Equipment procurement is an essential part of business operations that ensures all projects and tasks are completed on time. A successful procurement strategy focuses on cost efficiency, vendor management, visibility, and streamlined performance. In order to achieve all these goals, it is necessary to design the right procurement process for your organization.
Without a procurement strategy in place, there is a high chance of untimely stockouts, malfunctioning equipment, and project delays. Poor procurement practices can lead to delayed spare parts purchase, negatively impacting the equipment performance.
This blog will help you make a suitable procurement plan for your business by first discussing briefly what equipment procurement entails, the steps in the procurement process, and the role of technology in procurement.
What is equipment procurement?
A procurement plan mainly involves how an organization acquires new or replacement equipment needed to run smooth operations. Utilizing software that automatically tracks inventory, maintains records, and inspects goods can make procurement efficient. Let’s take a look at some basic steps of a procurement process:
Identify needs
A cost-effective procurement plan focuses on deciding what is required by the business. Gather requests from the relevant departments so that all demands can be addressed. Some of these will be new purchases while others can be renewals or simple restock requests.
Generate purchase request
Once the requirements have been identified, the next step is to create a formal purchase request as per budget allocated.. This request can then be approved by the relevant authority and the purchase can be processed.
Select a vendor
After receiving the purchase requests, admins can start researching supplier options. Determine which vendor fits into your budget, delivery timeline, and after-sale services. A good way to decide on a suitable vendor is to get quotes from at least three shortlisted options and negotiate to get the best deal.
Track purchase order
The approved purchase request will be converted into a purchase order (PO) with all the important details including vendor, cost, and delivery time. Follow through the timelines and receive the goods. Reconcile inventory with the PO and ensure all tools and parts meet the specifications.
Tag and record
To streamline the procurement process, it is a good practice to label and maintain a record of all stock received. This way all critical information such as purchase date, minimum stock required, and vendor details can be recorded in one place.
Supporting this fact, research shows that 26% of businesses estimated that improved transparency in financial and procurement functions could generate 11%-20% cost savings.
Top 5 challenges of asset procurement
Organizations invest a significant part of their budgets in the procurement of vital assets. In order to ensure maximum returns on investment, it is important to be aware of the obstacles that may arise while setting up a procurement strategy. Let’s go over some of the common challenges of machinery procurement:
Supplier risk: Finding reliable suppliers is a major risk especially when it comes to first time purchases. Without a trustworthy supplier, a business can be at risk for fraud, and non-compliance with contractual obligations.
Technological constraints: It is common for businesses to rely on outdated technology for running procurement processes. Without accurate data, it can be challenging to make a calculated guess about the types and quantities of assets needed.
Long procurement cycles: It can take a long time to get requests approved especially when there is a list of approvers involved. Paper-based documents get transferred between admins before finally making it to the vendor.
Cost management: Overspending is a common consequence of haphazard procurement plans. Businesses tend to go beyond the expected budget due to unanticipated expenses such as delivery costs, installation fees, or customization charges.
Regulatory compliance: New equipment should be in line with the compliance requirements to ensure smooth performance. License renewal and warranty updates are important when it comes to procurement of IT equipment. Without due diligence and regular audits, it is very easy to miss out on small compliance details – resulting in unnecessary risks and penalties.
Key steps to include in an equipment procurement checklist
Having a well-organized plan plays a vital role in implementing a successful procurement strategy. A good practice is to list down all the critical steps of the process, involve all the relevant stakeholders, and ensure execution. Here are a few key steps to include in your equipment procurement checklist:
1. List down equipment specifications
The first step in buying any sort of equipment is to know what exactly you want to buy and for what purpose. Not every business is the same — there are different types of productivity objectives that a company may want to achieve. Start by making a list of all the projects the equipment is going to be used for.
Once you have the list, pay attention to where the equipment will be used. Is it going to be used at one location, multiple locations, or remote areas? Having all this information listed down will help you shortlist the equipment that falls within your needs. For instance, if you need a generator to be used in harsh weather conditions then you should specifically look out for relevant features. It should be easily portable so that it can be stored properly when not in use. A steel body provides resistance against rains and storms which will ensure that the generator lasts long and is not easily damaged.
It is also important to take feedback from employees and staff workers who are going to be using the equipment. Primary usage information will allow you to have a better understanding of the sort of tools to procure for the job.
2. Plan budget and expenditure
Every business allocates a budget for equipment procurement and it is important to try and stay within that amount to avoid any shortfalls within the year. Since buying machinery and equipment is a substantial investment, a good practice is to preplan the expenditure to get timely approvals using an inventory management system. Remember to include the cost of operating and maintaining the equipment as a recurring expense.
Once you have a rough estimate of the costs, you can decide whether you want to purchase new or slightly refurbished equipment. There are plenty of options available in the market for lightly used equipment. Such practices may be suitable when you need equipment for short-term or low-budget projects.
3. Prioritize quality over price
The best way to kickstart your asset procurement process is to carry out market research. A comprehensive search includes reading reviews, looking at industry trends, and analyzing competitor choices. The more informed you are about the equipment market, the better decision you can make. Once you have shortlisted possible vendors, you should research who you are buying from. What sort of reviews do they have, do they offer warranties, maintenance, or provide demos?
Once you have completed your market research, put together a list of equipment specifications, price, quality, and reviews. This will give you a snapshot of all the options available to purchase. There may be tradeoffs, such as between price and quality. But remember, not all low-price items are low quality and likewise not all high price items are good quality.
Don’t compromise on quality for long-term investments. Good quality equipment is likely to last longer, have fewer breakdowns, and display higher productivity levels. For example, if you want to buy a portable generator, look for sustainable features that actually benefit your business. A portable generator should have automatic shutoff, low CO engine, and alternate fuel capacity. If you can’t get the desired features in your price range, opt for used equipment in good condition.
4. Ensure availability of spare parts
One of the critical aspects of buying new equipment is to make sure that spare parts are easily available. This makes maintenance events much more streamlined with fewer delays. Undisrupted workflows mean higher productivity and efficiency throughout the organization.
Unavailability of spare parts means companies have to spend time looking for vendors who offer replacements. Such practices mean waste of time and money as well as the possibility of getting the wrong spare parts. To avoid such problems, make sure to ask your vendor about the ready availability of spare parts before making the purchase.
5. Assess and evaluate vendors
47% of companies surveyed in the PwC’s Global Economic Crime and Fraud 2020 survey experienced fraud in the last two years which amounted to $42 billion. These numbers depict the importance of third party risk management. Most common types of third party frauds result from vendors.
To avoid fraudulent instances, it is crucial to devise an assessment plan to evaluate vendors. You can investigate customer reviews of a particular vendor. Satisfactory reviews will give you an idea about a vendor’s commitment to quality and consistency of performance. Next, find out whether the vendor meets your compliance requirements.
Sorting out vital vendor details early in the process enables companies to avoid heavy penalties later. Other important questions to ask a vendor include:
- Can the vendor scale along my business?
- Will the vendor be able to withstand any supply chain disruptions?
- Does the vendor share my business values?
Once you have completed your assessment, you will be able to choose a reliable vendor that will help your business grow and prosper.
6. Decide to buy or lease
After finalizing the vendor for your purchase, the next big decision is whether to pay upfront or lease the equipment. Start by looking at your business goals, equipment needs, and available resources. The most fundamental question is how much you can afford to spend?
When you have a fair idea of the capital available, compare the numbers of both an upfront purchase and lease installments. For leasing equipment, there is comparatively less initial investment but a higher overall cost with the interest rate.
For buying equipment upfront, you will have to pay the total amount upfront but this will give you sole ownership of the equipment. For companies with smaller yearly budgets, leasing is a suitable option as it allows you to upgrade your equipment on flexible terms.
7. Train your staff
Getting a new piece of equipment is only useful if your staff knows how to use it. In order to achieve this, add a training module to your procurement checklist. Start by briefing employees about how and where the equipment will be used. Most importantly, focus on what outcomes you expect to achieve by using the new equipment.
The key to a successful training programme is to provide it at the right time. This means that the workers should have enough time to complete the training before they actually start using the equipment. Assign appropriate resources that are easily accessible if any of the employees have any questions regarding the training programme.
Train your staff to use an automated asset management system to record purchased equipment to decrease the hassle of manual documentation. Effective training is not a one-time investment, make it a continuous process so your employees are up to date with the latest upgrades in the equipment.
Simplifying procurement and asset management
The role of automation in procurement is expected to increase due to the higher productivity and lower costs associated with seamless process execution. Having reliable inventory tracking software helps businesses overcome the challenges of regulatory compliance, overspending, and delayed approvals. By using such a tool, procurement officers can record all essential asset information in one place, and track down orders to ensure timely delivery and vendor relationships.
