The Procurement Process
For every procurement project, a formal and professional procurement process will save time, save money and reduce risk. This article shows you how to hit the ground running with a procurement project and to deliver a professional result.
You will learn how you can use a professional process template to avoid the many pitfalls of a procurement project.
Who should use this article?
This article will help in a range of situations and scenarios:
- If you are responsible for a procurement project and you have limited access to expert procurement advice
- You procurement project is not within the scope of your organizations core business
- Your project is highly specialized where detailed technical knowledge and some procurement expertise is more desirable than expert procurement skills with limited technical know-how.
Why Use a Formal Procurement Process?
A formal procurement process is sometime seen as cumbersome or bureaucratic but for any procurement exercise it is important to follow a few key steps. If you are not a procurement expert, you will make mistakes. No doubt you will learn from them but why learn from your mistakes when you can learn from someone else’s.
A procurement process template provides a model and a framework to work within to:
- Save you time; ensure that you get the right solution to meet your business needs;
- Ensure you pay the right price (that’s the right price, not necessarily the lowest price!);
- Ensure you avoid overlooking vital steps that may come back to haunt you later.
By using a standard procurement process, you will find that suppliers will be familiar with the steps you take. They will know what to expect and will know that they are dealing with a professional organization.
A few words of warning.
Every project is different. Some procurement projects are small and every step of a formal process may not be required. Alternatively, some projects are highly complex or regulated and a generic framework will not be appropriate or sufficient. Despite this, every procurement project follows the same broad process . The key thing to remember is to adapt the process to fit the project.
The Procurement Process
What is procurement?
The procurement process can be divided into five steps.
Define the business need
You need to understand what the fundamental business requirement is. At this point, it is important to understand the difference between a requirement and a solution. For example, the business requirement is to source some software to help to get information published on the company intrantet. An item of software to publish information on the company intranet is a solution – not a requirement. The requirement is to be able to publish information on the intranet. It may be that an outsourced solution is a better option.
Develop the Procurement Strategy
Depending on the scale of your project, there could be a very wide range of potential solutions and approaches to your business need and a number of ways of researching the market and selecting a supplier.
Supplier Selection and Evaluation
After researching the market and establishing your procurement approach, you need to evaluate the solutions available. This may involve a formal tender process or an on-line auction. You criteria for comparing different solutions and suppliers are critical. Weight the key criteria heavily and don’t attach too much importance to aspects that will have little impact on the solution.
Negotiation and award.
Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the carriage costs are huge or if the maintenance contract is onerous.
Consider carefully the process by which the goods or services will be ordered and approved; how they will be delivered and returned if necessary; how the invoice process will work and on what terms payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce costs and risk significantly
Induction and Integration
No goods or services should be ordered of delivered until the contract is signed, but this is not the end. It is vital that the supplier is properly launched integrated. The P2P process needs to be in place and need to be understood on both the buy-side and the supplier side. Any service levels that have been agreed need to be measured and KPIs put in place. Regular reviews should be established.