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What Key Steps Does a Typical Procurement Process Involve?

    Understanding the elements of a complete procurement process can help you make your procurement process more systematic and organized.
What Key Steps Does a Typical Procurement Process Involve?

Procurement is a business support function that involves the activities and processes involved in sourcing, requisitioning and buying goods and services to ensure that the material and goods requirements of the company are met in a cost-effective manner.

Procurement processes usually involve some form of competitive price sourcing, either simply through requisitioning of multiple quotations, competitive bidding, negotiation, or a combination of all three.

The procurement process is undertaken to ensure that that buyer receives goods and services at the best possible price while considering important aspects such as quality, quantity, delivery time and location.

Steps involved in the Procurement Process

1. Need identification

Business requisition needs with respect to procurement can be classified into two categories of procurement:

a. Strategic/Direct Procurement: The acquisition of raw materials and goods for production. If strategic procurement stops or faces any problems, companies are no longer able to manufacture their product. Strategic procurement is done in large quantities and frequently and often involved long-term contracts and pre-negotiated prices.

b. Non-Strategic/Indirect Procurement: This involves purchasing supplies that are required for the smooth and effective running of day-to-day operations.

2. Request for Quotation (RFQ)

The company sends out a Request for Quotation that clearly states the detailed specifications and standards of the product required as well as the exact attributes (such as color, weight, etc.) of the product.

A variety of relevant vendors are invited to send in their price quotes and state the quality of products that they offer alongside other criteria such as payment and delivery terms.

3. Negotiation on Price Terms

The company will investigate all relevant information to determine the best price and terms for the product. Companies usually look into three suppliers before making a final decision.

Before placing the final order, detailed negotiations are undertaken with regards to:

  • Price
  • Payment terms
  • Delivery terms and freight charges

4. Purchase Order

The purchase order is prepared after the buyer has finalized the selection of the vendor. It defines the following terms between the buyer and seller:

  • Price
  • Specifications of product
  • Delivery/freight terms
  • Payment terms
  • Terms regarding tax payment

5. Delivery of Products, Invoice Approval and Payment

Once the buyer has accepted the products delivered, the payment is made according to the terms stated in the Purchase Order. Payment is usually made in the form of cash or credit letters.

6. Record Maintenance

The company must maintain proper records of the RFQ, all the quotations received, negotiations carried out and Purchase Order.

These records can be used for the following purposes:

  • Record of purchase transactions
  • Tracking spending and reconciling with accounts
  • Auditing procurement processes
  • Managing inventory
  • Reordering in the future

E-procurement solutions such as Proqura offer a fully automated procurement process and operate as a complete one-stop-shop to meet all your procurement needs from beginning to end. Have a look at our solution to see if we can help.

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