Procurement is an important process in business, as it involves a lot of strategic planning for smooth functioning amidst multiple areas of a company. Procurement can be defined as the entire step-to-step process of obtaining goods and services your company needs to achieve its end product/service. This process would involve negotiations, purchase, quality checks, and all the other processes involved in attainting what you need.
Around business circles and environments, you will hear the term procurement very often. What may to a layman seem to be another word for purchase, procurement is a complex and thorough process that needs careful maneuvering of plans and ideas. The process has a great effect on your company’s profit.
What are the various stages of procurement?
An organization’s means and methods to execute its procurement plan may vary a lot from its competition. Ideally, that is a great and outward way of looking at it but to achieve and maintain success with procuring materials, one would need to basic some basic steps and requirements. How the company decides to execute these particular steps is up-to their needs and ideals.
- Identifying materials required: The very first of the many stages in procurement is to identify the needs of a company and then point out the materials and services required to complete these needs. Identification needs to come from a higher-up managerial rung of the office, as they would know best the needs the company has.
- Create detailed purchase requisition: Making a detailed purchase request is the official start of the process. The buyer places a request for the supplies to the vendor through call, email, paper, or in-person.
- Review of purchase request: The requisition will be sent to the people responsible for managing finances. They will review the request and see if there are any errors or overbuying. A budget check also needs to be run and the request should not exceed the stated price in order to be approved.
- Selection and Vetting the supplier: You must assess and select the supplier that shares your interests and will give you the best deals without making you compromise on quality. The supplier will be in charge of the goods, when they get delivered, the quality of the delivered products, special discounts and so on. Any special requests or instructions must be made aware of them before-hand.
- Negotiate terms and finalize contract: When you have a good negotiation plan, you maximize your company’s profits. Negotiating can ensure that you get what you need for prices you can afford. A good plan along with good contracts that state terms and conditions with the supplier along with liability clauses that are signed by both parties will ensure your company’s safety.
- Receive and review the delivered order: Make sure to perform quality and quantity checks on every purchase you receive. Claim for refunds or exchange if you find faulty products because your customers cannot be sold a faulty product or service.
- Three-way matching: Companies cross-reference three very important documents for accurate and complete payment to the vendor. This process is known as three-way matching. These documents are checked and evaluated to avoid any faults in the purchase and any discrepancies in the amounts that need to be paid. The three important documents are:
- Purchase orders: Purchase confirmation officially sent by the purchaser to a vendor, authorizing the purchase is called a purchase order. They contain the information of the sender or the company, the materials or services needed, their quotations, the payment information, and address along with a unique serial number.
- Order receipt: The vendor usually sends this with the purchase you made which implies proof of delivery and a receipt for the product.
- Invoices: An official document sent by the vendor to the buyer requesting payment is an invoice. It includes the vendor’s details, credit or discount information, details of the purchase, total amount, and sometimes accepted payment options.
- Approving invoices: After verifying the documents using the three-way matching, the vendor’s invoice is approved and payment is initiated. Updating your records immediately after payment will help you keep track of your profits and make it easier for your accountant to do taxes.
Procurement is a highly important process that will directly have an impact on your company’s profits. This is why you need a step-by-step solid plan to execute your procurement strategy.