What is the Sequence of the Five-step Procurement Process?

Do you know what procurement is? It is the process of determining the goods and buying them. At first glance, this may seem to be a simple process, but it is not. Just like most business functions, procurement is a layered process with multiple stages. 

The series of steps taken by an organization to acquire the products and services it needs for its business goals are combinedly called the procurement process. This article will outline the five crucial steps of this process. Continue reading!

Five stages of the procurement process

The process involves identifying suppliers, negotiating price, invoice approval, right through to receiving the goods. Basically, when a purchased request is placed, the procurement process starts and ends when the payment is made and goods are delivered. 

The number of steps in the process is determined by various factors like business model, company size, location of the business, company structure, how budget and spending are handled, and human resources. However, the five most crucial steps are:

Stage 1: Identify the needs

Before you step out to procure something, it is essential to know what do you need. Hence, the first step in the procurement process is identifying your business’s needs for a product or service. 

It can be something the company is re-ordering or a brand new item or service required to carry on your business activities. Anyone can handle this step, be it business owners, executives, employees, department heads, or procurement managers themselves.

Stage 2: Submit the purchase requisition

Purchase requisition can be a written or electronic document raised by any individual from the company. The users and customers needing the goods and/or services must submit a purchase request to the company or procurement department. Then this request is reviewed by the concerned department heads, and if approved, the order is placed. 

Stage 3: Assess and select vendors

Most companies have their own verified and approved vendor catalog containing a list of trusted suppliers that have matched their expectations in the past. It is always better to associate with a supplier that has successfully made through your selection criteria and contract negotiation rather than searching for new suppliers every time. But when making your selection, you must consider reputation, cost, speed of service, and dependability. 

Stage 4: Create a purchase order

A purchase order is a legal contract signed between the supplier and buyer. It carries the order’s details like the price, specifications, terms, and conditions of the product/ services, and additional obligations (if any). 

This duly signed purchase order is supposed to be sent to the vendor, and the moment vendor accepts it and acknowledges it, you both are legally bound to the contract.

Stage 5: Receive, inspect, and payment.

Lastly, when your order is placed, and you finally receive it, it is your responsibility to scrutinize the product. At this stage, you can even reject the delivery if the products are not up to the mark/ damaged/ missing product. But if the goods make through your expectations, it is time for you to receipt the delivery and make the payments. 

All these aforementioned steps of the procurement process need to be documented carefully for internal and external audits. Plus, it is advisable to monitor supplier performance, quality, sourcing requirements, and hearing supplier’s ideas. 

Doing this will create a win-win relationship between the supplier and your organization to ensure your processes are fully optimized. Remember, when procurement is done correctly, it results in lower costs, better relationships with vendors, and happier stakeholders.

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