool is good enough to help you with your vendor management needs. TYASuite, World's 1^st Plug-and-Play Vendor Management System, allows companies to simplify the vendor onboarding process and establish an effective communication channel among buyers, suppliers, and companies.

Technology, and in particular ERP solutions is fundamentally changing various phases of the organizations. Right from how the organization functions to successful implementation; the technology has made it quite easier to compete in the global market.

As warehouses are becoming advanced, and factories are becoming productive, the process of implementing procurement software has gone to a whole new level. The technocrats are constantly developing innovative products to make the ends meet and make life easier by simplifying the complications of business. With implementation of procurement software, certain challenges arise in the same proportion. Before procuring, the professionals need to bridge the gaps and eliminate all the problems associated with procurement.

What are the common problems in the Procurement process?

(1) Poor selection of vendors

Within the organization, it is very important to maintain a smooth running of the business operations that is reliable and has an uninterrupted supply of goods and services. Without dependable vendors and robust e-procurement software, it will be quite difficult for the team to implement the software and understand the basic requirements of the business.

The best solution to the problem is to go for vendors with a proven track record and years of experience in handling clients globally.

(2) Violation of purchasing protocol

It is often a common problem within an organization that employees do not abide by the purchasing protocol. An organization with a centralized purchasing model allows a certain number of people to purchase on behalf of the company.

In many cases, the companies decentralize the purchasing model thinking that their employees will not follow the purchasing protocol. As a result, they make a purchase that is excess than the required amount. It affects finance and increases unnecessary expenditure.

To solve this, companies need to ensure about their requirement and apply a strict protocol, by implementing purchasing software that gives access to the selected employee?s in-case if they purchase on behalf of the company. The implementation of this software will help you to ease the process as well as track every purchase done by employees. In addition to this, the company will be able to track unnecessary expenses.

(3) A gap in user-communication

Due to a lack of user communication, the requirements of the users are often misinterpreted which leads to the selection of wrong products. As procurement software is implemented it will emphasize more on the functional requirements of the users.

Procure-to-pay software will help you to set up communication between users and vendors. Apart from this, it will create practical and realistic timelines that will be taken into account for future reference.

(4) Bad relation with suppliers

There are instances when organizations do not maintain good and cordial relations with suppliers. As a result, it affects the procurement process and increases the complications within the organizations. For efficient management of business, it is quite important to set-up good coordination with suppliers by implementing procurement software. Sharing a good relation with suppliers will help you set up a good communication and ensure good business productivity.

(5) Delays in implementation leads to complexity

The process of procurement involves managing multiple purchase requisitions, setting up approvals for respective departments, quality checking of products, payments, invoices and much more. If procurement software is not well implemented, it will be quite difficult to regulate the above process and a large fraction of time will get wasted due to flaws in procuring process. Hence, it is very important in today?s digital era that organizations adapt to procurement software which comes with lots of customization options that can be easily mould as per the needs of the business ensuring smooth business operations.

Final Take Away

As the world is heading towards digitalization, organizations should be well prepared to face challenges while planning to implement TYASuite Procurement Software which comes with a handful of 3500 plug and play features to ease and streamline business operations irrespective of any industry. Keeping in mind the above-listed problems, our robust software can help you deal with upcoming hardships and solve them within a limited time frame by automating procurement to pay process in a correct way.

Ease Every Complication with Plug and Play ERP implementation

The time is changing at a fast pace and so is the business requirements. To emerge as a winner, it is quite important to implement Plug and Play ERP software developed by TYASuite to get productive results within a limited time frame.

Technology has transformed over the last couple of decades and so is the business. With transformation, the business owners are looking forward to accelerating their business in the same proportion. To match the speed of transforming technology the companies around the globe are using tools and techniques to take their business to the next level.

The style of managing inventory within the organization has changed drastically. With passing years the inventory management software came into existence making it easy for organizations to manage their inventories. Inventory management is a tedious task that slows down the business process. Choosing the right inventory management software with the right features will help you maintain the pace of the business.

Balance your Business with Inventory Management Software

There?s no doubt about the fact that the value of inventory software cannot be understated especially for businesses dealing with a huge amount of goods. In other words, inventory management is a crucial step in a supply chain where the movement of stocks is tracked in and out of the warehouse.

The main objective of implementing inventory management software is to track the movement of stocks at a particular time as well as track the volume present in the warehouse.

Benefits of an Effective Inventory Management System

(1) Help to increase overall efficiency

The selection of the right Inventory Management System helps to increase the overall health of the business. It will help to save the time of your employees which they spend on record keeping as well as in tracking the movement of stocks. It will promote efficient time management as well as give enough time to employees to contribute to the company.

(2) Stay updated with inventory location

If you have multiple branches for your warehouse then it becomes important to track the exact location of inventories. To confirm the presence of inventories it is important to have Inventory tracking software to stay updated with the status of inventories.

(3) Keep your warehouse well organized

The implementation of Inventory management software keeps your warehouse organized. It will help you save money and improve the fulfillment of business using the warehouse for inventory management.

(4) Improve the efficiency and productivity

Inventory control software helps to manage time and promote optimum use of company resources. The implementation of inventory management software helps to speed up the process and ensure inventory records are intact and up to date.

(5) Build customer confidence with reasonable price

As inventory management software is implemented with better strategies, the organizations can use inventory planning to improve the cash flow by providing quality customer service at consistent and amazing pricing. This step will help to adjust the product line and help the companies to make intelligent business decisions.

The Final Statement

Inventory management is an asset for the company, so it is very important to nurture and protect your assets to emerge as a global winner. As inventory management software is implemented it can contribute a lot in cost control as well as predict the sales and prepare your business to face global competition. The Plug and Play Cloud ERP Software has made everything possible that the decision-makers can think to expand their business. There is a better chance for profitability as well as survival for the business to grow in a competitive market with a good scope.

Take Control of your Inventory with TYASuite

As soon as the inventory management software is implemented within the organization it will open the doors of endless possibilities for your company. To leave the footprint of success inventory management software is one of the best options to compete with global rivals.

Contact our team for a free trial today!

Accounting software -

On March 24^th, 2021, MCA has introduced a new rule related to accounting software by introducing sub-rule (1) to rule 3 the companies (Accounts) rules, 2014.

The new rule mandates every company which uses ?Accounting Software? for maintaining books of account to ensure the below features in new accounting software with audit trail:

1. Must have a feature of recording audit trail for each and every transactions
2. Edit log for each change in books of account along with date stamp
3. The audit trail must not be capable of disabling

In addition to the above, MCA has also changed the content of the audit report, where the auditor must need to comment as below:

?Whether the company has used accounting software with audit trail for maintaining its books of accounts which has below features?:

1. Recording audit trail
2. The feature has operated throughout the year
3. The audit trail feature has not been tampered with
4. The audit trail has been preserved as per the record retention rule

As we know most of the small and mid-size companies in India use traditional accounting software.

Considering the timeline given by regulator, it?s challenging for businesses to find alternative accounting software or approach their existing accounting software companies to develop this feature. Development of this magnitude may not be quick and easy from accounting software company?s side.

If you are looking for a ready-to-use accounting software with an audit trail, do check out TYASuite?s Cloud ERP Software. With Plug and Play Cloud ERP, you can go live within weeks.