The Basics of the Procurement Process
Before detailing the steps of the procurement process, it is important to establish the basics and understand the definition of this method.
- What is the procurement process?
It encompasses all stages of supply chain management, from needs planning to archiving, including the purchasing phase. The goal is to supply the goods and services that the company requires in the short, medium, and long term in the most cost-effective and efficient way possible.
An optimized procurement process ensures having the right product at the right time, in the optimal quantity—neither too much nor too little—of good quality and at the best possible price.
For logistical implementation, using a management software for procurement planning, demand management, supplier management, purchase management, and inventory management is important and recommended.
Now that the basics are covered, here are the different steps to improve procurement management.
Identifying Needs
This first step consists of determining and identifying the company’s needs in both goods and services. An analysis is necessary to visualize the three main types of needs. This phase is called needs planning.
- Primary needs: These represent the finished goods and products sold by the company to its customers.
- Secondary needs: These refer to raw materials and manufacturing materials that contribute to creating the final product.
- Tertiary needs: These include additional and operational materials, tools with wear and tear, used for production but not directly part of the product’s composition.
To meet the objectives of this step, use stock control by analyzing the average consumption data of a product and the minimum stock level.
Once the needs identification process is complete, a procurement request is sent directly to the purchasing department. This department reviews the project, approves or rejects it, and assigns a specific budget.
Supplier Selection
Finding a supplier is the next step in the procurement process. This is the competitive bidding phase. A good practice is to obtain three quotes from different suppliers to compare market offers. This stage is also known as strategic supplier management.
What information is used to compare quotes?
- Product quality,
- Delivery time,
- Payment terms,
- Total cost,
- Carbon footprint for environmental considerations.
Negotiation and Contract Establishment
Once the supplier is selected, it is time for negotiation. Your goal is to reduce purchase costs without compromising quality.
What criteria are negotiated?
- Price,
- Price based on order quantity, volume discounts,
- Delivery deadlines,
- Storage conditions at the supplier’s warehouse,
- Payment terms: deposit, pre- or post-delivery payment, 30 or 60-day payment terms, installment plans.
After negotiations, when both parties agree, a purchase contract is established. This document specifies the different elements listed above. It governs the relationship between the company and the supplier.
The creation of purchase orders follows. Be sure to carefully check the order confirmation sent by the supplier to avoid future errors.
Receiving and Inspecting Goods
Upon delivery, the purchasing department proceeds with the receipt and inspection of the order’s compliance. This step ensures the proper execution of the main terms of the contract.
What are the key points to evaluate?
- Verify quantities,
- Quality control of received items,
- Check for transport-related damages such as torn, opened, or damaged packaging,
- Identify manufacturing defects,
- Analyze delivery timelines: delays, just-in-time, early deliveries.
Payment Processing and Archiving
The final step in the procurement process is invoice payment. The purchasing manager takes this opportunity to evaluate the supplier with the team of buyers. This evaluation assesses whether the supplier is reliable for a potential long-term partnership. The evaluation process occurs internally after the transaction and addresses the following questions:
- Adherence to deadlines,
- Product quality,
- Price fluctuations (increase or decrease),
- Communication, interactions, availability, responsiveness of the supplier,
- After-sales service: the supplier’s ability to resolve encountered issues.
Finally, each order is archived in both paper and electronic formats. The goal is to maintain records, ensure coordination with different stakeholders over the years, and provide legal documentation for tax procedures.
To conclude, the chosen procurement strategy is essential for minimizing losses, reducing costs, and accelerating restocking. The primary advantage of optimizing the purchasing system is better anticipation of needs.
The purchasing department aligns with the company’s values to establish long-lasting and solid collaborations with suppliers. It plays a crucial role in customer satisfaction and in monitoring expenditure requirements. Mastering this process requires practice, continuous improvement, and constant innovation at all decision-making levels.
