Procurement is vital to business organisations of all kinds. It is a process of obtaining goods and services from outside one's own enterprise for purposes of satisfying one's own needs. The procurement process guarantees that organisations acquire the proper materials, products, or services at the right price, quantity, and time. It is therefore useful in managing costs while ensuring that the quality is maintained and that the operation is efficient.
The article will discuss and explain the 5 steps of the procurement process and how each has a significant contribution to the uninterrupted working of the organisation. Enroll now in an Strategic Procurement Management course to enhance your skills in resolving disputes and fostering stronger collaborations.
The first part of the procurement cycle is identifying the needs of the organization. This is the pattern of things which should be considered before acquiring anything. It may concern raw materials, office supplies, equipment, or services required for the organization. The step involves different departments in defining what is needed.
There are several factors considered in order to identify needs, such as the following:
In stock or through existing resources.
Upcoming projects or operational needs.
Budgetary constraints and money available for such.
Long-term strategic goals of the organisation.
Once the needs are defined, they are documented in detail. This document is known as a procurement requisition which details what it requires, how many and what quality, and the delivery date. The requisition is then sent for approval from the relevant temporary authorities in the organisation.
Sourcing and selecting suppliers is the next step in procurement after the organization has established its needs. At this juncture, businesses try to source potential vendors or suppliers who could supply the goods or services they need. Supplier selection is an important step since it may determine how quality, price, and timely delivery of products or services from that supplier can affect an organisation.
To source suppliers, organisations often go through the following processes:
conducting market research on reputable and credible suppliers who can cater to the needs of the company.
Sending out letters formally inviting suppliers to submit proposals or quotes for goods/services.
Accessing internal databases or external websites featuring the records of potential suppliers and vendors.
After supplier selection, the second step in the procurement process is to create a Purchase Order (PO). This formal document essentially spells out the specific details surrounding the goods/services that the company is purchasing from the supplier. The document serves as a legal contract between the buyer and the supplier.
Typically, a purchase order would contain the following:
which is to be purchased, with its quantity and specifications.
The item or service cost agreed upon.
The expected date of delivery of goods/services.
Payment methods, schedule, and terms agreed upon.
This contains the delivery address and any special instructions needed for handling the items.
A clearly structured purchase order assures both parts of clarity and simplicity, helping eliminate chances of misunderstanding. Thereafter, the purchase order is sent to the contractor, and on acceptance of the purchase order, the procedure goes to the next step.
The fourth step in the procurement process includes receiving and inspecting goods or services contracted for. After delivery by the supplier, the organisation should verify that the items comply with the stated specifications and quality standards.
Receiving process comprises:
Ensure these items tally with the specifications and quantity given in the purchase order. This involves checking labels, packages, and the delivery note.
Inspect trade commodities to ascertain that they are neither damaged nor do they fail to meet the required quality levels. Where there are discrepancies, the procurement team must notify the supplier immediately to return the merchandise or replace them with new products.
Receipt of goods and services has to be recorded in the company's inventory management application. Such documentation coordinates stock along with future audits.
If the service is under consideration, the step refers to ensuring that the service is delivered as per the given terms - checking its quality and verifying that the work matches the expectations set forth in the contract.
The last part of the procurement cycle is processing payments and keeping correct records. After receipt and inspection of the goods or services, the organisation will then pay the supplier according to the terms established in the purchase order.
Payment processing usually consists of the following:
The supplier must submit any invoices, and those will be matched up with the purchase order and delivery receipt for accuracy. This is to recognize if there was the right amount charged for the goods, or services received.
After the invoice has been verified, it is routed for approval by the respective department, which can be accounts or finance.
At the end of authorisation, payment will be made via the right means, as agreed upon. (e.g., bank transfer, cheque, etc.)
Accounting for the payment process is also part of the last stage. Such records are valuable for financial audit and taxation purposes, besides future procurement planning. Keeping an organised system into which the procurement team puts in orders, invoices, receipts as well as payment confirmations.
In conclusion, the procurement process consists of five steps that are critical to the success of acquisition for goods and services within an organisation. Identifying a need, ordering and paying suppliers, and the recordkeeping related to it such as the purchase requisition and purchase order incentive, are all crucial processes which lead to the operator filling operational targets, quality standard maintenance, and managing costs.
The British Academy for Training and Development conducts such specialised courses on the procurement process for those people who want to develop their procurement skills.