After working with thousands of contractors to improve their procurement and materials management processes, Kojo noticed a pattern among those experiencing exceptional growth and resilience in the face of challenges like supply chain disruptions and inflation. We analyzed what these top-performing contractors were doing differently from start to finish and compared it to other contractors.
What we discovered is that the best-in-class contractors had simplified their procurement process into seven steps with standardized tasks, often using technology. Efficiently completing one step made the other steps simpler. Every ounce of energy had a positive compounding effect, which led to jobs getting done on time, on schedule, on budget and with lower overhead costs.
Unfortunately, many contractors lack a formal procurement process. According to a 2021 survey conducted by the Construction Financial Management Association, only 39% of contractors reported having a formal procurement process in place.
By implementing a standardized 7-step procurement process, contractors can save on materials cost, increase productivity and make better business decisions.
So, what are the 7 steps?
Step 1: Planning
Planning may sound self-explanatory, but this step varies amongst contractors. Those who lack an organized, well-constructed plan for how they’re going to procure all the materials needed on the job before the job starts will fall behind their competitors. This first step is imperative to setting the project up for success by making each of the other steps simpler.
Step 2: Sourcing
The second step in better procurement is sourcing, which entails gathering relevant information to determine what materials you should buy, when you should buy them, and from whom. Effective sourcing is critical for managing material costs.
Step 3: Purchasing
The third step within the procurement process is purchasing. This step ensures that the purchasing orders (POs) are created and tracked in an efficient manner. The goal for this step is to reduce overhead costs while ensuring that all purchasing data is accurate and up to date at all times. According to a recent study by Fails Management Institute (FMI), when contractors optimize their purchasing processes, they can see a reduction in procurement costs of up to 25%. With that, it’s essential to approach this step strategically and implement best practices.
Step 4: Requesting
Better materials requesting is the fourth step to better procurement. This plays a critical role in ensuring that the field receives the right materials at the right time, without compromising speed or accuracy. Gartner reports that digital procurement solutions can cut processing time by up to 85% and reduce costs by up to 45%. To become a top-performing contractor, mastering the requesting process is essential.
Step 5: Receiving
The fifth step in the procurement process is receiving. This step involves logging deliveries to the job site and warehouse with essential information to track inventory, record delivery issues and maintain a historical record of materials delivered by vendors. To avoid issues later in the procurement process, it’s vital to have a streamlined process that can promptly relay this information back to the office for further management and recordkeeping. Additionally, this information serves as proof for project managers, accounting, purchasing and vendors in case of discrepancies.
Step 6: Invoice matching
Invoice matching is the practice of comparing your invoices with the original POs and delivery receipts to catch billing errors and prevent overpaying. Traditional 3-way invoice matching processes have been notoriously manual and time-consuming, which is why it’s important to implement technology to automatically compare.
Step 7: Payments
The final step of the procurement process is Payments. This step encompasses optimizing pre-payment workflows and approval processes, determining when and how to pay invoices, selecting appropriate payment methods and ensuring the security of payment data. Mishandling this step can lead to late payments, missed discounts, and inaccurate data, all of which can cause significant financial and relational setbacks.
Now that you have a basic understanding of the 7 steps, it’s important to take a look at your current practices and determine areas where you can improve. To start, download Kojo’s full eBook, “7 Steps to Better Procurement,” which contains helpful tips for implementing a smarter and more profitable procurement process.
Download it today at www.usekojo.com
Author: Maria Davidson
Maria Davidson is the CEO and Founder of Kojo, construction’s leading materials management software, providing contractors with one digital solution to streamline materials management from precon to payment. Before Kojo, Maria helped build 8VC, a venture fund with over $3.5 Billion in assets under management, and spent time as an investment banker at Goldman Sachs. She holds a BA from Oxford University. Maria has been selected to the Forbes 30 Under 30 list and named one of Inc. Magazine’s Top 100 Female Founders.