Biotech investors need confidence in the risk profile and management practices before committing to an investment. However, as labs scale, procurement practices are often neglected, leading to weak frameworks and insufficient controls. By focusing on actions that strengthen and mature your procurement function, you can enhance investor confidence in your lab's financial stability and operational integrity. In this post, we’ll outline six steps to develop a more robust and mature procurement function.
What is your current stage of procurement maturity?
During a recent webinar, Nick Proch of ZAGENO and Sachin Sharma of ProcureDesk discussed the Procurement Growth Model, which is designed to assess and improve procurement practices across four maturity levels. The model helps organizations evaluate their current procurement status and identify specific improvements to advance to the next level of maturity.
6 steps to a more mature procurement function
Investors focus heavily on cost management, vendor relationships, and risk mitigation when evaluating a lab’s procurement processes. Here’s how to address these areas effectively, adapted from the Procurement Growth Model evolution framework:
Step 1: Determine your procurement baseline
- Do you have a clearly communicated purchasing policy?
- Is there a standardized procurement process?
- Do you track committed spend in one centralized system?
- How efficient is your accounts payable (AP) process?
- Are invoices matched with purchase orders?
- Can you accurately forecast your cash flow needs?
Step 2: Define the procurement process
- How will purchases be initiated (email, procurement system, etc.)?
- How will committed spending be tracked (POs and non-PO invoices)?
- Who oversees purchasing?
- Can parts of the process be automated to save time?
- What metrics will track procurement efficiency?
Step 3: Determine pricing negotiation strategy
- Leverage a lab supply marketplace — This saves time and money through pre-negotiated contracts and consolidated billing. It also simplifies cash flow management and reduces AP overhead.
- Negotiate directly with suppliers — Leverage your spend to find cost-saving opportunities and extend payment terms, improving cash flow management.
- Combination of both — Use a marketplace for routine purchases and negotiate key categories directly to better manage tail spend.
Step 4: Strengthen AP controls
Follow these steps:
- Centralize invoice capture.
- Utilize OCR technology for automatic invoice processing.
- Implement a centralized vendor setup system that collects essential documentation.
- Use 3-way matching to verify that only approved invoices are paid.
- Implement batch approvals and payment authorization controls.
Step 5: Leverage spend visibility
You should be able to easily access:
- A centralized place to track all spend (not just lab supplies).
- Real-time access to committed spend.
- Visibility into upcoming invoices and payment schedules.
- Detailed spend data per experiment or project.
- Historical spend data to aid in forecasting.
- Improved accrual reporting.
Step 6: Implement strategic spend management
Mature procurement involves:
- Clear budget allocations and tracking.
- Optimized approval flows for spending decisions.
- Maverick spending control and improved cash burn management.
- Tracking vendor performance and negotiating better pricing through competitive marketplaces.
- Ensuring vendor compliance with contractual and regulatory requirements.
By following these six steps, your lab can develop a procurement function that not only supports operational efficiency but also builds trust with potential investors. A mature procurement system demonstrates that your lab has the financial discipline, risk management, and operational transparency necessary to secure funding and scale successfully.
Reach out to discover how ZAGENO can guide your lab through the key steps to transform your procurement function and build the investor confidence you need.
Click HERE to download the cheat sheet with 6 steps and share it with your team.