The procurement process refers to a structured method and means used to streamline an organization’s procurement process and achieve desired results while saving cost, reducing time, and building win-win supplier relationships. It is almost like shopping with another person’s money. However, in theory, it is much more complicated than that. These are the activities involved in getting a product to its final consumer. People acquire work, goods, and services from external sources. The external sources are vendors or any other source that the company achieves its resources.
The procurement process is different from purchasing. A purchase occurs when you enter a store and buy a product for a premium price above the original price. But under procurement, the prices are fixed in advance where the company enters an agreement with their vendors. A procurement team is a team of individuals assimilated together to acquire products, goods, and services for the company at subsidized rates. The team is replete with proficient, dextrous, and well-versed people. They are aware of the current market rates of different commodities and excel at negotiations. Their nimble-footed persona allows greater profits and facilitates better opportunities.
Steps Involved
There are several steps along the way that a team must fulfill for successful procurement and purchase. This includes requirement ascertainments, supplier investigation, value analysis, raising a purchase request, reviewal phase, conversion to purchase order, contract execution, monitoring/evaluation of received order, three-way matching, payment fulfillment, and record maintenance. Let’s explore these in detail:
1) Recognizing requirements
The first step in the process undoubtedly is recognizing the company’s needs. The company submits a request to the department regarding their demands. By ticking this box, businesses can go ahead and short-list suppliers and companies who will provide these services at economical rates and timely. The company’s needs can be big or small. Regardless, the procurement team must concoct a thoughtful list and deliver accordingly.
2) Selecting a prudent vendor
It is exceedingly paramount to select a good vendor because your entire position of employment depends on it. The process of investigating prudent vendors includes requesting price quotations and then picking them if everything turns out alright. It is highly essential to weigh different vendors and their price offerings. The goal is to get the best possible deal. The vendor must qualify on the topic of reputation, timely deliveries, cost, and service quality. These are crucial facets that will ascertain the decision. It is an unwritten rule to endeavor at least three quotes before finalizing one.
3) Submitting a purchase request
After finalizing, identifying, and agreeing with vendor details, the next step is to obtain the responsible department’s approval. To get permission, you must provide the following information:
- Mention the party who is requesting the goods.
- Mention the quantity of service required.
- Describe the vendor
- Name the price
4) Produce purchase order
Post approvals, the next step is to move ahead with the purchase. The finance department will produce a purchase order and send it to the back. The purchase order contains crucial details regarding the granted consent, which should be followed by fulfilling the request. If this is a long-term commitment, evaluate and issue a supplier boarding process. This allows both parties to discern their future and expectations.
5) Tackling the invoice and the received order
Next, the vendor releases an invoice to the purchaser. It is a detailed elaboration of incurred costs throughout the process. The invoice also declares the last payment date, post which a penalty follows. The procurement team must thoroughly check the received order for any damages or inaccuracies. It is the company’s last opportunity to make changes before the final payment is settled. Hence, leave no stone unturned.
6) Payment
After an all-inclusive examination of the goods/services, the company settled the payment. The finance team sends funds using a viable method.
7) Maintain records
Everything has to be recorded from vendor research to selecting one, price quotations, quality of goods, and the final price. It is used for the documentation of internal and external audits. These should be documented online because it is more accessible. Securely store every essential document for future use.
Conclusion
Procurement is a complex process that involves several steps. Also, the team must be adept. They should be acquainted with the working of the market and the company’s expectations. They must make a convincing case for the finance team to clear the payments. Also, ensure timely payments to avoid penalties and unnecessary cash flow.
