9 Steps in Procurement (Supply Chain Basics) - YouTube

In this video, We continue learning about procurement, and we highlight the 9 steps

in the procurement process

I'm Professor Rodriguez, and Im a college instructor, supply chain executive, and the

founder of the MVC Logistics Academy, a place to find supply chain education, news, career

development, and leadership.

Are you ready?

Let's learn logistics.

In today's video, we will learn the 9 steps in the procurement process.

If you have been watching our channel, our last video was all about procurement, the

definition of procurement, how it works, and what are the types of procurement.

I will link it in the video description if you want to check it out.

As you can imagine, The procurement process generally involves a number of steps.

The business identifies particular goods and/or services that it needs, sources the suppliers

that will help the company reach its business objectives, negotiates terms and costs and

then purchases and receives the relevant items.

A small company may have just one person handling procurement of all goods and services.

Larger companies may have a team of people specialized in dealing with different suppliers

or supporting specific internal business groups.

For some items, the team may need to gather input from several different business groups

in order to determine the company’s overall requirements.

It’s important to remember that procurement doesn’t consist of a series of isolated

acts — it’s an ongoing evolving process.

For example, companies generally aim to establish relationships with key suppliers to help obtain

the best service and lowest possible costs, which ultimately translate into higher profit

margins.

We call this strategic sourcing.

Companies may also need to conduct regular quality assurance checks and performance analysis

to make sure suppliers consistently meet expectations.

We call this total quality management.

We will discuss some of these topics in more detail in future videos.

Okay, so let's get into the main topic, the 9 Steps in the Procurement Process:

Keep in mind that Procurement processes vary greatly depending on each company’s structure

and needs, but generally include the following nine key steps:

Identify which goods and services the company needs.

First, a business must identify its requirements for a specific item or a service.

This may be a new item that the company hasn’t previously purchased, a restock of existing

goods or a subscription renewal.

This step typically involves delving into the nitty-gritty details of what the business

needs, such as the precise technical specifications, materials, part numbers or service characteristics.

At this stage, it’s a good idea to consult all business departments affected by the purchasing

decision to ensure the procured items accurately reflect the needs of each department.

Submit purchase request.

When an employee or business group needs to procure a significant quantity of new supplies

or services, they make a formal purchase request (also known as a purchase requisition).

A purchase request notifies the company that a need exists, usually via department managers,

purchasing staff or the financial team, as well as specifications such as price, time

frame needed, quantity and other important things for the purchasing team to keep in

mind.

The department overseeing the purchase can then approve or deny the purchase request.

If approved, the procurement team can proceed with selecting a vendor and making the purchase.

Assess and select vendors.

With a clear list of requirements and an approved purchase request, now is the time to find

the best vendor and submit a request for quote (RFQ) – this is what the purchasing team

sends to potential suppliers in order to receive a quote – it is important to be as detailed

as possible so you can compare apples to apples.

Vendor assessment should focus not only on cost but also on reputation, speed, quality

and reliability.

This is where keeping a supplier scorecard is a good practice.

In a supplier scorecard, we list certain criteria that must be met by the suppliers and award

it a score, Based on the information received from the suppliers, we give them a score and

record it on our scorecard.

Keep in mind that many companies consider ethics and social responsibility as well as

cost and quality, since procurement is often intertwined with corporate identity.

A retailer that prides itself on sustainability would stand to benefit from partnering with

environmentally responsible suppliers, for instance.

Negotiate price and terms.

A common best practice is to get at least three quotes from suppliers before making

a decision.

Examine each quote carefully and negotiate where possible.

If you need to walk away from a deal, be sure that you have concrete alternative options.

Once you’ve agreed on final terms, be sure to get them in writing.

Create a purchase order.

Fill out a purchase order (PO) and send it to the supplier.

The PO should be sufficiently detailed to identify the exact services or goods needed

and to enable the supplier to fill the order.

Receive and inspect the delivered goods.

Carefully examine deliveries for any errors or damage.

Make sure everything is delivered as specified in the PO and that the quality meets or exceeds

expectations.

Conduct three-way matching.

Accounts payable should conduct three-way matching by comparing the purchase order,

order receipt or packing list and invoice.

The goal is to ensure the goods or services received match the purchase order and to prevent

payment for unauthorized or inaccurate invoices.

Highlight any discrepancies between the three documents and resolve issues before arranging

payment.

Approve the invoice and arrange payment.

If the three-way match is accurate, approve and pay the invoice.

Businesses should strive to have a consistent invoice payment process through accounts payable

that checks that payments match the invoice amount and due date.

A standardized process can help make sure invoices are always paid on time, which can

prevent late fees and build good relationships with suppliers.

Recordkeeping.

It’s important to maintain records for the entire procurement process, from purchase

requests to price negotiations, invoices, receipts and everything in between.

These records may be useful for multiple reasons.

They help the company reorder goods at the right price in the future, as well as assist

with auditing processes and calculating taxes.

Clear, accurate records can also help resolve any potential disputes.

Stages of Procurement

The nine major steps of the procurement process can also be thought of in three distinct stages:

the sourcing stage, the purchasing stage and the receiving stage.

Sourcing stage: This covers the initial steps in which the business identifies its needs,

creates a purchase request and assesses vendors.

Even after the initial sourcing steps are complete, it’s a good practice to build

a strong relationships with suppliers.

They can establish grounds for suppliers to learn from partners, improve products and

processes and develop trust.

Purchasing stage: This stage includes negotiating terms, creating orders and receiving and inspecting

goods and services.

Payment stage: Accounts payable conducts three-way matching to ensure order and invoice accuracy.

The invoice can then be approved and the payment is arranged.

Records of all invoices, orders and payments should be kept and carefully maintained.

Procurement Life Cycle

Organizations commonly think of steps in the procurement process as a life cycle.

This perspective provides a reminder that all the tasks and stages in the procurement

process overlap and rely on each other and that the process is continuous.

A carefully thought-out procurement life cycle also recognizes the integration between the

process and the business as a whole, including the need to align with existing company rules

and procedures covering areas such as budgeting.

The process is not always linear, and sometimes adjustments need to be made to account for

a dynamic digital supply chain with shifting suppliers, availabilities and costs.

And there you have it, these are the 9 steps in the procurement process, which is a question

I get asked often in class and which helps students build a stronger understanding of

procurement and supply chain management.

Thank you for watching, Feel free to give us a like, or subscribe to our channel for

more videos like these.

I'm Professor Rodriguez, and until next time!