Procurement Management: Strategies, Tools, & Best Practices

It’s all about the Benjamins. Or at least that’s what traditional procurement has focused on. Controlling costs is no longer the overriding goal in today’s complex business environment with constant supply chain disruptions, new legal regulations, and lingering inflation. Modern procurement management aims to form long-term partnerships with suppliers, improve sustainability, and adapt processes quickly to thrive in a rapidly changing world and keep revenue healthy.

The right procurement strategy moves companies from a reactive approach of commodity-based negotiations, buying, and monitoring to a more proactive and value-driven approach that aligns processes with larger business objectives. When done right, tech-enabled and strategic procurement leads to 5.8% in savings, faster supplier risk evaluation cycles (30.1 hours), accurate invoice matching (97% first-time match rate), and so much more.

What is procurement management?

Procurement management is a strategic approach to sourcing, acquiring, and purchasing the goods and services needed to support an organization’s operations. It encompasses the entire procure-to-pay process, from identifying needs to selecting suppliers to issuing payments to those suppliers. The main goals of procurement management are to optimize spending, improve operational efficiency, build strong supplier relationships, and manage risk effectively.

Depending on the company’s size, procurement management may extend into separate business units, such as sourcing and supply chain management. Sourcing focuses on securing the best materials at the best price with reliable suppliers, while supply chain management focuses on the logistical aspects of the business, from securing raw materials to distributing finished goods. However, no matter how it’s broken down, much of the functions between both business units overlap.

At its core, procurement management focuses on:

• Establishing a standardized process for employees to make purchase requests.
• Streamlining and setting guardrails on the approval process for purchase requests, supplier selection, pricing terms, and risk assessments.
• Building efficient workflows for the tracking, reconciling, and paying of goods and services.
• Collecting and analyzing data from each of the steps above to find opportunities to improve operational efficiency.

“Procurement isn’t just about running requests for proposals anymore,” says Michael van Keluen, the Chief Procurement Officer (CPO) at Coupa. “Given our macroenvironment and how much procurement technology has advanced, our job as procurement leaders today should be to focus on helping our businesses spend smarter, safer, and faster.”

Benefits of effective procurement management

With continued volatile interest rates, fast-rising energy costs, and constant supply chain disruptions, it’s no wonder 90% of chief finance officers (CFOs) fear they won’t hit their revenue targets this year, according to Coupa’s Strategic CFO survey.

Companies need to track and control spending at the most granular levels to achieve sustainable growth in today’s turbulent business environment. A well-structured procurement management approach is the best way to do so. It allows for precise budgeting and forecasting of company cash and ensures that each dollar spent is used as efficiently as possible. It also maximizes process efficiency, saving time so employees can focus on more high-value work. The money and time saved from effective procurement management can be reinvested into new products or technology that supports long-term business growth.

The main benefits of procurement management include:

Cost reduction and control

By tracking and approving purchase requests in one central system or workflow, procurement leaders can better stop rogue spending, identify common materials or goods needed, and source more strategically.

It starts with using procurement analytics (also known as spend analysis) to identify areas where the company is overspending. This allows for cost optimization and more disciplined budget management. Once key goods and services are identified, procurement teams can apply strategic sourcing practices, such as consolidating purchasing across departments by buying in bulk from suppliers, helping to drive down unit costs. Negotiating supplier contracts, volume discounts, and favorable payment terms also help procurement teams reduce costs significantly. With a strategic procurement management approach and AI-driven tools, Casey’s reduced its single-source suppliers by 60% and saved over $200 million in the span of three years.

Quality assurance

Procurement management aids in regularly monitoring and evaluating suppliers, focusing on factors such as quality, delivery times, and compliance. Working with reliable and high-performing suppliers ensures that goods constantly meet the quality standards set forth by the procurement team and are delivered on time to reduce delays in production or general operations.

Risk management

Identifying and mitigating risks associated with supply chain disruptions, market fluctuations, and regulatory compliance is a key part of procurement management. By centralizing supplier and contract data, procurement teams can use advanced AI to track and monitor supplier performance and identify potential risks such as financial instability or non-compliance. Keeping a pulse on risks ensures procurement teams can proactively prevent working with suppliers that could jeopardize business operations or reputation.

Effective procurement management also helps match invoices to POs, reducing payment errors or fraud and enforcing compliance. According to Coupa’s 2024 Benchmark Report, best-in-class companies with advanced procurement management practices and digital tools achieve a 97% first-time match rate.

Operational efficiency

A well-managed procurement process helps optimize workflows, ensure resources are available when needed, and reduce disruptions. Standardizing processes is a key way companies can ensure consistency, improve compliance, and streamline decision-making. With centralized processes and data, procurement can forecast demand more accurately and coordinate delivery schedules with suppliers, preventing stockouts or overstocking. Plus, many modern e-procurement systems automate tasks like purchase requisitions, purchase orders, approvals, and payments. Best-in-class companies are achieving a 98.8% electronic PO processing rate and a requisition-to-order cycle time of just 3.8 business hours.

Supplier relationship management

Identifying, vetting, and building strong supplier relationships are key parts of procurement management. Consistent and efficient supplier management can foster collaboration and lead to better pricing, faster response times, and a willingness from suppliers to prioritize their preferred buyer’s needs during periods of high demand. Hopefully, that’s you.

For some companies, working with a small, selected list of vendors is best for the business. For others, working with a diverse supplier base reduces supply chain disruption risks and improves their environmental, social, and governance (ESG) efforts. Procurement management helps both types by aligning strategic business goals into the sourcing process. It’s how the American Red Cross increased its supplier diversity by 35% and freed up $15 million to self-fund transformation.

Competitive advantage

Applying advanced technology and reconfiguring procure-to-pay processes for maximum efficiency enables companies to stay agile despite increasing external pressures, like fast-changing consumer preferences and constant supply chain disruptions. Companies that can control cash with precision and secure suppliers with the right combination of price, speed, and sustainability are well-positioned to protect margins and support long-term, sustainable growth.

Data-driven decision-making

Modern procurement management involves using analytics and data-driven insights powered by AI. Spend analysis empowers procurement to identify cost-saving opportunities, preferred suppliers, and inefficiencies to help guide budget allocations and sourcing strategies. Predictive analytics can also help forecast future demand and plan for potential market changes, reducing the risk of shortages or excess inventory.

Steps in the procurement process

Effective procurement management optimizes every step in the procurement process. Traditionally, these steps have been manual, focused on more tactical ordering and invoicing tasks rather than sustainable, strategic practices.

However, modern procurement management uses technology to integrate the entire procure-to-pay workflow and aligns people and processes to maximize efficiency. A connected workflow on one platform provides better governance and enables companies to collect and analyze KPIs to identify improvement opportunities.

A typical procurement process includes:

STEP 1: Planning

The procurement process begins by establishing the goods and services required by the company.

Buyer (or employee): Requests the goods and services they need for their operations, production, or projects by filling out a standardized form. Best-in-class companies use some form of e-procurement software to automate and streamline the intake process, leading to fewer errors and faster approvals.

Procurement manager: Reviews the requests to ensure they align with the company’s goals, budgets, and procurement strategies. For product production, they forecast demand and identify material and manufacturing needs.

Supply chain analyst: Provides data on inventory levels, demand forecasts, and lead times to help define the best order quantities.

STEP 2: Supplier identification

Once needs are defined, the procurement team researches potential suppliers and evaluates them based on factors important to the business, such as quality, reliability, pricing, or sustainability.

Procurement manager: Conducts market research to identify a list of suppliers and develops evaluation criteria based on the company’s needs and regulatory requirements. Comprehensive spend management platforms with extensive supplier databases can reduce this workload.

Supply chain analyst: Works in tandem with the procurement team to define the evaluation criteria and may conduct their own research of suppliers based on reliability, lead times, and past compliance.

STEP 3: Sourcing

The procurement team solicits bids, quotes, or proposals from the selected suppliers to assess their offerings. The team may use strategic sourcing software to connect with businesses that have similar purchasing needs and work together to use the group’s spending volume and expertise for a sourcing event.

Procurement manager: Prepares and issues a request for information (RFI), request for proposal (RFP), or a request for quote (RFQ) to potential suppliers, outlining the specifications required. After bids are collected, they’re analyzed based on factors such as price, quality, service level, compliance, or other important factors to meet strategic business goals. The use of advanced AI can help procurement managers evaluate business requirements across more complex factors like logistics and packaging.

Buyer and/or the finance team: Assists in comparing bids, providing insights into cost-effectiveness and alignment with project needs.

Supply chain analyst: Provides data-driven insights into the potential risks and benefits of each supplier.

STEP 4: Negotiation

After selecting a supplier, the procurement team negotiates the terms of the contract, including pricing, delivery schedules, and service levels, and then finalizes the agreement.

Procurement manager: Leads the contract negotiation, focusing on terms that align with the company’s budget, risk tolerance, and long-term goals. Managers may also negotiate warranties, payment terms, SLAs, penalties, or rebates. Once the contract is signed, intelligent sourcing software automatically integrates the terms into the purchasing workflow.

Legal team: Reviews and approves contract terms to ensure compliance with legal standards.

Finance team: May participate in negotiations for high-value contracts, especially when complex financial terms like payment or discounts are involved.

STEP 5: Purchasing

The formal order for goods or services is placed through a purchase order (PO), detailing quantities, specifications, agreed-upon pricing, and other terms.

Buyer: Prepares and issues the PO, ensuring it matches the negotiated terms and includes the necessary details for the supplier to fulfill the order accurately.

Procurement manager: Reviews the PO for accuracy and alignment with the contract before approving and forwarding it to the supplier. Often, AI-driven PO processing can support procurement managers at this step, ensuring POs match contract terms. PO collaboration software is another tool procurement managers might use to confirm or adjust quantities and prices, as well as promise delivery dates at the line-item level with suppliers.

Finance team: Ensures the PO is within the approved budget and allocates funds for future payment.

STEP 6: Payment

Once the goods or services are received and the inspection is complete, the finance team will arrange payment according to the contract’s terms.

Finance team: Verifies the invoice matches the PO and contract terms, then processes payment to the supplier. Best-in-class companies use AI-driven invoice processing to extract invoice information, match it against a PO, and enforce compliance automatically, saving valuable time.

Buyer: May assist finance in ensuring the supplier invoice aligns with the PO and resolves any discrepancies.

Procurement manager: May approve payments for higher-value transactions or serve as a final check in the payment authorization process.

STEP 7: Procurement reporting and analysis

Procurement managers review all relevant details of the procurement process and assess the supplier’s performance to inform future sourcing decisions. A centralized platform that connects the entire procurement process makes it possible to collect and analyze this data easily and quickly.

Procurement manager: Reviews the contract, POs, invoices, and quality inspection reports for compliance and audit purposes. Procurement managers may also pull reports and partner with business leaders to review strategic plans and research ways to better support business goals with existing and new suppliers.

Supply chain analyst: Analyzes supplier performance metrics (like lead times, defect rates, compliance with delivery schedules, etc.) and provides recommendations for future supplier selection or continued partnership.

Current challenges (and solutions) in procurement management

There’s been a fundamental shift in the role procurement plays. Traditionally, it’s been viewed as a purely transactional function, serving the logistics and production side of the business. Now, it significantly shapes the company’s strategic direction and its ability to compete in the market.

From keeping up with changing consumer preferences to achieving sustainability targets, procurement done right creates value beyond just cost savings. In 2025 and beyond, procurement management will be key to achieving sustainable, long-term growth by navigating supply chain complexities, improving ESG efforts, and leveraging the latest technology.

Supply chain disruptions and resilience

From wheat shortages in Europe and Africa due to the war in Ukraine to logistical challenges from railroad worker strikes in the U.S. and Canada, supply chain disruptions are becoming more frequent and severe. These disruptions can lead to delays, higher costs, and stockouts, which could jeopardize a company’s ability to meet customer demand and maintain operational continuity.

Procurement managers should work closely with the supply chain team to:

• Optimize inventory management. Implementing inventory optimization software can balance stock levels and ensure essential resources are readily available. Sometimes, it makes sense to maintain higher safety stock levels of critical materials to weather short-term disruptions. Keeping track of market conditions will be key.
• Collaborate with suppliers. Establish trusted relationships with key suppliers and share critical information such as production capacity, potential delays, and changes in demand. Collaborative planning, forecasting strategies, and fast communication channels, like a real-time messaging system, foster a more adaptive supply chain.
• Use technology for real-time monitoring. Comprehensive spend management platforms are equipped with technology that monitors inventory levels, shipment locations, supplier performance, and external market trends. This data enables rapid response to emerging issues and proactive mitigation of potential disruptions.
• Build contingency plans with scenario planning. Scenario planning tools, like a supply chain digital twin, enable the modeling of potential disruptions and response plans. By running simulations of potential problems, companies can create contingency strategies to minimize the impact of disruptions on operations.

Sustainability and ESG compliance

Cost savings are no longer the main priority for procurement. Increasingly, companies are relying on their procurement departments to elevate sustainability and comply with stricter ESG regulations. This sustainable procurement includes sourcing responsibly, reducing emissions usage, ensuring ethical labor practices, and meeting regulatory requirements.

Procurement managers should work to:

• Incorporate ESG into the supplier selection process. Include sustainability in supplier evaluations to select vendors who align with the company’s environmental and social values. This might include metrics for carbon emissions, waste management practices, labor standards, and so on. Sourcing software with customizable templates and flexible bidding options allows procurement managers to run complex sourcing events quickly and more efficiently.
• Routinely audit suppliers. Ensure suppliers are always meeting sustainability standards by centralizing supplier data, requesting certifications, conducting regular audits, and monitoring their third-party risk. AI-driven risk monitoring combines outside data sources, cross-community data, and user-submitted feedback to provide a comprehensive view of the company’s supplier base.
• Diversify supplier base and near-shore when possible. Working with suppliers closer to the company’s production sites or distribution centers can reduce transportation emissions and support regional economies. Try to improve diversity, equity, and inclusion (DEI) efforts by incorporating it into the sourcing criteria, too. Some spend management platforms provide procurement leaders with a vetted database of suppliers, including women-, veteran-, and minority-owned vendors.
• Use data-driven reporting tools. Certain spend management platforms include tools that help companies monitor ESG metrics, like scope 3 emissions that are related to supply chain operations. By testing different scenarios with a digital twin, companies can balance cost, service, and emissions.

AI implementation and transformation

AI is certainly positioned to transform procurement through automation, predictive analytics, and smarter decision-making. According to Coupa’s Strategic CFO survey, nearly 50% of finance leaders plan to invest in AI to drive growth, yet 89% have doubts about successful implementation. Implementation of AI in procurement can be complex due to the necessary data infrastructure, employee skill gaps, and change management challenges.

Procurement managers should work to:

• Collaborate with IT teams. AI is only as good as the data it processes. To build the necessary infrastructure, procurement should work with IT to centralize and aggregate key data from across the organization. Security will be another concern since confidential business information will be shared with external AI models. The AI tools chosen should adhere to the highest security standards and provide extensive documents on how their technology works.
• Automate low-level tasks. When introducing automation, start small. Pick tasks that users will gain immediate benefits from, and that don’t require extensive training, like intake and orchestration, invoice processing, and order approvals. This frees teams to work on more complex, strategic tasks such as building stronger supplier relationships or developing strategic category plans.
• Use predictive analytics for forecasting and risk assessments. AI can analyze historical purchasing data, market trends, and external factors to predict future demand. This helps procurement teams make more accurate ordering decisions and anticipate potential risks in the supply chain.
• Create a clear implementation plan and upskill teams. Poor employee buy-in is one reason implementations fail. Technology only works if the end-users actually use it! Make it clear why changes are being made, how they will benefit the employees’ day-to-day tasks, and what the expectations are around the rollout. New skills, such as data science basics, are also needed. Help teams adapt by including training programs and workshops.

Selecting the right procurement management software

Procurement management software is the backbone of your procurement strategy. It influences the company’s purchasing processes, approval workflows, supplier relationships, and compliance enforcement. However, knowing which software to choose is tough. There are a lot of options available on the market. By understanding the unique challenges and priorities of your organization, you can ensure the solution aligns with operational goals and scales with your business. Investing in the right technology is not just about solving today’s challenges — it’s about equipping your organization with the tools to thrive in an ever-changing business landscape.

Understanding organizational needs

Every organization is different, so it’s important to understand your company’s specific procurement challenges, goals, and operational requirements.

What to consider:

• What are the current pain points? Are there delays in the approval workflow, lack of supplier visibility, challenges in spend tracking, or all of the above?
• Will this solution integrate with existing systems? Ensure it’s compatible with your ERP and offers pre-built integrations or APIs for seamless data sharing between them.
• Is it scalable? As businesses grow, procurement needs become more complex. The software should be able to handle high transaction volumes, support multi-location and multi-currency operations, and offer flexible product add-ons to accommodate growing departments.

Key features to look for

With a clear idea of what you aim to achieve with procurement management software, you can then focus on what features would help make it a reality.

What to consider:

• Automated workflows. Look for automated intake, purchase requisition, and purchase order creation to free employees from low-value tasks. Workflows should be customizable (think drag and drop functionality) to quickly alter approvals for multi-level sign-offs or to change processes as business needs change.
• Advanced spend analytics. Make more informed decisions with real-time spend tracking across departments, categories, and suppliers. Customizable dashboards help visualize procurement KPIs, while detailed reporting capabilities across supplier performance, maverick spending, and compliance tracking can help align stakeholders in the decision-making process.
• Strong supplier management tools. It’s important to centralize supplier data from contracts, certifications, and communication history to collaborate with suppliers and improve performance. AI-driven supplier scorecards can track the performance of your supplier base, and a self-service supplier portal can help resolve issues and speed up the onboarding process.
• Built-in compliance and risk management. Risk monitoring tools should flag suppliers based on financial health, legal issues, or non-compliance to mitigate risk across your supplier base. Compliance as a Service can automatically ensure purchase orders and invoices adhere to contractual terms and legal regulations.
• User-friendly interface. Software that is easy to use and intuitive reduces employees’ learning curve and helps bolster adoption. It’s key to consider whether the software offers a simple layout, guided workflows, and out-of-the-box AI tools.

Evaluating vendors

There are plenty of procurement management software options, but finding the right one that aligns with your procurement strategy is critical for overall business success.

What to consider:

• Will it meet company needs now and in the future? You don’t want a solution that helps with one area now but isn’t robust enough to support other areas in the future. You’ll spend more money in the long run ripping and replacing point solution technology. Look for a software provider with a strong base of products that you can build on with customizable solutions.
• Is it mobile-friendly? If employees are on the go, they should be able to approve requests or track expenses from their mobile devices. Real-time alerts also help keep processes moving.
• Are there supplier fees? It’s important to consider whether the software requires additional fees from the supplier. If it doesn’t cost your supplier anything, they’ll be more likely to adopt the tools.
• Does it offer dedicated support and employee training? Strong customer support ensures a smooth implementation and ongoing use of the software. Ensure there are comprehensive training resources, documentation, webinars, on-demand tutorials, and community forums to improve employees’ confidence in using digital tools.

Procurement management solutions from Coupa

Companies looking to win the battle against unpredictable market conditions, supply chain disruptions, and fast-changing interest rates are turning to their chief procurement officers (CPOs) as the first line of defense. With Coupa’s AI Total Spend Management platform, CPOs gain complete visibility and control over where and how spending occurs, as well as ways to maximize efficiency across the entire procure-to-pay process.

Coupa’s procurement software empowers CPOs to:

• Embed ethical and secure AI into everyday tasks to boost productivity and optimize operations. Coupa AI is built on 15 years of innovation and $6 trillion of anonymized, real-world spending transactions, so the insights provided are reliable and relevant. We provide documentation and the highest security standards for our AI models, as well as our testing methods for accuracy and bias.
• Simplify the intake process for end-users with guided, AI-driven workflows that surface preferred suppliers and highlight pre-negotiated contract benefits. Real-time budget management, status tracking, configurable approval chains, and automated PO routing to suppliers fast-track processing time.
• Source smarter and get to market faster using pre-built or customizable templates that enable the embedding of sustainability or other strategic criteria into the bidding process. One place to collaborate and select a supplier simplifies stakeholder collaboration, while integrated contract management ensures all new terms and conditions are embedded into the PO and payment process.
• Automate risk management to proactively spot and stop problems before they impact operations. Use AI to vet and monitor suppliers against a database of internal KPIs, user-submitted feedback, and external market factors. Advanced AI also automatically identifies duplicate POs, incorrect invoices, or suspicious activity to prevent fraud.
• Improve accounts payable processing efficiency with AI-driven two- and three-way invoice matching, automated data extraction, and built-in compliance checks at every stage.

With the right tools and strategies, CPOs can drive profitable growth no matter what changes the market brings.

“We now have four times the amount of savings, and it’s extremely motivating that procurement and our digital journey are now supporting the growth of the company.”

— Martin Fog, VP, Corporate Procurement, Novo Nordisk