The procurement process is a complex, but essential part of any commercial organization. The performance of this process can largely impact the entire profitability of a company. Therefore, it is extremely important that the procurement process is managed well. But what exactly encompasses the procurement process? What are the important steps and stages in the process? Curious about this topic? Read the most important information on the procurement process below.
What is the procurement process?
The procurement process involves a series of steps that should be taken to obtain the goods and services that are necessary for the company’s day-to-day operations or that help the company produce its end products. The steps in the procurement process include: identifying the necessary products and services for the company, selecting and evaluating potential suppliers, negotiating with the selected suppliers, buying the goods and services, receiving and checking the purchased products and keeping record of the entire process for book-keeping purposes.
There are different types of procurement:
Direct procurement means that procurement teams attempt to obtain goods and services for the manufacturing/producing of end products. The purpose is to help the company directly in the production process. Examples of these are equipment, raw materials and other resources.
Indirect procurement involves the acquisition of goods and equipment that are necessary for a company’s day-to-day functioning, but do not directly produce the end products. For instance, office supplies, furniture and other equipment are related to indirect procurement.
The three phases of procurement
The procurement process can be divided into three different phases, namely:
- Sourcing phase: in this phase, the procurement teams recognize the demands from the company to purchase certain products or services. Also, this phase can be used to establish secure relationships with potential suppliers by building trust.
- Purchasing phase: the procurement teams negotiate with suppliers about the potential prices and other terms at which the products and services can be sold.
- Payment phase: this phase includes organizing the payment policies to ensure that the final steps of the procurement process run smoothly.
Outsourcing the procurement process
The procurement process can be quite complex to manage when you do not have sufficient experience or knowledge. Therefore, it could be a wise decision to outsource the stages of the procurement process. This can be done in two distinct ways – source to pay (S2P) or procure to pay (P2P). P2P services mean that the entire process from ordering the necessary products and services to receiving and paying them is managed by a third party. In contrast, the S2P service includes even more steps as the phase of strategic resourcing is also incorporated. The S2P services also bring along certain advantages, for instance: efficiency within the entire supply chain is maximized, the relationships with suppliers can be improved and you will no longer need to worry about any errors or mistakes arising within the procurement process, since it is another party’s responsibility to manage the process well.