9 Steps to Create an Accurate, Holistic Procurement Budget

Sep 8, 2022 | Leadership diaries

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Sep 8, 20223 min read

Creating a procurement budget involves identifying goods/services, establishing a budgeting process, gathering historical data, estimating costs, allocating budget, monitoring/adjusting, communicating with stakeholders, and continuously reviewing/improving. Optimize procurement budget by continuously reviewing and improving process.

Creating a procurement budget is an essential step in the procurement process, as it helps organizations plan for and manage their spending on goods and services. The following are some steps organizations can take to create a procurement budget: 

  • Identify the goods and services that need to be purchased: The first step in creating a procurement budget is to identify the goods and services that the organization needs to purchase. This includes determining the quantity, quality, and timing of the goods and services required. This step is usually done by the department that will be using the goods and services. 
  • Establish a budgeting process: Organizations should establish a budgeting process that is aligned with their overall financial management process. This includes determining the budgeting period (e.g. annually, quarterly, etc.) and the budgeting method (e.g. zero-based budgeting, incremental budgeting, etc.). It also includes identifying the key stakeholders who will be involved in the budgeting process, such as department heads, finance staff, and procurement staff. 
  • Gather historical data: Organizations should gather historical data on their past procurement spending, including the cost of goods and services, the number of suppliers used, and any other relevant data. This information can be used to establish a baseline for the procurement budget and to identify areas where cost savings can be achieved. 
  • Assess future needs: Organizations should assess their future needs for goods and services in order to determine the level of funding that will be required. This includes taking into account any upcoming projects, new initiatives, or changes in the organization's operations that may impact the procurement budget. 
  • Estimate costs: Organizations should estimate the costs of the goods and services that need to be purchased. This includes taking into account the cost of the goods and services, as well as any additional costs, such as shipping and handling, taxes, and import duties. 
  • Allocate budget: Organizations should allocate the procurement budget among the different goods and services that need to be purchased. This includes determining the funding levels for each category of goods and services and allocating the budget among the different departments and projects that will be using the goods and services. 
  • Monitor and adjust the budget: Organizations should monitor and adjust the procurement budget as necessary. This includes regularly reviewing the budget to ensure that it is aligned with the organization's needs and goals, and making adjustments as necessary. It also includes tracking actual spending against the budget and identifying variances, and taking corrective action to address any issues that arise. 
  • Communicate with stakeholders: Organizations should communicate the procurement budget to key stakeholders, such as department heads and finance staff, to ensure that they understand the budget and their role in it. This includes providing regular updates on the budget, highlighting any changes or adjustments, and addressing any questions or concerns that stakeholders may have. 
  • Continuously review and improve: Organizations should continuously review and improve their procurement budget process. This includes identifying areas for improvement, implementing new processes and technologies to improve efficiency and effectiveness, and regularly assessing the procurement budget to ensure that it is aligned with the organization's needs and goals. 

FactWise is a unified procurement platform with a fully integrated suite of procurement products. The platform is used by global product manufacturing companies to transform their procurement organization via analytics and automation. Buyers create RfX, negotiate with suppliers, achieve supplier diversity, and minimize costs using AI tools and holistic analytics about supplier performance. Its features allow you to automate four-way matching to reduce errors, and ensure your maximized DPOs meet the highest standard of accuracy. Smart notifications indicate due payments, so you never overpay or incur penalties via missed deadlines. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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