Your expert guide to procurement: Processes, types, and stages

Procurement

Procurement plays a critical role in a company’s growth and profitability. For that reason, it’s worth crafting a procurement process that's effective, simple, and reduces costs.

Written by

Taylor Bruneaux

Published on

July 14, 2022

October 26, 2022

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Procurement plays a critical role in a company’s growth and profitability. For that reason, it’s worth crafting a procurement process that's effective, simple, and reduces costs. 

For instance, you can level up how you buy and renew SaaS with purchasing software that comes with plenty of key procurement insights and helpful automation. With built-in notifications, reporting capabilities, and a centralized dashboard, procurement software helps you manage the multiple steps involved in the procurement process. 

First, it’s worth knowing the procurement process inside and out. 

What is procurement?

Procurement is the process of acquiring goods or services from third-party vendors through various methods. This includes tendering, competitive bidding, or direct purchasing. It can span a variety of buyer activities, including making purchase orders, managing payments, updating billing terms, and taking care of the end-to-end activities that involve purchasing goods and services. 

It’s the procurement team’s responsibility to find competitively priced tools and supplies that deliver the highest value. Procurement teams are in charge of finding deals that offer the most value for the lowest price. Finding such deals is only one step of the process—albeit an important one. 

Moreover, procurement is critical to running a business and keeping costs low. Armed with an effective procurement strategy, companies can ensure profitability and maintain better cash flow. 

The good news? The procurement process doesn’t have to be a series of painstaking manual tasks. With today’s technology, a lot of it can be automated. 

What are the different types of procurement?

There are four general categories in procurement, each denoting the type of purchase and their impact on the business. These include: 

Goods procurement: This type of procurement refers to buying both physical items and digital subscriptions. Buying laptops, keyboards, and project management software are all examples of what would classify as goods procurement. 

Services procurement: It falls under services procurement if you’re dealing with providers that sell people-powered services. This means anything from contractors to consulting services, maintenance work, or even law services—anything people based. 

Direct procurement: Direct procurement means the procurement of goods necessary to create an end product, including raw materials. For example, buying sheetrock, nails, and cement would qualify under direct procurement for a construction company. 

Indirect procurement: With indirect procurement, the purchased items aren’t directly tied to a company’s revenue. Rather, the items are things like office supplies and furniture that form a critical part of daily operations. 

What is a procurement process?

A procurement process refers to the steps necessary to ensure the most value for purchases. There are several distinct steps involved in the process worth considering. 

Steps involved in a procurement process

The steps involved in a company’s procurement process differ depending on its end goal, how it runs, its proprietary procurement methods, and the needs it prioritizes. Generally, it includes the following steps::

  1. Pinpointing the goods and services needed to run the company
  2. Creating a purchase request
  3. Assessing your options 
  4. Negotiating the best deal according to the needs of both parties
  5. Creating a purchase order
  6. Inspecting goods once received
  7. Approving the invoice and arranging for payment
  8. Saving a record of the entire procurement process

Stages of procurement

While there are many small steps involved in the procurement process, its entirety includes three general stages:

Sourcing

Sourcing encompasses the beginning stages of the procurement process. During this stage, many questions are answered. What goods and services does the company currently need? Which vendors provide these items, and of those vendors, who are the best options? Has a purchase request been created?

It is crucial to seek established trustworthy partners who provide quality goods at services at a great price.

Purchasing

The purchasing stage comes after you’ve vetted vendors and are ready to negotiate terms. Purchasing decisions are finalized and goods and services are received. Inspecting the delivered goods and ensuring the order was properly fulfilled is this stage’s final step.

Paying

Here you verify the accuracy of your invoice for payment. This step includes keeping a thorough record of every stage of the process. This record protects both parties and serves as a reference point in the future. 

How to optimize your procurement process

One of the best ways to optimize the procurement process is with the use of software. Today, all tedious record-keeping and paperwork that would have otherwise required a manual process can be largely automated. Still, there are several ways to optimize the procurement process that save you both time and money. 

Create standard procurement operating procedures

Establishing a standard procurement process ensures you’re being mindful of your budget and getting the most out of your purchases. An established procurement workflow ensures you can uncover areas of improvement and create a quicker process while keeping costs low. 

Establish a single source of truth for all procurement needs

Right along with creating standard operating procedures, or SOPs, for your procurement process, establishing a single source of truth is crucial for an effective end-to-end process with plenty of visibility. This way, procurement doesn’t suffer because of outdated information, poor record-keeping, or disorganized data. 

A single source of truth makes key data available to all stakeholders and streamlines the process of identifying a need,  putting in a purchase order, and making a payment. 

Invest in ongoing procurement education

While it’s easy to overlook, investing in ongoing procurement education pays off in the long term. Procurement professionals are better equipped to manage vendor processes and negotiations and to make informed decisions.

Whether procurement training happens through in-house learning and development initiatives or through third-party resources, your procurement outcomes will be better with ongoing professional development. 

Streamline the sourcing process with automation

Automation is procurement’s best friend. It quickens tedious manual processes, thereby shortening the time to start and finalize your company’s procurement process

Investing in robust procurement-ready software like Vendr frees your procurement team to use their time on higher-impact activities. 

Keep track of your most important KPIs

The better you keep track of your most important key performance indicators (KPIs), the better your procurement process will be over time. By tracking KPIs, you ensure all procurement efforts are done to standard. It’s also a great way to identify parts of your procurement process needing improvement. 

Effectively keeping track of ongoing procurement KPIs is best managed with automation. Once set up, it does the work of gathering, organizing, and, in some cases, even analyzing KPIs for you.

Some examples of procurement KPIs worth tracking include: 

  • Purchase order and invoice accuracy
  • Procurement ROI and benefits
  • Compliance rate
  • Rate of emergency purchases
  • Supplier lead time
  • Spend under management
  • Purchase order cycle time
  • Supplier defect rate
  • Vendor availability
  • Cost per invoice and purchase order number

What are procurement principles? 

Procurement principles are like the code of conduct a company follows to stay ethical. Not all procurement principles are the same for all companies. 

These are some of the most common procurement principles: 

  • Accountability: Team members executing the procurement process are deemed responsible for their actions, including any decisions made. To ensure team member accountability, fail-safe mechanisms may be put in place. 
  • Value for money: Funds be managed efficiently through initiatives like in-depth risk assessments and cost-benefit analysis. The quality of goods must be considered when vetting a possible purchase and the value it presents for its price. 
  • Competitive supply: Companies should seek competitive bids from the best suppliers for every purchase unless there is a justified exception.
  • Transparency: Relevant key procurement information should be readily available to anyone within the company, to suppliers, and even to the public.  
  • Consistency. Procurement policy and operating procedures should be standardized and consistent across the organization. 
  • Fair dealing: Suppliers should be treated with fairness. This includes keeping commercial information confidential when applicable. Public companies cannot impose any limiting constraints on suppliers. 
  • Integrity: Procurement funds are to be used for their designated purpose. Procurement agents should always strive to establish trust, be reliable, strive for honesty, and take ownership of responsibilities. 
  • Effectiveness: The procurement process should always aim to maximize value and minimize waste. 
  • Responsiveness: Communication expectations should be met at all times to establish trust and streamline procurement activities.  
  • Legality: Procurement agents are to conform to legal procurement requirements. 

Establish a better procurement process

By now, you’re familiar with how important it is to establish a procurement process that’s effective, ethical, standardized, and automated. With the right tool, that process is a reality.

As a procurement automation tool, Vendr ensures every step of the lifecycle is optimized and accounted for. Procurement software supports supplier relationships, eases the purchasing process, and ultimately grows your bottom line. 

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