If your company’s procurement process flow is shrouded by complications and inconsistencies, you may miss out on possible savings and quality improvements. Fix your flow by focusing on the key steps in the procurement process, from identifying needs to managing suppliers. Then, learn how to enhance procurement at every stage to support your objectives better.
What Is the Procurement Process Flow?
The procurement flow is the process you use to find and manage suppliers for your business. When handled well, it supports efficiency by helping you secure quality inventory, enhance profit margins, and smoothen operations.
Making the procurement process better starts with a sound understanding. You can use a procurement process flow chart to visualize each step and every department involved, including who’s in charge of which decisions and when.
Overview of Procurement
Procurement is how your business gets the items it needs to run. The goods and services your brand might obtain through the procurement process can include raw materials, machine components, retail inventory, office supplies, and security.
What Are the 7 Steps of the Procurement Process?
The procurement process has seven steps:
- Identify Needs: Find out the type and quantity of items you need and the timeline for acquiring them.
- Research Vendors: Choose the best supplier based on quality, price, and value.
- Create Purchase Order: Write and submit a formal order to your vendor of choice.
- Receive Invoice: Review a request for payment from the vendor. Ensure all details, such as the order itself and the terms, are correct.
- Receive Order: If the agreement includes payment after delivery, you’ll receive the ordered goods or services at this point. Inspect quality upon delivery.
- Pay Invoice: If the quality and quantity received match your agreement with the supplier, pay the invoice before its deadline to avoid penalties.
- File Records of Purchase: Keep well-organized, thorough records for future reference.
Key Steps in the Process
A few of the procurement steps listed above stand out with opportunities for optimization. Dive deeper into these key steps and best practices.
Identifying Organizational Needs
Before starting procurement, you have to know what’s needed. Different departments in your company may submit written requests for the materials, products, or services they need. You can take a more proactive role by asking department leaders about their needs to predict upcoming requests, helping you better prepare and prioritize.
Evaluating Potential Suppliers
Supplier evaluation is a critical step in the procurement process. Vendor choice affects both the price and quality of the items you need. When comparing vendors, look at several options to find the highest quality for the lowest price available.
Negotiating Contracts and Managing Orders
Next comes the nitpicking process of negotiating terms with suppliers. Once you discuss initial terms, try to balance efficiency, accuracy, and thoroughness while making and editing contracts. Tools like procurement software can provide a centralized source for writing, editing, and collaboration that helps streamline purchase order creation.
You should also keep track of when items are received and work closely with quality assurance to ensure orders meet expectations. If goods or services fall below your company’s quality standards, you may have to step back in to resolve issues.
Payment and Record-Keeping
If any issues come up with quality, payments, or prices, comprehensive documentation will save the day. Keep contracts, receipts, and other documents well-organized so you can find the information you need if you ever need it. If you decide to look for more competitive prices in the future, you can also use past receipts to compare the costs and benefits of switching suppliers.
Importance of Effective Procurement
If your company loses focus on an effective procurement strategy, you may pay too much for lower-quality materials, inventory, and services. Zeroing in on the best procurement cycle using key elements of effective supply chain design ultimately translates into getting the highest return for the lowest investment in supplies.
Cost Efficiency and Quality Assurance
Optimizing procurement activities reduces costs and helps you ensure quality. Take the time to seek suppliers that provide higher-value and lower-cost items. Otherwise, you may run into quality concerns that cost your company valuable time and money or rack up unnecessary levels of supply expenses over time.
Supplier Relationship Management (SRM)
Keep production and operations up and running with better SRM. Prioritize building better relationships with suppliers to improve collaboration and reduce the risk of relationships falling through and leaving you in a lurch.
Best Practices for Optimizing the Process
Without optimized procurement processes in place, your business may run into problems with supply quality, costs, and stockouts. Fortunately, you can use procurement best practices to avoid these complications.
Standardization and Automation of Procurement Tasks
Standardized procedures will help people move forward faster throughout the process. Create clear guidelines and training around tasks like making and processing requests, evaluating options, inspecting quality, and completing payment. With greater clarity, everyone involved in the process can act faster and avoid mistakes.
Take optimization one step further by using automation for repeated tasks. For example, you can use software to automatically notify your procurement team of new requests, approvals from accounting, or quality inspection results to eliminate gaps between interdepartmental steps.
Visualizing Workflows and Continuous Improvement
Tools like procurement flowcharts help your team visualize essential steps and improve processes over time. By breaking the process flow down into more digestible chunks, you can get a better grasp on the system as a whole and identify which of the smaller pieces is more or less efficient. Then, set regular reviews with everyone involved to identify opportunities and make improvement plans.
Leveraging Technology
The right technology makes optimizing the procurement process flow easier. Build a tech stack that automates tasks, collects key data, and helps you evaluate and enhance processes.
Procurement Software Solutions
You can use procurement software to streamline procurement tasks and better inform decisions. The right tool will enable you to automate every step of the process, making the flow more standardized. Ultimately, comprehensive retail supply chain and planning software will help your team finish procurement tasks more accurately and efficiently.
Data Analytics for Informed Decisions
Data analytics supports more strategic procurement. When your system monitors key performance indicators (KPIs) relevant to your goals, your team can use analytics to easily compare current and past supplier performance with new prospects.
Valuable insights into inventory flow will help you predict when you’ll need to embark on a new procurement project. You can also measure the efficiency of the entire process by capturing the average time each task takes.
Challenges in the Procurement Process
The right technology and optimized procedures make a high impact on common procurement challenges. Often-faced obstacles and their possible solutions include:
- Delays: A better procurement process can help teams acquire goods and services from new suppliers faster if the company runs into delays with a current vendor.
- Miscommunication: Standardized procurement processes with collaborative tools clear up confusion during the deal-making process.
- Quality Issues: Incorporating quality assurance (QA) more deeply into the entire process empowers a procurement department to quickly identify and address issues and changes in supply quality levels.
Enhancing Efficiency
The benefits of an optimized procurement lifecycle include cost savings, better supplier relationships, and improved inventory management. Overhauling your entire system at once is a costly effort that may not succeed unless you have a perfect grasp of the problems your company faces. Instead, focus on continuous improvement and leveraging the right tools for long-term procurement success.
At GAINS, we help companies optimize their supply chain performance with comprehensive insights into inventory, demand forecasting, logistics, transportation, and product planning performance. Our platform gives you a complete view of your supply chain operations so you can make informed decisions to enhance performance, profits, and customer relationships.
Learn more about our supply chain and procurement solutions to see how we can help you make the right decisions for your business to grow and thrive.