For company growth, an efficient procurement process is vital. As your organization expands into new markets, you rely on more experts, outsourcing, and consultants. The more streamlined this process, the easier it is for your company to scale.
However, procurement management can be challenging. It can be a balancing act between the quality and price of goods and services. To ensure smooth supply chain management (and hence better relationships with both customers and businesses), it is important to choose the right suppliers.
While the procurement process differs from company to company, there are certain key steps one should always bear in mind. This way, a complicated and challenging system can become simpler and more efficient.
Introduction to Procurement Planning
Procurement includes the acquisition and sourcing of goods or services to support business operations. Generally, companies will strive to obtain supplies that are both competitively priced and offer high value.
Having said that, not every company defines procurement the same way. Some consider it to encompass the whole process, from identifying business requirements to sourcing suppliers to updating payment terms. Others consider it to include fewer activities, such as making payments or issuing purchase orders.
Traditionally, many businesses used the term procurement interchangeably with purchasing. However, today, purchasing is seen as only one part of a larger, more complex process. This process includes but is not limited to:
Sourcing
Negotiations
Purchasing
Inspecting supplies
Maintaining records of all steps
Creating a procurement management plan is an important part of understanding your supply chain. This remains the case whether you are seeking office supplies, raw materials, or a powerful reconciliation automation software like CrushErrors.
Types of Procurement
Procurement can include various categories:
Goods procurement: Generally, the procurement of physical items. However, can include goods such as software subscriptions.
Services procurement: Procurement of people-based services. May include hiring
Direct procurement: Procurement of anything that is needed to produce an end product. This can include, for example, raw materials, or items purchased from a wholesaler for resale.
Indirect procurement: Generally, procurement of items that are needed for daily operations but do not directly contribute to bottom line. Includes everything from office furniture to advertising campaigns to equipment maintenance.
7 Steps to Procurement Planning
1. Identify Company Needs
The first step should always be identifying requirements for specific goods or services. This can be a restock of existing goods, new goods that the business has not previously purchased, a subscription renewal, etc.
You’ll have to dive into the nitty gritties of what your business needs, such as technical specifications, part numbers, timeframe, materials, and service characteristics. It will be a good idea to consult all your departments that will be affected by the purchase beforehand.
2. Compare Market Options
Step two is conducting a thorough market analysis to identify the most suitable vendors for your needs. There are various aspects to consider, such as:
Price
Delivery times
Risk assessment
Reviews and reputation
Locations
Responsiveness/availability
Define what success looks like for each of these aspects, and rank how important they are in your operations. After that, evaluate vendors based on how they meet these criteria.
Conducting market research will give you a realistic idea of current prices for particular services and goods. This will further inform your negotiations and determine the budget you can allocate to procurement.
Furthermore, you can save time by identifying vendors you have worked with in the past and checking whether those contracts are still relevant. It may be easier to negotiate prices with previous or existing vendors.
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3. Make a Purchase Requisition
Whenever a company needs to procure a large quantity of goods or services, they make a formal purchase request, also called a purchase requisition.
Purchase requisitions are electronic or written documents raised by customers or internal users who seek aid in fulfilling a need. They notify the company that a certain need exists, usually through the purchasing team, the financial team, or department managers. Specifications such as timeframe, price, quantity and other vital elements, are also included.
Subsequently, the relevant department or team overseeing the purchase can approve or deny the request. If approved, the team can proceed with choosing a vendor and making the purchase.
The following details should be included for purchase requisition:
Team or party requesting goods or services
Vendor information
Prices
Description & quantity of goods or services
4. Solicitation
After the purchase order (PO) is generated, a procurement plan and a corresponding solicitation process is developed. How complex the requirements are will affect the scope of this plan.
After budget approval, the procurement team will forward requests for quotation (RFQ) to vendors to compare bids for shortlisting.
5. Evaluation & Contract
The evaluation committee and procurement team will review supplier quotes and determine which one is the best fit. After selecting a vendor, negotiations and signing are finished, and the PO is forwarded to the vendor. A legally binding contract will activate after the vendor accepts and acknowledges the PO.
However, you should note that onboarding vendors can be more challenging if your operation is highly complex. To ensure smooth integration of supply chains and new workflows, more oversight will be needed.
Vendors should always be included in relevant meetings and news, so they are aware of any changes that can affect delivery.
6. Performance Review
It’s vital to measure vendor performance.
Lucrative and stable vendor relationships will help your company to focus on driving growth and improvement.
You should conduct feedback sessions and in-depth analysis with your vendors. Results should be evaluated based on consistency of quality and delivery times. If you find that your goals have not been met, address the issue to discuss possible solutions.
Bear in mind that it is vital to have an open channel of communication with your vendors. If you do not respond to their queries, or do not offer them a way to ask for clarifications, you can expect challenges and roadblocks.
7. Keep Clear Records
Maintain clear records of:
Purchase orders
Vendor invoices
Payments
Delivery reports
These will display the amount you have spent, and the ROI. In case of an audit, you’ll want to keep these documents on file.
Conclusion to Procurement and Sourcing
The procurement process can be complex, but with the above steps, you will have an easier time streamlining and optimizing it.
Of course, your financial team will still be burdened with many tasks. To ease the load, NextGen Accounting offers credit card reconciliation services, bank reconciliation services, reconciliation automation, financial consulting, financial reporting, and audit and anti-fraud assurance. Our services are specially tailored to firms with vast amounts of data that are extremely difficult to reconcile.
To give you the fastest and most accurate reconciliation, we use our patented software CrushErrors, which you can also obtain as a product if you’d rather conduct reconciliations in-house.
NextGen Accounting’s management team has decades of experience and includes former executives of Barclays Bank, Bank of America, and ICBC. Contact us today for reconciliation services or book a free demo if you’d like to get CrushErrors!