Procurement is so much more than a simple purchase. Like all business functions, the procurement cycle has different stages with several moving parts. This is further complicated by the fact that most companies juggle multiple vendors.
The dynamic process involves analysis and monitoring, making these 10 stages crucial to the decision making process.
Stage 1: Recognize the need
The first step in the procurement process is for the business to recognize it needs a new product or service. The source could be internal (items needed to run the business) or external (items they plan to sell), and the purchase could be for a new item or a recurring one.
Once you recognize the need, you or your team can then begin to look at your options.
Stage 2: Identify specific needs
With numerous purchasing options, you will want to find products or services that will meet your company's specific needs. In this stage, you will have to determine the type of item, any attributes or properties they have to possess, the amount or number of those items, and the timeframe for delivery.
You should pay close attention to the costs since the budget plays a significant role in this stage.
Stage 3: Vet you vendors carefully
Once you have identified your needs, things get more involved. Finding a reputable and viable vendor is important. This could mean choosing one from an approved list or needing to search for vendors that meet the criteria specified in stage two.
Once you identify possible vendors, you can begin to qualify them to see if they offer the best value while being able to deliver the required purchase within the designated time frame.
Stage 4: Analyze prices and terms
Looking at the short list of vendors, usually narrowed down to about three by this point, you can now examine all pertinent information to determine the best pricing, terms and other specified requirements. This could include whether you are looking to purchase specially made items or readily available "off-the-shelf" commodities.
Once completed, the process moves to requisition where your finance department gives a thumbs up or down to the purchase. If approved, things move to the next step for ordering.
Stage 5: Prepare the purchase orders
After the approval process, you can now generate the purchase order (PO) and send it to the vendor. This document defines the price, specifics and the terms and conditions associated with the purchase.
If you need to outline any other obligations, you should include them in the POs, which is considered to be a legally binding document.
Stage 6: Determine a delivery system
Once created, the PO is sent out for delivery via fax, mail, email, hand or through other electronic means. Many businesses turn to a partner to consolidate all their vendor purchases through a singular delivery system.
Once received, the selected vendor acknowledges receipt of the PO and then generates an invoice to send to the buyer. The invoice confirms the sale along with the agreed price and notes when payment is due.
Stage 7: Ensure you expedite the delivery of goods
Expedition of the POs outlines the timeliness of the delivery of the goods or services that have been purchased. If any delays occur, it will be important for the vendor to share this information with you.
Stage 8: Receive and inspect purchased items
The product or service is then delivered. You can now examine the purchase, which you can either accept or reject, depending on the condition of the items. Once approved, you must make a payment to the vendor.
Stage 9: Generate invoice approval and payment
When payment is due, the invoice, receiving document and original PO must be aligned. Once you reconcile these three documents with no discrepancies noted by either party, payment is generated.
If you or the supplier finds discrepancies, both parties must resolve the difference before you make the payment.
Stage 10: Record-keeping
It's critical for companies to maintain accurate records not only for their own bookkeeping but also in the event of an audit. Records that you need to keep in order include all files related to purchases, tax information, warranty details and any other relevant documents.
You should store records in a central location where they can be easily accessed. Companies that invest in their procurement cycle processes typically see great tangible results in their budgets. By streamlining the process with a reliable partner, they can:
- Pay the best prices for purchases.
- Save time and minimize order delays.
- Identify vendors with good reputations.
- Build mutually beneficial partnerships.
When you're managing several vendors, it's often hard to bounce between different websites and use multiple interfaces for the various stages of the procurement process. Having a dependable and trustworthy partner can make a big difference.Negotiatus offers a fast, feasible and user-friendly solution through its cloud-based software. We'll connect your vendor websites to our platform where you can enjoy a singular point for all things related to your purchases.