Procurement Process

Procurement process is the term used by businesses to describe the buying process, and can refer to the purchase of supplies or services. Many businesses use automated tools such as an Enterprise Resource Planning (ERP) system and Electronic Data Interchange (EDI) to assist procurement specialists or buyer with the buying activities. Regardless of whether an automated system is used, the goal of the procurement process is to buy the exact product or service when needed for the most favorable price.

Identifying a need is the first step in the procurement process. If the business has an automated system, typically a purchase requisition (PR) will be sent to the buyer indicating what product or service is needed. For businesses without automated systems, a handwritten PR is often used, which requires the person or department that needs the product or service to submit a purchase requisition form to the buyer for action.

If the product or service has previously been purchased, the buyer will enter a purchase order in the ERP system or submit payment to the supplier based on the previously agreed to terms and conditions. If the product or service has not been procured before, the buyer must proceed with a request for quote (RFQ). An RFQ involves selecting a supplier, determining the price to be paid, and agreeing to the lead time and quantity for delivery.

Selecting a supplier typically involves sending RFQs to multiple suppliers and comparing the bids to determine which supplier can best meet the needs of the business. The buyer will request a specific quantity and delivery date based on the requirements outlined on the purchase requisition. Depending upon the type of product or service required, there may also be the need for technical qualifications or special licensing. For example, if the product requested is a medical device, the supplier must be licensed to manufacture the product and prototypes must be sent and approved by the business before purchase orders can be issued.

Determining the price paid usually includes comparing bids then negotiating the best price. The buyer should ensure all bids are an accurate reflection of the work to be performed or service provided and include all applicable taxes and shipping charges. This way, the total landed cost is known before the purchase order is placed.

It is also necessary to understand the lead time and expected quantity to be delivered. Based on the actual need date, any accepted quote should meet the required date. If the supplier cannot meet the date needed by the business, expedite premiums may be incurred.

The expected quantity should also be supported by the quote received. The buyer must make sure the quantity to be shipped is not less than requested because the shortage may result in loss revenue. The buyer must also make sure the quantity to be shipped is not more than needed because the excess may result in liability for the business if the product is never used. Ultimately, the buyer is responsible for ensuring the procurement process is executed to meet the needs of the business while maintaining the profits.