Procurement Cycle: Definition + 7 Key Steps

Procurement

Learn about the seven critical steps in the procurement cycle and how to implement this model to make more efficient and effective procurement decisions.

Vendr | Measure procurement cycle
Written by
Perin Adams
Published on
November 8, 2022
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Effective procurement requires careful investigation of business needs, deep evaluation of potential providers, and well-outlined expectations of supplier performance—as well as methods for measurement and review of the effectiveness of your process.

This process, known as the procurement cycle, is crucial to minimizing vendor risk and maximizing return on investment.

Learn about the seven critical steps in the procurement cycle and how to implement this model to make more efficient and effective procurement decisions.

Kickstart your procurement processes with Vendr's free step-by-step templates that streamline your workflows and empower your stakeholders.

What is a procurement cycle?

The procurement cycle is the set of activities you engage in when procuring goods or services. It involves seven steps:

  1. Identification of needs
  2. Purchase request and approval
  3. RFX—request for information (RFI), a request for proposal (RFP), and a request for quotation (RFQ)—creation and execution
  4. Vendor evaluation, vetting, and selection
  5. Contract negotiation and agreement
  6. Implementation and delivery
  7. Supplier performance evaluation

As the name suggests, the procurement cycle is indeed a cyclical process. That is, the last stage—evaluation of a supplier's performance—feeds back into previous stages, depending on the outcome of that evaluation.

If the vendor is performing as expected, a contract renewal will take place, and the process loops back to the contract negotiation and agreement phase.

7 steps of the procurement cycle
The 7 steps of the procurement cycle

If, however, the vendor is underperforming and a new supplier must be sought, then the process loops back to step one: needs identification.

The 7 steps of the procurement cycle

1. Identification of needs

The procurement cycle begins when a need for a given product or service is identified. For instance, your team is scaling fast, and you need an HR software platform or workforce management system to help you manage applications.

The procurement team (such as the procurement manager or specialist) will meet with internal stakeholders (in this case, your HR leader and possibly department heads responsible for hiring) to detail purchase requirements. For example:

  • How many user licenses are required?
  • Which features are considered non-negotiable?
  • How will this product need to integrate with our existing software stack?

This exploration and elaboration allow procurement teams to gather the data they need to identify suitable vendors and initiate conversations.

Alternatively, certain circumstances may dictate that an alternative route is more appropriate:

  • Leveraging an existing solution. Your company may already have a product that can solve this need, e.g., building an applicant processing system within your existing project management platform.
  • Delaying the purchase (or doing nothing). This might be more appropriate if the need is deemed not urgent enough for an immediate response or if the costs of solving the need outweigh the problem it presents.

2. Purchase request and approval

The exact purchase request and approval workflow that takes place will depend on the unique procurement systems developed by your company, as well as factors like:

  • The strategic value of the purchase
  • Potential risks involved
  • Spend limits imposed by your finance team

For instance, you might set a departmental purchasing limit of $2,000, allowing department leaders to procure products and services below this price point without raising a purchase order or purchase requisition, maximizing efficiency and agility.

The essence of this stage is to obtain approval from the necessary stakeholders in your organization. For example, your procurement team may need to present a business case to a member of the executive team for sign-off before proceeding.

Purchase approval workflows are an important part of the procurement process, not only ensuring compliance with company policies but helping to accelerate the procurement life cycle. Learn more in our dedicated guide: Approval Workflows: Everything You Need To Know To Get Started.

3. RFX creation and execution

With your pending purchase approved, the next step is to begin gathering the information you require from potential vendors using an RFI, RFP, or RFQ (collectively referred to as an RFX).

RFP, RFI, RFQ table
RFP vs. RFI vs. RFQ

RFP (Request for Proposal)

This is the most commonly used RFX. It outlines the specific details of your procurement requirements in order to receive bids (proposals) from potential suppliers.

You can think of the RFP as a job ad. You include details like remuneration (in this case, your budget), expectations, and project requirements. Suitable vendors apply if they feel they meet your requirements.

RFPs are best used when you’re:

  • Still evaluating a purchase from a high level (i.e. what can this particular software do for us beyond solving the immediate problem)
  • Sourcing strategic suppliers (because you want to understand what potential suppliers can do for your beyond reducing costs)
  • Procuring for a complex or highly-technical project (as you’ll need to assess and compare formula proposals from all vendors objectively)

RFI (Request for Information)

RFIs are used at the beginning stages of a project to research the market and collect written data on the capacity of potential suppliers to fulfill your company’s needs.

Use an RFI when you need to obtain updated data on the state of the market and potential supplier options.

RFQ (Request for Quotation)

An RFQ is a document used to gather quotes from potential suppliers.

They’re generally sent to specific suppliers you’ve already identified (rather than distributed publicly to solicit bids) and with whom you’re likely to work.

RFQs are best used when you’re sourcing a specific item or service and when your highest priority is obtaining the best price possible to protect the bottom line. For example, you know you need a calendar scheduling tool that integrates with your CRM, you just need to know how much it’s going to cost.

4. Vendor evaluation, vetting, and selection

In this stage, the procurement team pulls together the data provided through the RFX process and reviews it with internal stakeholders to score and evaluate vendors against requirements.

This can be an enduring process, so the most efficient procurement management teams call in back up to thoroughly assess a list of suppliers.

Vendr’s team of SaaS buying experts can help you make an informed decision by pulling insights from a database of over $1B in SaaS transactions.

For instance, we’ll let you know the most commonly used software tools for your application and what other users like and dislike about them. Plus, we’ll share competitive insights into what others are paying for the same tool, so you can evaluate vendors based on actual costs, not top-line advertised numbers.

5. Contract negotiation and agreement

Having selected your ideal vendor, you’ll iron out the details of your relationship and sign a contract.

Key details to discuss and agree upon with your selected supplier include:

  • Statement of work and project scope (if you’re sourcing a service)
  • Payment terms and timelines
  • Itemized costs
  • Contract length
  • Delivery times, dates, and milestones (for instance, when implementation should be completed)
  • Vendor performance expectations and KPIs
  • Support expectations (i.e., do you get a dedicated rep or access to 24/7 support?)
  • Warranties provided and limitations of liability
  • Termination and dispute resolution processes

The goal during this step is to agree upon mutually beneficial terms in pursuit of a long-term strategic supplier relationship.

Learn more about the contract management and negotiation process in our guide on how to negotiate a SaaS contract.

6. Implementation and delivery

This is the step where you receive the goods or services you’ve procured and confirm that they’ve arrived as expected.

This phase is particularly critical in the SaaS buying process, as several implementation substeps need to occur:

  • Onboarding. This is where you learn how to use your new platform. It may be self-guided, such as through videos and written how-to documentation, or the onboarding may be run by your customer success rep, depending on your vendor.
  • Setup. This is about customizing your new software package to your requirements. For example, if you’ve just sourced a new CRM, you’ll need to build out sales pipelines and activity cadences that match your current processes.
  • Migration. Here, you import any relevant data to the new software tool, from an existing tool or from manual sources like spreadsheets. In the case of your CRM implementation, this is all of your customer information.
  • Integration. In most cases, you’ll want to set up integrations between your new software and your existing tech stack. For instance, you’ll connect your CRM to your email marketing tool, website lead generation forms, and VoIP calling platform.
  • Training. With the above steps completed, your new software tool is ready to roll out to your team, which involves a training and familiarization phase.

7. Supplier performance evaluation

Performance evaluations should be a regular part of your vendor management process. They help keep suppliers accountable to their expectations and KPIs and put action plans in place should you identify areas of weakness.

As they relate to the procurement cycle, vendor performance evaluations help you assess how well the relationship meets your original needs.

Questions to consider in this vein include:

  • Is our original need being met entirely, or is the solution lacking?
  • How have our needs changed since the procurement cycle began?
  • Is the solution as important as it was previously?
  • What opportunities for improvement exist?
  • Are we still paying a competitive price for this solution?

Should the outcome of these be positive (i.e., your needs are still being met entirely, the solution is still important, and pricing is still competitive), the process cycles back to the contract negotiation and agreement phase through a process of contract renewal.

If you’ve decided that your needs are no longer being met, either because they’ve changed or because the solution isn’t performing as expected, the next step is to return to the first stage (needs identification), completing the procurement cycle.

Manage the SaaS procurement cycle with Vendr

SaaS procurement management software helps you streamline each stage of the procurement process.

From automation to streamline your procurement process flow and an unparalleled set of SaaS buying transactions, Vendr is the perfect partner for managing SaaS procurement.

Our team of SaaS experts assists at all stages of the procurement cycle, from identifying and assessing potential vendors to negotiating contract renewals.

Use our free savings analysis to learn just how much Vendr can help improve the profitability of your strategic procurement activities.

Procurement cycle FAQs

What is strategic sourcing and how does it improve the procurement cycle?

Strategic sourcing is an advanced procurement process that emphasizes the creation of long-term, value-driven partnerships with suppliers. It involves a thorough analysis of a company’s spending patterns and needs to align its procurement strategy with business goals. By focusing on supplier selection and relationship management, strategic sourcing aims to optimize the procurement process, reduce costs, and enhance efficiency.

How does contract negotiation influence the procurement cycle?

Contract negotiation is a critical step in the procurement cycle where terms and conditions of the procurement are finalized. Effective contract negotiations ensure that the agreements align with the strategic procurement goals and manage risks adequately. This includes defining clear contract terms for delivery times, cost, quality, and performance expectations. Good contract management practices can result in significant cost savings and foster strong supplier relationships.

Perin Adams
GTM Business Systems
Perin is the GTM Business Systems Analyst at Vendr, responsible for analyzing and optimizing the company's go-to-market systems and processes.

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