Procurement Process: Steps and Flowchart

If you want your business to grow and prosper, then management team in your company should perfectly understand the art of obtaining products and services. Regardless of your company’s size, character or the industry it belongs to, professional procurement process will significantly reduce risk and save both time and money.

You should be aware that every procurement cycle follows specific steps that help management successfully achieve its primary goals and objectives. Adherence to principles and values of a proven procurement process technique will help your organization avoid different pitfalls of a procurement project.

Standard step-by-step procurement process allows your company stay sustainable in today’s changing world.

5 Fundamental Steps in Strategic Procurement Process

Identification of Business Need

Firstly, you need to identify what the primary business requirement is. The company’s needs must be established in order to determine which type of service or product will fit best. After that, the vendor needs to find required items at the best quality for the best price. Take into account that the seller should also make sure that the supplier is able to deliver all the needed products and services in time.

It is vital to understand that demands can either be internal or external. Key performance indicators at the first stage include:

  • Identification of exact needs through the use of procurement needs analysis;
  • Clarity on such issues as type, quality, urgency and total spend against market affordability.

Supplier Sourcing and Evaluation

The next step is to search for potential suppliers, whose costs, qualities, technologies, dependability, timeliness and service best meet the company’s needs. Among the most suitable suppliers are those who perfectly meet qualification criteria and those willing to be bound into long-term and mutually beneficial business relationships.

Negotiating with Suppliers

After you have selected a supplier it is vital to conduct detailed negotiations, especially if it’s the first time you are working with the chosen supplier. During negations it is essential to consider the process by which the goods or services will be ordered and approved. Don’t forget to clarify how they will be delivered and returned if necessary. Another important point is to consider how the invoice process will work and on what terms payment will be made. Remember, considering the whole purchase-to-pay process can notably reduce costs and risk.

Contracting and Delivery

Fourth step is contracting: if both parties, the buyer and the supplier, agree on all terms, including pricing, delivery, quality, you can make it official by signing a contract. Remember, no goods or services should be ordered or delivered until the contract is signed. However, conclusion of contract is not the end. After contract signing goes delivery process. Throughout it, you need to evaluate the delivered items to ensure they are exactly what you had planned to buy, they meet your quality standards, arrive on schedule and you are charged the prices outlined in the contract. Keep in mind, the purchase-to-pay process needs to be in place and need to be understood on both the buyer and the supplier side. Remember, any service levels that have been agreed need to be properly measured.

Analyzing Results

Once the project is complete, it is essential to analyze the process and evaluate its success as well as record observations for future projects. You may need to present the outcomes to company management or relevant stakeholders. The results can be used the next time you need to make a similar purchase.

Procurement Process Flowchart

All of the above stages can be easily presented in a form of a procurement process flowchart that will help all the employees understand exactly how your procurement process works. Procurement process flowchart provides typical process data -you can modify it to layout the steps in your company’s process.