Fundamentals of the Procurement Process

Did you know that 39 organizations worldwide reported a collective $22.3 billion in the procurement of goods and services in 2020? 

Are you looking to outsource some elements of your business processes? Or, perhaps you're a freelance worker, and you're interested in finding the best freelance websites to connect to potential jobs.

Whichever business scenario applies, you'll need to find the right company. Finding the right company isn't just comparing prices, even though the cost is a significant element of the procurement process.

Don't be intimidated by the "process." You don't have to be an experienced businessman to understand the following basic concepts of the procurement process. Keep reading to learn more!

Different Types of Procurement

When some people hear the word "procurement," they believe it is the same as purchase. However, this assumption isn't necessarily valid as purchasing is a tiny step in procuring goods and services. 

The procurement process is a company's steps to obtain the goods and services they provide for their customers. There are four main types of procurement used in business across the world. 

Direct Procurement

Direct procurement refers to any good or service required to create the end product. For example, a manufacturing company would directly procure raw materials and components to make a product.

A retail business will directly procure items that would then be for resale. Retailers will typically purchase their products from a whole seller, then resell these items as their end product.

Indirect Procurement

Indirect procurement is for items that businesses need to run the day-to-day operations. These goods and services include office supplies, furniture, consulting services, etc. 

It is indirect if the goods or services are not necessarily for your end product. For example, if you run a business that packages and ships your product, any boxes or wrapping materials are procured indirectly. 

Goods Procurement

Goods procurement refers to purchasing any tangible items needed to run your business. These items can be direct or indirect and include the required software for your technology. 

Goods used in your business will heavily rely on good supply chain management. Keep track of your inventory and order ahead of time to maintain your stock.

Services Procurement

This specific type of procurement focuses on people-based services. Specifically, it is a service procurement if you need to hire someone to complete a task for your business. 

Below you will find a list of different types of service procurement:

• law firms
• construction
• skilled laborers
• on-site security
• lawn care

All services aren't necessary for your business to run smoothly, but they make your job much easier as the business owner. In addition, delegating tasks will lighten your workload so you can focus on your end product.

What Is The Procurement Process?

Every company or business runs differently. For example, procurement for a hair salon will not look the same as for a web development company. Nonetheless, the procurement process has nine crucial steps that are typically the same for every business owner.

Step One

The first step of the procurement cycle is to identify what goods and services are needed for your business to run smoothly. Using data, previous purchase history, and your product knowledge will make this step a simple first move.

A tip for more accessible procurement in the future would be to keep all previous purchase information in one place. Then, this organization will make ordering parts and goods easier if you already have the information. 

Step Two

In most instances, once you have determined what is needed, it's time to create a purchase request. The purchase request will include specifications like the amount of product required and the cost of the product.

If you are a business owner, this step may not be necessary, depending on the size of your operations. However, if you work for a large corporation, this is necessary so the higher-ups can approve the purchase of new materials. 

Step Three

Now that you have assessed your needs, it's time to choose a vendor that will fulfill the purchase request. You will then start contacting vendors and requesting quotes on your required items' prices.

This step is the opportunity to shop around, ensuring you're spending wisely but getting a quality product. If you find a much cheaper vendor than its competitors, be prepared to inspect the materials to ensure quality. 

Step Four

A good rule of thumb here is to get at least three quotes before making a new purchase. Compare the prices, the shipping time, and the materials' quality. 

When comparing your quotes, look for opportunities to negotiate. For example, some companies are willing to come down on the price a little to secure business with your company. 

Steps Five and Six

Now that you've chosen a supplier, it's time to create a purchase order. The purchase order should detail each item needed as well as the amount. 

Once the items come in, go through and inspect the goods. During this process, you should look for the quality of items and ensure there was no damage during transit. 

Step Seven

At this point in the process, you will conduct three-way matching. This process means verifying the information in three places to ensure you received all the correct materials. 

The three places you have to compare are the purchase order, packing list, and invoice. If all three of these match and you have all the materials ordered, it's time to pay the invoice!

Step Eight

After everything is verified, it's time to approve the invoice and arrange payment to the supplier. Please keep track of invoices and pay them promptly, as this will build good relationships with your suppliers. 

Step Nine

In our opinion, step nine is the most crucial part of the process. You need to organize and record all aspects of the procure-to-pay process, so it is easier to replicate in the future. 

It's essential to have streamlined recordkeeping so that anyone in your business can help maintain your inventory. In addition, records will help your business come tax season and if you receive an audit at any point. 

Clear, concise records will also alleviate any issues if there is a dispute between suppliers and your company. 

Benefits Of Procurement

Now that you know the main steps of the procurement process, it's essential to understand why this business model benefits you. Using procure-to-pay solutions can positively impact all aspects of your business. 

Time Management and Identifying Waste 

With a modern procurement process, many aspects of your business will become automated. A quicker process allows you to manage your time more wisely, allowing you the freedom to expand your business creatively. 

Another benefit of using procurement services is it helps you identify waste within your business. A streamlined process lets you see what items are being wasted or used inefficiently. 

Productivity and Communication

Your team will be able to work more effectively with a procurement process in place. Being able to focus on their responsibilities will create a good pace for creating your end product.

With that increase in pace, your employees can better communicate their needs within their environment. For example, procurement allows different departments to speak about their inventory and supply needs.

Financial Savings and Reliability

You can count on your product to be more reliable if you have consistent policies. Your employees will also be more reliable in creating your products or maintaining inventory.

Procurement management relies on sourcing the most cost-effective materials possible. Getting quotes and comparing suppliers gives you more control of your finances. 

Procurement Consultants

Does the procurement process seem like a lot of work? Understandably, you may want to outsource that entire process. You can utilize a procurement consultant to help create the process. 

Procurement consultants can help provide the best strategies or suggest alternatives that may save your business money. In addition, consultants like Procure Mensh can save you the trouble of shopping for vendors and provide insight into the current market. 

Some companies even offer to help set up your business model and help you create a streamlined process to maintain your inventory. In addition, some consultants can help you with negotiations on prices and even make your end product more desirable. 

Now Is The Time!

If you have recently started a business or have a product you think will sell, contact Procure Mensh now! Their team of expert consultants will aid you in the procurement process and ensure you start your business smoothly.

Visit their website and schedule a meeting today!