Procurement Budget: Budgeting, while many times painful, is among the most important aspects of an organization(1). In the past, the procurement department was not included in the budget-making process. It was not represented in organization-wide budget meetings. The role of procurement in budgeting was relegated to direct acquisition.
However, currently, things are changing, and procurement professionals are very much involved in budgeting. Also, procurement departments are developing their budgets that are being considered during the organization-wide budgeting process. You may be asking why procurement budgets are important. Here are the reasons.
Reasons for a procurement budget
1. Informs your purchasing strategy. A procurement budget will determine what you can and cannot afford depending on the set budget(2).
2. Offers warnings when finances are out of control. For instance, it identifies when over-spending occurs that could affect the procurement process.
3. Ensures transparency across departments. Procurement budgets makes the procurement department accountable for its finances.
4. Manage procurement finances more effectively. A budget allows you to allocate appropriate resources to procurement projects.
5. Provides insights for decision-making. Data from the procurement budget such as spend trends can help you make better decisions.
Tips for making a Procurement Budget
1. Identify the goods and services you need
The first step in the procurement process is identifying the goods and services your business requires. This may be office supplies, office furniture, computers, or the goods that your company sells. Make a list of the goods and services you will purchase. For example, how many reams of printing papers do you need? Start planning your budget from here. How much are you willing to spend on the goods?
2. Research vendor options
The next phase is to source for potential vendors. Consider vendors who have a good price, reputation, customer service and favorable turnaround time. The process of vetting vendors can be daunting because it requires loads of nurturing and negotiation. After the vetting, settle for the best vendor who will offer the best price and quality goods.
3. Get buy-in from other stakeholders
In procurement budgeting, you need buy-in from finance, accounting and C suite. All these stakeholders must get together and draft a plan. This way, finance and accounting can identify any savings procurement makes. Also, buy-in from the relevant stakeholders promotes the credibility and legitimacy of the procurement budget.
4. Stick to your budget
You should incorporate your budget availability into the purchase requisition process. The purchasing officer should know how much budget is available for an item to speed the purchase cycle time. He should also let the vendor know how much he is willing to spend on the goods. Importantly, ensure that your purchases are within the established business parameters.
5. Use technology
Senior managers should not spend their time and effort being the budget police. Similarly, procurement employees should not have to chase down budget figures before making a purchase decision. In this technology age, it is best practice to use procurement budgeting tools like ISS Group’s Purchase Requisition Managements’ iPurchase® budgeting.
iPurchase budgeting allows you to create and maintain procurement budgets as well as control spending. Also, by combining the procurement budget and spend tracking features into your purchase requisition and approval workflow, the procurement professionals can have a holistic view of the procurement process.
Often, procurement professionals don’t have a seat at the budgeting table. They are mere recipients of the organizational budget and have to make ends meet with what is allocated to them. Nevertheless, procurement officials should be a vital part of the budget-making process and to a large extent, have their budget.
Just like a business budget, a procurement budget has positive outcomes for offering valuable insights for decision-making, controlling spending, promoting accountability, and informing the purchase strategy.
Setting a procurement budget can be tough and time-consuming. That is why you need ISS Group’s Purchase Requisition Management solution, iPurchase, as it provides a 360 degree view of procurement spend, automates procurement processing, improves supplier relationships and helps control spending. Contact ISS Group to schedule a demo today.