Everything you Should Know about The Procurement Process

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February 22, 2024

What’s Procurement?

Businesses require a lot of things to function, products to carry out their daily operations, and materials to create what they sell are at the top of the list. That’s what exactly procurement does. Finding and getting the right goods and services for your company but not just any product, procurement departments work to acquire the best quality from the most competitive suppliers.

Procurement vs Purchasing

Yes, purchasing is focused on buying products but opposite to what procurement does, is more oriented towards short-term goals, like literally placing an order for what your company does, procurement while it has an operative nature, it is more about strategies to search the best offer in terms of quality, price, delivery terms, and general performance.

Types of Procurement

Direct

We speak about direct procurement when discussing sourcing the materials your company needs to create your final product. It could be that you must buy raw materials or acquire products from a wholesale so you can sell them under your brand.

Indirect

Here, you are still buying products for your business but with another purpose; to keep your daily operations running. Think in office suppliers, consulting services, or maintenance of your office.

Goods and Services Procurement

While indirect and direct procurement are the most common procurement categories, you can also find a division between goods procurement and services procurement. The difference between is that goods procurement deals with the purchase of products, service procurement, on the other hand deals with hiring services offered by people, like a consultant.

How Procurement Works Step by Step

Identify Needs

The best way to know if you need something? Begin by defining your needs. Start by clearly defining what you need to procure. The more specific you are, the simpler will be to find the right vendor.

Research Suppliers

If you already know what are you looking for, the next logical step is to look into potential suppliers who can meet your needs. Check their reputation, reliability, and past performance. Make a list of candidates that meet your criteria and don’t forget to consider factors beyond the price, i.e.: quality and delivery times.

Request Quotes

Reach out to the suppliers on your list and request quotes with an RFQ. Be specific about your requirements otherwise, you could end up choosing the wrong supplier.

Evaluate Proposals

Once you receive the quotes, take your time to evaluate each proposal. Consider factors like cost, quality, delivery time, and support.

Negotiate

After selecting a supplier, don’t hesitate to negotiate the terms of the agreement. Discuss pricing, delivery schedules, and any other important details.

Order Management

With a supplier chosen and a contract signed, it’s time to make your order. If you receive something you didn’t order, it’s your responsibility to let the seller know immediately.

3-Way Match

This method checks if what you ordered meets what has been delivered. A 3-way match compares the purchase order with the invoice and the actual goods in your hands.

Payment

When you’re satisfied with the goods or services received, process the payment according to the agreed terms.

Record-Keeping

Once a transaction is made, procurement departments need to record it in a centralized location for auditing and planning purposes.

3 P’s of Procurement

Process

The backbone of a good procurement flow. Processes are necessary because they set a clear route for activities, like sourcing, purchasing, and payment.

People

Everyone who needs to be involved in the procurement process is a stakeholder.

Paper

Procurement relies on a large number of documents to function, so it’s fundamental for every operation.

Challenges in Procurement

Poor Visibility into Spending

Implementing digital procurement software is the most direct solution to gain real-time data from your procurement activities.

Manual Processes

Manual processes can be time-consuming and a source of inaccuracies.

Maverick Spending

Lack of clear structure for purchase approvals can lead to rogue spending.

Best Practices to Optimize Procurement

Make it Easier with Automation

Using a source-to-pay procurement system can help manage supplier relationships, purchases, and spending with fewer mistakes.

Perform Spend Analysis

Analyze spending habits to find new ways to save money and develop accurate sourcing strategies.

Establish Internal Policies

Clear internal policies help ensure a good purchase cycle.

Key Takeaways

What is Procurement?: Strategic approach to acquiring goods and services.
Procurement vs. Purchasing: Procurement covers the entire lifecycle while purchasing focuses on the transaction.
Steps in the Procurement Process: Identify needs, research suppliers, request quotes, evaluate proposals, negotiate terms, place the order, receive goods, make payment, and review performance.
The Three P's of Procurement: Focus on planning, structured processes, and performance monitoring.
Challenges in Procurement: Managing relationships, compliance, budget constraints, and market changes.
Best Practices for Effective Procurement: Foster collaboration, leverage technology, maintain transparency, and regularly review strategies.

Amy Deiko - Procurement writer and MBA student with a passion for innovative business processes.