Businesses are streamlining their operations through process and strategic optimisation to build long-lasting value. Over the last decade, attention has turned to the procurement department as companies strive to bring this process to its full potential. In this post, we’ll be looking at what project procurement and category management are and how each can support an organisation’s needs and enable them to achieve set goals. Understanding the difference is essential to making effective procurement. Read on to find out more.
Project procurement is a strategy that works best on projects with limited and well-defined requirements. For example, if you own a construction company that is awarded a bridge-building contract, you will require a very specific set of building materials to accomplish the task. The budget and time frame will be stipulated in the contract, and you’ll assign a team and project manager who are well versed in the project to accomplish it within the set guidelines.
Category management in a procurement process enables effective spending in all areas of procurement. Doing this enables category managers to narrow their focus and streamline their operations to reduce costs in building long-term value.
1. Long-Term Vs Short-Term Gain
Project procurement centres on reaching short-term goals such as completing a building project using a designated budget, materials, and team—in a set amount of time. The completion date and budget are determined by the stakeholders, who then appoint a project procurement manager to oversee the procurement process.
Category management aims at streamlining the organisation’s procurement process for long-term gains. For instance, the category manager is able to source different product categories and avoid making repetitive purchases. There are no set budgets or conditions to determine how the procurement process is carried out for a given project.
2. Purchase Order Processing Time
Project procurement is based entirely on the defined scope of a project. For example, a company has a project to complete and it has to do it within the next six months; it will appoint a procurement manager to oversee the procurement process and make sure all the materials are purchased timely.
Category management, by contrast, has a flexible order processing time. Because it is not defined by a time frame, orders can be processed at any time.
3. Supplier Lead Time
According to APQC’s Open Standards Benchmarking, the supplier median lead time of organisations using category management is four days. This is longer than that of project procurement. And it makes sense – suppliers are eager to provide project managers with the materials they need to accomplish the project at hand, so organisations that use project procurement enjoy a shorter supplier lead time.
4. Data Transparency
In project procurement, the budget and timeframe for project completion have been set and handed over to the project manager. There is a great tendency for its operations to be overlooked, which can lead to less data transparency.
Category management, however, provides better data transparency. This is because the data are constantly bundled and simplified to be made available to stakeholders.
5. Constant Process Improvement
Project procurement is less open to improvements. The project budget has been finalised before the project manager takes it up. Because of this, there’s less time and flexibility to make modifications when needed.
With category management, there’s always room to make improvements. It’s designed to build value and save costs, so the process can always be revisited and improved to achieve transparency and spur the growth of the procurement process.
In a Nutshell
These are the different characteristics of project procurement and category management. They serve different purposes and are important for your organisation. Ultimately, understanding your company’s long and short term business strategy and procurement objectives to achieve organisational goals is of utmost importance. In this regard, an e-Procurement solution can be adopted to streamline processes, build long-lasting value and ensure you achieve your organisational goals. Procurement software gives a company the ability to organize all of its expenditure for maximum transparency and value. This can be achieved through planning, selection, administering and closing procurements. For more information, feel free to get in touch with us.