The procurement process is a critical function of any business, and when done well, can contribute significantly to an organization’s efficiency and financial success. Ironically, the process of procurement is one that often goes unnoticed in the hustle and bustle of everyday operations – and yet, its impact reaches far and wide.
Successful procurement may appear to many to be a virtually effortless process. But for the individuals and expert teams that navigate its complexities, procurement is understood to be an ever-evolving process with several important stages.
In this guide, we’ll take a closer look at the stages of the procurement process and how targeted improvements can help a company improve their overall efficiency, output, and even their bottom line.
What is Procurement?
First, let’s address one of the most common questions asked by those that are new to the world of procurement: what does procurement mean?
In simplest terms, procurement is the layered task of locating and purchasing the goods, services, and works necessary for an organization to effectively operate its business model. And though this definition may seem simple and straightforward, the best procurement models can have a direct effect on organizational success.
Ultimately, the goal of procurement is to secure the best value on behalf of an organization, decreasing spending while ensuring timely delivery of quality goods and services.
What is the Procurement Process?
The sequence of steps an organization takes to acquire the goods and services needed to fulfill its operational goals is known as the procurement process. From placing the initial purchase request to the final receipt of a given product, each of the stages of procurement holds equal importance.
While there is a general outline for the procurement process, the specifics are shaped by the needs and goals of each individual organization. Factors that will affect the procurement process stages include:
- Size of the organization
- Business model
- Location of the organization
- Company structure
- Human resources team/departmental organization
- Needs for budget and spending
- Laws and industry-specific regulations (for companies in certain industries, such as education and government)
The Stages of Procurement
While it’s true that procurement is a highly individualized process, there are also several foundational stages that will generally be utilized across the board.
Stage 1: Identify a need for products and/or services
Before the procurement process can begin, a specific need must be recognized. For example, an organization may be interested in purchasing new computer monitors, re-ordering their monthly supply of paper products, or acquiring updated software.
Depending on the company structure, this step might be managed by the business owners, department heads, executive team, staff, and/or procurement managers. In this stage, a budget will be set and a comprehensive view of spending will often be assessed.
Stage 2: Create and submit a purchase request
A purchase request (or purchase requisition) is a formal request for goods or services and is generally submitted using specialized procurement software. Oftentimes, the purchase request will originate with an employee or manager, then be reviewed by the organization’s procurement team.
When a purchase request is approved, it becomes a purchase order. However, should the request be denied, it will typically be returned to the submitter with a brief explanation. A rejected purchase order, while not ideal, can be a good learning opportunity.
Stage 3: Evaluate and select suppliers/vendors
The next step is to assess various vendors, then choose one that meets key requirements. Some organizations maintain a catalog of approved vendors, featuring various suppliers that have already proven themselves.
Soliciting vendors is a process that can range from simple to complex, with its scope determined by the requirement(s) at hand. Usually, several requests for quotation (RFQ) will be sent to various vendors, so that the organization/procurement team can compare prices and options.
Remember that price shouldn’t be the only determinant when choosing a vendor. For best results, consider the “big picture” of what a vendor can offer, including:
- Ease of communication
- Company ethics
- Production capabilities
After a vendor has been selected, investing time and energy into the relationship is important. A good relationship with a supplier can unlock better savings and service, delivering maximum value in the long term.
Stage 4: Negotiate the terms of a contract with the selected supplier
Once you have chosen the best-fit vendor, it’s time to move on to contract negotiations. In terms of successful procurement, this is one of the most critical stages by far.
It is in this stage that you will outline – and agree to – pricing, as well as details such as delivery schedules, specific terms and conditions, and more. It can often be useful to assess previous contracts to pinpoint opportunities for improvement, allowing you to take a more informed approach going forward.
Stage 5: Finalize a purchase order
After the final contract has been approved, the next order of business is the purchase order (PO). The contract typically governs the full buyer/supplier relationship, while a purchase order zooms in on a specific purchase.
Think of this document as another formal contract, which fully details the following:
- Total costs/price
- Detailed description of the goods and/or services
- Any other specific terms and conditions
Stage 6: Order management
As the goods/services are delivered, there should be someone responsible, ideally the end-user of the product or services, for checking that all standards have been met: delivery deadlines, product quantities, and quality, etc. If there are issues with the items (e.g. damaged products), you have the option to reject the delivery. Clear communication with the vendor is key in the event of any delivery problems.
Let ProcureAbility Help Your Organization Navigate the Procurement Process with Ease
Elevate your organization’s procurement process with expert support from ProcureAbility, the industry’s leading procurement firm, and a preferred provider for numerous Fortune 1000 companies. We’ll help your team streamline procurement and maximize savings and efficiency, using targeted strategies and procurement best practices.
Learn more about the steps you can take to leverage the advantages of smart and successful procurement by contacting the ProcureAbility team today.