Procurement is the process of purchasing products and services. It’s a critical part of any business, as it helps to ensure that you’re using your resources effectively and getting the best deals on everything from paperclips to power tools. As such, procurement and a Procurement Management System should have a place in every organization’s strategy.
In this guide we’ll talk about the procurement process, types of procurements and optimization strategies for helping your company save money without sacrificing quality or missing deadlines:
What is Procurement?
Procurement is the process of acquiring goods and services. It’s also known as purchasing, purchasing management or supply chain management.
It refers to the act of buying goods and services by an organization or government agency. In its most basic form, procurement involves selecting suppliers, negotiating contracts with them and monitoring delivery performance so that the supplier meets expectations during delivery of products or services.
Steps involved in a Procurement Process
The procurement process is a complex one, but it can be broken down into the following steps:
Step 0: Needs Recognition
The first step in a procurement process is to identify and document the need for a new product or service. Once you’ve determined there’s an opportunity for improvement, it’s important to assess how much that improvement will cost and whether it aligns with your organization’s goals.
Prioritization of needs is important so that you can determine which ones are most pressing. Once you’ve prioritized all potential projects, evaluate them based on factors like feasibility and risk tolerance before moving forward with one of them.
If you’re working with a product development team, this step can be less important. You’ll likely already have a list of potential projects that are ready for development. However, if you’re looking to develop something new from scratch, it’s crucial that you identify the problem and its possible solutions before moving forward with the project.
Step 1: Purchase Requisition
A purchase requisition is an official request for goods or services. It differs from an order in that it’s not binding; it simply represents your intent to buy something at some point in the future and may include details like how much you’re willing to spend on it and how many units you want.
A purchase requisition should be created when you know what you need but don’t have enough information yet about price, quantity or other details (such as delivery dates).
- Create one manually by filling out fields in a template form;
- Use software tools such as SAP ERP Central Component (ECC) Purchasing Management & Ordering (PMO);
- Use ECC PMO’s “Purchase Requisition” function–this lets users create new documents without having access rights to those documents’ sub elements such as line items or billable rates.
Step 2: Requisition review
The next step in the procurement process is to review the requisition. A requisition is a document that outlines what you need, why you need it and how much it will cost. The person responsible for approving or rejecting a requisition is called a Requisition Approver. This role can be assigned to anyone on your team who has been given authority by upper management to make decisions about buying goods or services from external vendors.
Step 3: Solicitation process
The solicitation process is the process of soliciting bids from potential suppliers. This will include a request for proposal (RFP), which is the document you send out to potential suppliers. The RFP contains information about your product or service, including what it should do and how much it should cost. It also contains instructions on how they can submit their proposals.
When receiving bids, make sure that they are complete and accurate before deciding who will receive an award on your project.
Step 4: Evaluation and contract
Once you’ve received the bids, it’s time for you to evaluate them. This process involves comparing each bid against your requirements, making sure that all of your needs have been met and none of them are missing anything important. You’ll also want to look at the price of each item on offer so that you can figure out which vendor offers the best value for money (and thus deserves your business).
After this is done, it’s time for negotiations between yourself or whoever is representing your organization and whoever from whichever company has won the contract so far in terms of price and quality – this is where any differences between what was promised in their initial bid versus what actually showed up on paper will be worked out before finally signing off on everything with their signature(s).
Step 5: Order management
Order management is also known as procurement management. It is a process of managing the purchase of goods, services and equipment for a company. The purpose of this step is to ensure that orders are placed with the correct suppliers and delivered to the correct locations. The following are some examples of order management:
- Ordering products from vendors
- Managing inventory levels
- Maintaining records related to purchases
Step 6: Invoice approvals and disputes
Invoicing is a key part of the procurement process, and it’s important to get it right. Approving an invoice is the responsibility of the buyer, who should ensure that invoices are signed by a manager before they are sent out for payment. The buyer should also check for completeness and accuracy when reviewing invoices. If you find something wrong with an invoice after it has been paid, talk with your supervisor or finance officer about how to handle this situation.
Step 7: Record Keeping
Record keeping is a crucial part of the procurement process. You must keep records of all your procurement transactions, including:
- The date on which you conducted each transaction, and why it was necessary to make that purchase.
- The name and contact information of every person involved in making the purchase decision (including yourself).
- A description of what was purchased, as well as any additional details related to the item being purchased (such as pricing or delivery times).
- If possible, store all data electronically so that it’s available whenever needed without hassle; otherwise try keeping hard copies somewhere safe but easy-to-access like filing cabinets within reach from where most employees spend their days working at desks instead!
How to optimize procurement management?
To optimize procurement management, there are a few things you can do. The first step is to make sure that you’re using a procurement management system. These apps allow employees in your organization to approve purchases quickly and easily while providing them with real-time data on their spending habits. They also give managers access to detailed reports about where their money is going so they can make informed decisions about future spending plans and allocations.
You can also opt for Procurement Automation Services from a reputed company to optimize procurement management.