Procurement Cycle for Purchases Report

Introduction, the current procurement cycle that is used for purchases, how the procurement process can be re-engineered for greater effectiveness, list of references.

Procurement cycle is part of an organisation’s process since it ensures cost effective ownership of products for a company. The various processes involved while carrying out procurement normally challenges and pressures the managers’ values and beliefs. New approaches are called for when a company adopts to new procedures and practices.

These approaches should aim at aligning human and financial capital towards the company’s operations. This paper focuses on the current procurement cycle that is used for purchases in Hewlett –Packard (HP) Company, and then sheds some light on how the procurement process can be re-engineered for greater effectiveness in the organization.

Every company has an obligation of coming up with an effective procurement process that necessitates effective procurement strategies, adequate preparation for contracts, and proper selection of suppliers. There are many challenges that are currently facing business operations. One of these challenges includes technology innovation, which is currently forcing the old business paradigm out of market.

About a decade ago after the introduction of flash memory for the cell phones, the HP Company was faced with competition crises for flash memory. This innovation resulted to a high demand for the flash memory, and thus led the cell phone manufacturers to buy this memory in bulk (Nagali, 2010).

The high demand and the low supply of the flash memory facilitated an increase in prices for the HP printers. There was therefore a correlation between increased prices for the flash memory and increased prices for the HP printers.

Due to high demand, low supply, and high prices for the flash memory, the HP Company has already changed its procurement strategy by adopting a long-term vision. This approach is vital since companies that commit themselves to implementation of long-term goals are more likely to experience a greater success than those that implement short term or “damage control” practices (Shah, 2009: 297).

Currently, the HP Company’s success depends on proper preparation for contracts with the major suppliers of the flash memory. However, the HP management was later faced with anxiety due to a high degree of uncertainty of the demand and supply of the flash memory, which in turn affects the prices of the printers (Nagali, 2010).

Therefore, the HP Company has considered a number of factors in order to come up with an appropriate contract. These include assessing the price of the flash memory on a long-term basis, assessing the acquisition of product from the supplies, evaluating the duration of the contract in relationship to cost benefit, and carrying out a proper management of compliance (Nagali, 2010).

An appropriate contract arrangement involves the evaluation of demand and supply curve. This helps in coming up with an appropriate buying strategy that will reduce the chances of incurring losses (Kloppenborg, 2008: 332).

Due to the current high rate of technology innovation that has the capacity of interfering with the demand and supply of the flash memory, the HP Company has managed to limit the chances of incurring losses by eliminating fixed quantity purchasing strategies (Nagali, 2010). The HP Company therefore uses a framework that forecasts the demand, supply, and the price of the flash memory.

The HP Company handles its procurement cycle by defining the roles of the planning department, assessing the effectiveness of the supply chains, and defining the role of the financial and the marketing department (Nagali, 2010).

The contract evaluation of the procurement is done after successfully monitoring and forecasting the contract. The performance of the contract is then evaluated using the HPRisk software. This software facilitates greater effectiveness in HP Company due to the following reasons

  • Increased savings on material cost as it facilitates reduction of supplier’s cost that results from inappropriate planning process.
  • Prediction of costs
  • Ensures adequate supply of commodity at all times.
  • Reduces costs associated to inventory from within as well as outside the company, and hence improves the supply chains (Nagali, 2010).

In spite the fact that the HP Company has managed to make a successful procurement through sharing and lowering the risks with the supplier, the process is faced with a number limitation which when re-engineered, could bring rise to an effective procurement process.

In order for the HP Company to have an effective procurement procedure, it must take a careful consideration while positioning their products to their customers in the global market. The company has to overcome a number of technology terminologies and give way to the marketing terminologies (Gay et al. 2007).

Adjusting to marketing terminologies is paramount since the first step of the procurement process entails having a clear knowledge for the demand of the company’s product (Cartlidge, 2004: 318). This knowledge can be achieved by applying flexibility while dealing with different cultures.

The HP Company should put into consideration that different professions have different terms or words that they identify themselves with. Handling the challenges that emanate from culture can be achieved by designing a framework that helps to distinguish between the internal and the external networks of their products (Osmonbekov et al., 2002).

This framework should be fashioned in a way that provides universal language standards as well as reliability and quality of HP products. This can be achieved by evaluating the social environment, legal environment, the competitive forces, and the customers’ demand for the products (Rajagopal & Benard, 1993).

Due to the high rate of technology innovation, it is a necessity for the HP Company to note that the suppliers’ goods are in line with the current technology trend in order to meet the demand of the global market. In cases where product becomes obsolete, the worth of the product must also be put into consideration besides considering the tender price (Hamilton, 2003:392).

In order for the HP Company to establish a market dynamics from a wider perspective, increasing the level of accuracy for global operation through internet is essential, as it will help the Company to become conversant with the high value metrics for the aspects of marketing such as advertisement, distributions, and assessing the customers’ perspective (Osmonbekov et al., 2002).

The HP Company should fully adopt the electronic procurement in purchases since it is associated with effective procurement procedures, which result to substantial benefits such as reduction in product prices, improved contract agreement, effective management of inventory, reduced procurement cycle, improved supply chains, and improved production accuracy due to controlled inventory (Hawking et al., 2004).

Although the HP Company has taken an approach of continuously assessing the demand, supply and price uncertainty, it should initiate a purchasing Manager’s Indexes (PMI) as this will serve to curb this uncertainty.

The use of PMI index is vital since it plays a critical role in controlling the exports based on the current indicators of the economic trend of a particular country. The global economic indicator of the GDP growth can be effectively obtained by standardizing the PMI as this helps to reflect the current economic condition of a country (Williamson, 2002).

The HP website should have a central storage area for data that facilitates effective procurement through a collaborative framework (Brown & Vashistha, 2002).

This website should not include online specialists terms since the IT specialists perceive a company as a system that provides information, while businesspersons perceive a company as an entity that undergoes through a process innovation taking due consideration that their vision is closely associated with the activities of the people(Gardner, 2000).

Bartezzaghi and Ronchi (2003) assert that the use of electronic procurement serves a critical role in reducing the communication barriers as well as the communication costs, thus increasing the levels of transactions.

The matching of demand and supply can be effectively evaluated by considering the various available alternatives. Through this information, the HP Company can be able to evaluate whether the customers’ requirements are in line with the suppliers.

By adopting the internet-based procurement, the company gets into a position of engaging itself in the virtual community. This community is vital since it facilitates social interactions and hence, breaks the political and geographical boundaries in order to pursue mutual goals and interests (Taras et al., 2007:275).

This serves the role of reducing the procurement cycle since the alliance formed through the internet facilitates tracking the levels of the inventory, which in turn sends purchasing orders to the relevant suppliers (Kheng & Hawamdeh, 2002).

The HP company should note that effective procurement does not only result from assessing the demand, supply, and price uncertainty levels but by seeking for diverse supplies, being informed on the current technology trend, and finding ways and means of adopting an efficient communication strategies.

This helps in evaluating errors that result from miscommunication between the company and its suppliers (Teo & Lai, 2009).

BARTEZZAGHI, E., & RONCHI, S. (2003). Internet supporting the procurement process: lesson from four case studies. Integrated management systems. 4, 632.

BROWN, S., & VASHISTHA, A. (2002). Igniting the services value chain. Marketing management .11, 12.

CARTLIDGE, D. P. (2004). Procurement of built assets . Oxford, Elsevier Butterworth-Heinemann.

GARDNER, D. (2000). How to avoid IT project failures. Consulting to management .11, 21.

GAY, R., CHARLESWORTH, A., & ESEN, R. (2007). Online marketing: a customer-led approach . Oxford, Oxford University Press.

HAMILTON, S. (2003). Maximizing your ERP system: a practical guide for managers . New York, McGraw-Hill.

HAWKING, P., STEIN, A., WYLD, D., & FOSTER, S. (2004). E-Procurement: Is the ugly duckling actually a swan down under? Asia pacific journal of marketing and logistics .16, 3.

KHENG, C., & HAWAMDEH, S. (2002). The adoption of electronic procurement in Singapore, Electronic Commerce Research . 2, 2002.

KLOPPENBORG, T. (2008). Contemporary Project Management . Independence, KY, Cengage Learning.

NAGALI, V. Procurement Risk Management Group Hawlett-Packard Company . Web.

OSMONBEKOV, T., BELLO, D., & GILLILAND, D. (2002). Adoption of electronic commerce tools in business procurement: Enhanced Buying. Journal of Business & Industrial Marketing . 17,151.

RAJAGOPAL, S., & BENARD, K. (1993). Globalization of the procurement process. Marketing intelligence & planning . 11, 44.

SHAH, J. (2009). Supply Chain Management . Noida, Pearson Education India.

TARAS, D., BAKARDJIEVA, M., & PANNEKOEK, F. (2007). How Canadians communicate II: media, globalization, and identity . Calgary, University of Calgary Press.

TEO, T., & LAI, K. (2009). Usage and performance impact of the electronic procurement. Journal of business logistics. 30, 125.

WILLIAMSON, C. (2002). The global purchasing manager’s index. World economics . 3.

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  • Chicago (N-B)

IvyPanda. (2023, December 18). Procurement Cycle for Purchases.

"Procurement Cycle for Purchases." IvyPanda , 18 Dec. 2023,

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IvyPanda . "Procurement Cycle for Purchases." December 18, 2023.

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What Is the Procurement Life Cycle? 16 Stages Explained

Abby Jenkins

Procurement processes are integral to virtually every business. Whether for sourcing raw materials, machinery, technology consulting services or employee training, companies rely on goods and services from external suppliers to grow and meet their strategic objectives. An efficient procurement life cycle helps organizations obtain the right goods and services at the right time while minimizing unnecessary costs. This comprehensive breakdown of the procurement life cycle and its implications can pave the way for your company’s success, including the steps to take and best practices for managing procurement.

What Is the Procurement Life Cycle?

The procurement life cycle refers to all the steps involved in obtaining goods or services for your business. When designing the procurement life cycle, procurement management aims for efficiency — in terms of both speed and cost-effectiveness. An efficient procurement life cycle ensures that critical goods and services can be obtained with minimal delays, which in turn reduces costs.

Another major benefit for businesses that nail their procurement life cycle is improved customer relationships, because obtaining the right supplies at the right time helps companies reliably deliver their products to customers. For instance, major ecommerce marketplaces have built a reputation for quickly and reliably sourcing the products their customers need, which has helped them gain market share.

The procurement life cycle has many steps, but these steps can be grouped into five broad stages:

  • Define and specify business needs.
  • Invite suppliers to submit bids (a process known as “tendering”).
  • Evaluate and select suppliers.
  • Manage contract and deliverables.
  • Assess and refine procurement processes.

five stages procurement

Businesses may procure a wide range of goods and services, ranging from critical manufacturing machinery to day-to-day office supplies and consulting services. Procurement activities are typically grouped into the following categories:

Direct procurement refers to obtaining goods or materials that are used to make the company’s products and directly drive profit for your business. These include raw materials for manufacturing, such as the silicon wafers used by a semiconductor company. It also includes the purchase of products for resale, as well as the technologies or machinery a company uses to develop its goods or services, such as the factory robots used by a car manufacturer.

Indirect procurement is the purchase of goods or services that are critical to your company’s daily operations but do not directly contribute to its bottom line. In fact, many of these costs, like maintenance fees, office overhead and travel expenses, eat into the bottom line, which makes the efficiency of the indirect procurement life cycle even more important.

Services procurement refers to securing people-based services. These can range from third-party contact centers to on-site contingent labor or security services. Another example: hiring someone with the specific expertise needed for a major business challenge, such as an implementation partner hired to help with the challenges of implementing a new ERP platform . Services procurement can incorporate direct as well as indirect procurement.

Key Takeaways

  • The procurement life cycle encompasses all the steps involved in procuring goods and services from external suppliers.
  • An efficient life cycle is crucial to ensuring that the company obtains the goods and services it needs at the right time, while minimizing cost.
  • Steps in the procurement life cycle range from defining business needs and selecting providers to managing contracts and supplier relationships.
  • Supply chain and inventory management software can help companies trim time, costs and human error at multiple stages of the procurement life cycle.

Procurement Life Cycle Explained

The purpose of procurement is to source the goods and services your organization needs in order to operate efficiently and serve customers as well as possible. Effective procurement achieves these goals while minimizing unnecessary costs and delays. The balance of speed, efficiency and cost will vary from one company to the next. For instance, a luxury goods brand cannot afford to compromise on materials if it wants to maintain customers’ trust, whereas a discount retailer might focus on speed of product delivery to customers in lieu of quality when faced with time pressures.

The procurement life cycle encompasses all the steps involved in obtaining goods and services, from defining your business needs to soliciting bids, awarding contracts and managing supplier relationships. At many companies this is a dynamic, continuous cycle. Some steps overlap, and some depend on other departments — for example, purchasing decisions may be determined by budgeting priorities dictated by finance teams.

16 Steps in the Procurement Life Cycle

Though details of the procurement life cycle vary from company to company, many of the steps are common to different businesses and industries. Some companies are able to decrease the number of steps once they’ve built up a reliable network of trusted suppliers, allowing them to skip some tendering and supplier validation processes. Consider, for example, a high-end furniture company that orders its fabrics from the same short list of textile manufacturers every time, thus eliminating the need to validate its suppliers before procuring new raw materials. Here are 16 typical steps in the procurement life cycle.

Define your business needs.

Defining clear criteria will help you choose a solution that meets every one of your company’s needs. It is important to involve multiple stakeholders in this initial request of the procurement life cycle — from the employee to who initiates the request for the item — as this helps ensure their buy-in when the time comes to choose a supplier in their purchase request. New business initiatives often drive new procurement needs: A growing business may require a new technology provider to support increasingly complex requirements, or it might be launching a product line that requires procurement managers to source an entirely new range of raw materials and machinery.

Perform a market analysis.

Once your needs are clearly defined, conduct a market analysis to see what’s available and to get an idea of costs. This exercise serves as both a validation of your needs and a cost-benefit analysis. Some companies may even decide to develop the goods or services in-house if the costs are prohibitive.

Create a supplier strategy.

Develop an overall strategy for acquiring what you need, taking into account market availability and primary types of suppliers. Leverage is a powerful force in establishing supplier relationships. For instance, your company’s orders might represent a large proportion of a small supplier’s revenue, giving you leverage to negotiate more favorable rates.

Perform pre-procurement market testing.

It can be useful to test what the market really offers by initially acquiring small amounts of your needed supplies. This helps determine whether you should change anything in your procurement plans. Supply chain outages, geopolitical tensions and competitor activity can all have a significant effect on your ability to purchase what you need.

Develop specifications and documentation.

Dive deeper into the details of your business’s needs to create clear specifications for external suppliers. As with the first stage of the procurement life cycle, it is essential to involve relevant stakeholders to ensure that the specifications cover every aspect of the required quality, quantity and capabilities.

Conduct an RFI.

A request for information, or RFI, is a call for suppliers to share information about their business and solutions. Business details might include their history, financials and relevant case studies that demonstrate their ability to meet your needs. Solution details should include information such as product performance, capabilities and differentiators.

Shortlist suppliers to participate in tender.

After reviewing the RFI responses, you can create a shortlist of suppliers that meet your requirements. Some companies even complete a preliminary ranking of suppliers at this stage, based on their capabilities. Think about your future requirements, as well as your current needs, when creating a shortlist, as the suppliers you choose may eventually become long-term partners. To build a strong and mutually beneficial relationship, choose partners that are accountable, trustworthy and communicate well, in addition to meeting your technical requirements.

Issue tender documentation (RFQ or ITT).

The time has come to get specific proposals from relevant suppliers, using a request for quote (RFQ) or invitation to tender (ITT). An RFQ is a document sent to a shortlist of suppliers in order to solicit bids. Companies that have not previously defined a shortlist can instead put out an ITT, which is an open call for quotes from any supplier that can meet their needs.

Evaluate bids.

Thoroughly evaluate the bids received from suppliers. A typical goal is selecting the bid that delivers the greatest value and leads to a dependable supplier relationship. Reliable suppliers are more likely to submit quotes that are clear and structured, and reflect an honest assessment of their strengths.

Validate contenders.

It may be tempting to evaluate quotes based on cost alone, but it is just as important to evaluate suppliers to make sure they can credibly deliver what they promise. Look for feedback on their previous projects from other customers and ask for product samples, if relevant, to validate quality.

Award contracts.

Having chosen and validated your preferred supplier, draw up a contract laying out the terms. Be methodical and comprehensive when defining these terms, because the contract will become the foundation of the supplier relationship. The contract should include key performance metrics, timescales, provisions for a wide range of possible disruptions and the obligations of both parties.

Begin work.

Once the contract is signed, the supplier’s work begins. The supplier begins to manufacture and deliver the goods or services and continues to do so until the contract is completed.

Manage receipt and warehouse logistics.

When procuring physical goods, especially on a large scale, it makes sense to set clear terms for their delivery so you can effectively manage warehouse operations and inventory. These provisions can help the business accept deliveries efficiently, with minimal disruption to operations. In some cases, the terms may even cover the spacing and placement of delivered goods.

Review contract performance.

Supplier relationships are dynamic by nature and will evolve over time as both parties learn to work together, or when new conditions arise. To stay on top of any changes, conduct regular reviews of your contract terms and supplier relationships, identify any pain points and adjust tactics to maintain a high level of performance.

Establish continuous supplier relationship management.

No two suppliers are the same, so every supplier relationship may need to be managed differently. That’s why it’s important for companies to constantly analyze each relationship to be sure they are getting the most out of their vendors.

Conduct asset management.

Rigorous asset management helps the company track when it needs to replace or upgrade equipment or infrastructure, necessitating procurement of new items.

procurement life cycle

How to Manage the Procurement Life Cycle

The key to smooth operation of a complex procurement cycle is ensuring that you can effectively manage many moving parts. This is especially true for steps that require validation from multiple stakeholders, such as when defining business needs in the early stages of procurement. Failure to manage the procurement life cycle can lead to supply delays and added operating costs, potentially jeopardizing relationships with key suppliers and compromising your ability to serve customers. Here are five best practices for optimizing the procurement life cycle.

  • Automate administrative tasks. The administrative burden of manually managing procurement amid shifting market conditions can be enormous. Automating elements of the procurement life cycle, such as reordering and invoice payment and automating the approval process, can save considerable time and cost while reducing the risk of human error.
  • Structure your processes. Structure is the foundation of an efficient procurement life cycle. Laying out each step in detail, assigning ownership and defining best practices can help procurement operate smoothly.
  • Champion visibility. Visibility and transparency are essential for effective procurement life cycle management when factors such as supply chain bottlenecks can force companies to reshape plans overnight. When every stakeholder has access to data and updates throughout the procurement process, they are well equipped to fulfill their role and manage last-minute adjustments when circumstances change.
  • Give back to your supplier network. The best supplier relationships are mutually beneficial. Your company gets a trusted partner that reliably provides the goods and services you need, while your supplier gets a regular source of income and a case study to help them grow their own business. A healthy relationship also breeds healthy communication. For instance, by warning suppliers of potential future risks, you can make sure they are not caught off guard in the event of a crisis. In return, suppliers that are transparent about issues that may affect their delivery down the line can help you manage possible bottlenecks before they have knock-on effects for your customers.
  • Optimize inventory management. Efficient inventory management is critical for companies seeking to procure the right quantities of new supplies at the right time. That is why many businesses rely on cloud-based inventory management systems to strike the right balance between inventory capacity and costs. Inventory management systems can provide real-time visibility into inventory levels, help companies predict demand and automatically alert purchasing staff when it’s time to replenish inventory.

Clarify Your Inventory Needs With Forecasting

essay about purchasing cycle

Improve Your Procurement Life Cycle With Software

Managing complex procurement processes and supply chains requires complete control over your business data. NetSuite Procurement Management records and updates your production data, financial reports, inventory and outstanding orders in real time, so that critical supply chain management systems will be up to date and operating on the same information. This helps companies control costs associated with planning and executing supply chain processes. Supply-planning features analyze demand, determine replenishment needs and create orders as needed. NetSuite procurement capabilities automate communication with suppliers and ensure accuracy throughout the procurement life cycle.

A well-oiled procurement life cycle helps your company secure the critical goods and services it needs to maintain operations and serve customers, while minimizing costs. With the right software, businesses can better coordinate and automate procurement processes, forecast demand and reduce burdensome administration.

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Procurement Life Cycle FAQs

Why should businesses follow all the procurement life cycle steps.

Effective procurement depends on managing the entire procurement life cycle, from start to finish. By clearly defining your business’s needs, taking a methodical approach to the selection and validation of suppliers and taking care to draft a comprehensive contract, you will not only secure the best supplier for your immediate needs but may also build a strong and mutually beneficial relationship that helps your company succeed in the long term.

What types of businesses use the procurement life cycle?

Virtually every business can benefit from a procurement life cycle. That’s especially true in today’s service-based economy, where companies in every industry rely on external consultants, cloud-based software and other services, in addition to the raw materials and machinery they need to manufacture goods.

What is a procurement life cycle?

The procurement life cycle refers to all the steps involved in securing goods and services for your company, from defining requirements and soliciting bids to vendor management.

What are the five stages in a procurement cycle?

The procurement cycle consists of many steps, which can be grouped into five broad stages: definition of business needs, supplier evaluation and selection, management of supplier relationships, delivery of goods and services, and assessment and refinement of procurement processes.

What is the first step in the procurement life cycle?

The first step in the procurement life cycle is to define your business’s needs. With a clear set of specific needs and buy-in from relevant stakeholders across the organization, procurement managers are better able to select the best suppliers to meet every requirement while keeping costs to a minimum.


What Is Procurement? Types, Processes & Technology

Procurement has been a vital, transactional part of conducting business for almost as long as commerce has existed. Although the days of scribes tracking purchases on papyrus scrolls are long past, the process of…

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Navigating the 10 Stages of the Procurement Cycle

Explore the 10 stages of the procurement cycle, get expert tips on how to navigate each step, and find ways to drive cost savings and efficiencies.

By Hugo Britt | November 10, 2022

Procurement is an incredibly complex function that plays a crucial role in the success of an organization. Supplier selection, issuing RPFs, and negotiating contracts – and everything in between – is all part of an intricate process.

Understanding and mastering these steps is essential to ensuring efficiency, cost-effectiveness, and ultimately, achieving business goals .

Understanding 10 Stages of the Procurement Cycle

We know that navigating the different stages can feel daunting. I mean, do you really need to complete every step for every purchase? Does every purchase require an audit? How often should you be reviewing supplier performance?

They may not want to admit it, but some practitioners are even wondering if there ways to cut corners while cutting costs.

With careful planning and understanding of each stage, procurement professionals can easily navigate and simplify the sourcing process. In this article, we’re diving into the 10 key stages of the procurement cycle. Each section will provide strategies to reach your goals along with practical tips to help you confidently navigate each step.

Procurement is a complex yet necessary function that plays a crucial role in the success of an organization. Understanding and mastering the procurement cycle is key to ensuring efficiency, cost-effectiveness, and ultimately, achieving business goals.

the procurement cycle

1. Determine your business needs

The procurement cycle begins when you realize your organization needs to obtain goods or services from an external supplier . Take time to understand budget constraints, the overall objectives of your business, and the priorities of individual departments.

When you have a clear understanding of your needs, your team can make better purchasing decisions that drive cost efficiencies.

Pro Tip:  During this process, be sure to seek guidance and input from cross-functional internal stakeholders. This research will provide you with useful information regarding company needs. Engaging with subject-matter experts can also ensure compliance and buy-in during the later stages of the procurement cycle. 

2. Complete a market analysis

Next up, you’ll need to complete a thorough market analysis to understand the options available. This will ultimately enable you to compile a list of prospective suppliers. Your market analysis ought to consider costings, key players, and challenges and dynamics, alongside how the market is evolving.

Pro Tip: Once you have completed your market research, produce a market summary document that details your key findings.

3. Compile a list of suitable suppliers

Armed with a summary of the market, you have all the necessary information to compile a list of appropriate suppliers.

Pro Tip: Make sure you are shortlisting vendors with your top priorities in mind. Priorities may include sourcing locally , improving efficiency, and cost reduction. You may also be looking to drive innovation throughout the supply chain or foster a closer working relationship with your supplier.

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4. produce tender documents.

Before selecting suppliers, provide them with precise specifications including budget, volume, time frame, service agreement, and terms and conditions.

Pro Tip: Your documents should distinguish between your specific requirements and personal preferences. For this reason, it’s a good idea to involve key stakeholders at this stage of the procurement cycle.

5. Issue RFI, RFQ, or RFP

If your procurement process is complex, you might consider starting the RFx process for your chosen suppliers. This could entail asking for information (RFI), a quote (RFQ), or a proposal (RFP) .

In more complicated scenarios, an RFP can provide you with more detailed information around several factors. If you know exactly what you want and when you need it, an RFQ might be more than sufficient.

Pro Tip: Although it may take some time, don’t take shortcuts during this process if you have to submit an RFx. The goal is to find a supplier that can best meet your needs.

6. Negotiate and award the contract

Gather and analyze data from potential suppliers. Once you have done this, you can award the contract to your chosen supplier.

At this stage, it’s essential to negotiate contract terms that serve both parties. This will ensure you can embark on a long and healthy partnership . Your contract should address factors including costings, terms and conditions, break clauses, and KPIs.

Pro Tip: Review similar contracts your organization has on the books for a better idea of what you need to include. See what’s working well, where to lower costs and how to improve efficiencies . It’ll also serve as a way to learn from former mistakes and eliminate unrealistic contract terms.

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7. finalize the purchase order.

Once both parties are happy with the details outlined in the contract, you can finalize your purchase order. This should include a description of the goods and services you are buying, volume requirements, time frames, and costs.

After your financial team approves, the supplier will get a purchase order to fulfill the order and send an invoice.

Pro Tip:  Purchase orders serve as legal documentation. To ensure protection for both sides, it’s important to clearly define the details of your arrangement.

8. Process payment

Your supplier will provide a detailed invoice that includes the agreed price and instructions on how to pay it.

Pro Tip: Make sure you carefully review the payment terms offered by your supplier to ensure you make timely payments. Utilize payment technology to simplify and automate the payment process.

9. Audit your order

All being well, your chosen supplier will deliver your goods or services as specified and within the required time frame. Maintain a log of your delivery date and verify the items received. Jot down any problems encountered to resolve them with your provider. Reference them when it comes to reviewing or renewing a contract.

Pro Tip : Keep records of all of the documents associated with your purchase, including contracts, invoices, order audits, etc. This will help you to accurately manage your procurement budget, analyze your company’s spending , and make improvements in the future.

10. Review performance

Regularly assess contract performance to ensure your procurement team is obtaining the most value and meeting objectives. Use supplier KPIs, workflows, and key results to evaluate progress and gauge the success of your supplier partnership. Frequently review and modify contracts as necessary.

Pro Tip: Having regular communication with your suppliers will provide opportunities for them, and your internal stakeholders, to give feedback. Schedule review dates with your vendor to review feedback and discuss changing expectations and requirements. Make any necessary amendments to the contract at this time.

Thoroughly completing each step of the procurement cycle can feel daunting at times. Luckily, businesses have the opportunity to cut down on the time it takes to procure goods and services by utilizing third party resources.

Driving efficiencies throughout the procurement cycle.

Making sure you’re completing each step throughout the procurement cycle can feel daunting at times. Luckily, businesses have the opportunity to cut down on the time it takes to source goods and services.

Group purchasing organizations (GPOs) can prove invaluable when it comes to streamlining and simplifying the procurement cycle. At Una, our speed to savings timeline sets us apart. Members are able to skip the lengthy supplier selection process, bypass RFPs in certain categories, and take advantage of well-established supplier relationships. We connect our members to ready-to-go supplier contracts that align with your stakeholders’ goals in a matter of weeks.

Other GPOs may focus solely on your bottom line. We prioritize our members’ success and take an advisory approach to procurement. Our services go well beyond cost savings to include overseeing the contract negotiation process, spend analyses, and personalized consulting. Our sourcing advisors work as an extension of your procurement department and are here to educate, advise, and enable your success.

To learn more about a GPO’s role within your procurement strategy and how to further improve the procurement process, download a free copy our popular playbook below:

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essay about purchasing cycle

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Steps To Purchasing Cycle - Standard & Tender Process

So what exactly is a purchasing cycle? Well it’s the steps taken to order and pay for products that a business requires. The purchasing cycle determines the frequency that products are purchased.

Below you will find the steps for a Standard procurement cycle, and then when it involves tendering.

I. 11 Steps in a Standard Procurement Cycle

  • The Need You need to identify that there is a need to update the inventory or stock. You may also need a business service or ad hoc product.
  • Specify Now you need to decide how much and when you want the products or services delivered.
  • Requisition or Order This is when you write the purchase order or requisition order.
  • Financial Authority Before the order can be placed, it usually requires some kind of authority for its purchase. With some purchase orders, this is reasonably automatic. With a large order that will be put out to tender it could be multi staged.
  • Research Suppliers Repetitive orders usually have set suppliers, although it does no harm to review the options sometimes. Other orders will either need to go out to tender or there will be a choice of suppliers.
  • Choose Supplier The supplier is now chosen.
  • Establish Price and Terms In a large company, many suppliers will be contracted with a Master Agreement where prices and terms are set for a defined period. For other orders, now is the time to negotiate terms and prices.
  • Place Order At this stage in the purchasing cycle, the order is placed and this becomes a contract between the business and the supplier.
  • Order Received and Inspected The goods are delivered, checked in the warehouse and entered into the inventory . Shortages and breakages are reported to the supplier for the appropriate credits to be supplied.
  • Approval And Payment Usually within 30 days, the invoices are received and paid.
  • Update Of Records The purchasing ledger and stock records are updated. This is automatically done by many purchasing computer systems.

II. 14 Steps for Purchasing Cycle with Tenders

  • The Need In this case, the need usually goes through a business case and is then tightly defined and specified.
  • Financial Authority This usually happens at a higher level and includes the management of the department that requires the goods.
  • RFP A Request For Proposal (RFP) is written, in which the need is highly specified.
  • Invite Tenders This is always done formally, usually by posting the request in trade magazines and appropriate web sites. Government projects are posted on government web sites.
  • PQQ A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in order to select a short list of appropriate potential suppliers.
  • Tenders The tenders are sent in from the qualified suppliers.
  • Qualifying A number of meetings are held to clarify any questions that suppliers may have.
  • Evaluation This is the most exciting part of the purchasing cycle and can take many weeks for a big tender. All the tenders are evaluated and the requirement awarded to the winning bidder.
  • Negotiation The fine print of the terms and conditions are negotiated with the chosen supplier. The price is fixed at the bid price.
  • Contract Award In a very short time, the contract is awarded to the chosen bidder.
  • Manage Contract This is the period in the purchasing cycle when the goods are delivered.
  • Approval And Payment If the contract is carried out completely then full payment is made. If there are problems, there may be a damage request.
  • Sign Off At the end of the contract work and deliveries, the contract is signed off and all relationships with the supplier are finished.

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What is Purchasing Cycle? Steps, Purchase Orders Agreements, Blanket Purchase Order

  • Post last modified: 10 August 2023
  • Reading time: 23 mins read
  • Post category: Procurement Management
  • What is Purchasing Cycle?

The purchasing cycle refers to the process that a company or individual goes through when making a purchase.

Purchasing is the formal process of buying products and services. The process of purchasing can vary from one organization to another. However, there are some common key steps that are followed by all organizations.

Table of Content

  • 1 What is Purchasing Cycle?
  • 2.1 Identifying the Need
  • 2.2 Specifying the Need
  • 2.3 Selecting a Source
  • 2.4 Determining the Price
  • 2.5 Placing a Purchase Order
  • 2.6 Acknowledging the Order
  • 2.7 Following up and expediting
  • 2.8 Checking the Invoice and Approving the Payment
  • 3 Purchase Agreement for Standard Purchase Orders
  • 4.1 Framework Contracts
  • 4.2 Framework Agreements
  • 5.1 Features of Blanket Purchase Order
  • 5.2 Release Orders and System-generated Purchase Orders
  • 5.3 Open-end Orders

Purchasing Cycle Steps

To make purchasing effective, most organizations follow a purchasing cycle or process. A purchasing cycle is a step-by-step approach to an effective purchasing function.

Let us now discuss the purchasing cycle steps :

Identifying the Need

Specifying the need, selecting a source, determining the price, placing a purchase order, acknowledging the order, following up and expediting, checking the invoice and approving the payment.

It refers to the first step of the purchasing cycle in which the requirements of materials are determined by the user department. These requirements are determined by taking into consideration the purchase requisitions and BOMs, which were discussed in the previous chapter.

It involves determining the exact quantity of materials to be purchased for production. Different departments of an organization need to define their requirements in the purchase requisition form. The approved PR reaches the purchasing department for making the purchase.

If there is any error or unclear description in a requisition form, the purchasing department does not make any changes to it, rather the department sends the form back to the respective department for clarification.

It refers to one of the most important steps of the purchasing cycle. The quality of materials depends on the source from where they are procured. Therefore, the purchasing department is responsible for selecting the right source for procuring materials.

To do so, the department maintains a list of reputed suppliers. The purchase department also selects a supplier by inviting tenders through advertisements.

As discussed earlier, the purchasing department is responsible for procuring the optimum-quality materials at the lowest price. Therefore, it is important for the purchasing department to analyze its budget, perform market research and determine the best price for procuring materials.

The purchase department generally uses three ways for determining the best price of materials, which are:

  • Vendor catalog : It is a list of different materials along with their prices and quantity, available from different vendors. The department only needs to check the current list to determine the best price of materials.
  • Negotiation : It involves bargaining with the supplier to reach the best price for materials.
  • Tendering : It refers to a method mostly used by government organizations in which the buyer sets a price for materials and the supplier needs to bid for receiving the purchase order from the buyer.

A purchase order is a legal contract that specifies the entire agreement between the purchasing department and the supplier. It defines the agreed price, terms and conditions, and specifications of materials to be purchased. The purchase order helps in preventing any misunderstanding between the two parties.

After the order placement, it has to be acknowledged by the supplier. Acknowledgement is all about getting confirmation from the supplier about the timely delivery of materials. Without acknowledgement, the order will remain only “an offer to purchase” with no legal standing.

Once the supplier issues acknowledgement, it becomes a purchase contract and the same needs to be noted in the purchasing system.

It ensures that the items are delivered by the supplier on time. No special expediting procedure is required in the following conditions:

  • Good production planning
  • Less engineering alterations
  • Efficient inventory control
  • Proper purchase order
  • Appropriate supplier

This is the last step of the purchasing cycle wherein the invoice is verified by matching it with the purchase order and GRN. This is called three-way matching. If there is no mismatch between the materials ordered and received, payment is made to the supplier.

In certain cases, the invoice needs to be matched only with the purchase order. This is called 2-way matching, and it is applicable in cases where GRN is not raised. For example, in the case of blanket purchase orders, GRN is not raised.

As discussed, the purchasing cycle is applicable to any standard purchase order. However, all purchases do not go through such elaborated stages. Owing to the nature of repetitive purchases of the same materials, organizations have invented new methods that simplify the purchasing cycle and integrate it with the inventory management process.

In this chapter, you will study some important purchasing methods in detail.

Purchase Agreement for Standard Purchase Orders

The Chartered Institute of Procurement and Supply (CIPS) defines a purchase order (PO) as a document issued by a buyer to his/her supplier that defines what is needed, in what quantity, when performance is required, and on what terms, including price and payment terms.

The issue of a purchase order is a prerequisite in many payment systems for the payment of invoices. A sample format of the purchase order was shown in the previous chapter.

It is important to understand that manufacturing organizations producing the same set of finished products require similar sets of materials and components for each and every production schedule.

Given that the manufacturing plant and the nature of production methods do not change, the required raw materials and component parts for manufacturing any particular finished product would not vary with every production plan. Only the quantity of raw materials and components may change depending on the customer demand forecasts and production plans.

Similarly, procurement of standard inventory items that are required on a day-to-day basis usually involves the same set of suppliers who have already been approved (through a supplier selection process) by the organization for sourcing its inventory requirements from them.

Therefore, organizations are not required to identify a new supplier every time an inventory procurement requirement is raised, owing to the repetitive nature of the requirement.

To fulfill their standard, repetitive purchase requirements, organizations enter into long-term purchase agreements with suppliers. These purchase agreements envisage a long-term partnership with suppliers in terms of procurement commitment from the buyer organization.

Different types of organizations like manufacturing, service, software, etc. use different types of purchase agreements depending on the nature of their procurement needs.

Types of Purchase Agreements

CIPS classifies purchase agreements into the following two categories:

Framework Contracts

Framework agreements.

Framework contracts are legal contracts where the buyer commits upfront that it will purchase a specified quantity of items in a given period. For example, a manufacturing organization may enter into a framework contract with an electric utility for the off-take of a specified amount of electricity during a given period.

Similarly, a pharmaceutical company might forecast that it requires a particular amount of chemicals to be used as raw materials in its batch production processes at any given period. Though the company might be certain of its requirements, it may not need to purchase the entire quantity at once.

Instead, it can enter into a contract wherein it commits to purchase the entire quantity from the same supplier over a specified period. This helps fix both the price and the supplier at the best possible terms for the entire production period. Such a contract is called a framework contract.

A framework agreement is not a legal contract but only an agreement to buy an unspecified quantity over a particular period of time.

For example, an automobile major like General Motors knows that it would require sourcing anti-braking systems from a supplier like Robert Bosch, over a period of time. But General Motors does not want to enter into a framework contract that specifies that it will purchase a specific quantity from Robert Bosch during a particular period.

In that case, it can enter into a framework agreement with Robert Bosch wherein it only commits (or firms up its intention) to purchase anti-braking systems over a period at given terms and conditions including the price.

So, a framework agreement need not specify any quantity nor carry a legal commitment to purchase a fixed quantity. It may not even specify delivery dates or the shipment location. Most manufacturing organizations enter into framework agreements due to their flexible nature.

Standard purchase orders are similar to framework agreements as they do not have a legal contract but only an offer to purchase. A purchase order becomes a contract only after the supplier accepts it by acknowledging the same and committing to supply products/services as per the terms mentioned in the purchase order.

Blanket Purchase Order

The term ‘blanket purchase order’ is used differently in the context of different organizations and ERP modules. The APICS (Association for Purchasing and Inventory Control Specialists) dictionary defines a blanket purchase order as a long-term commitment to a supplier for material against which short-term releases will be generated to satisfy requirements.

The CIPS definition says blanket purchase orders are purchase orders placed on suppliers that cover a range of products or a time period that commits to a volume of one product.

In CIPS terminology, a blanket purchase order is a form of framework agreement. CIPS defines a blanket purchase order as an agreement between buyer and seller whereby certain goods will be purchased at prices established or agreed to by way of a formula over a period of time.

In other words, it is an agreement with the supplier where the buyer commits to purchase the items over a specified period. It may or may not specify an indicative quantity.

A blanket purchase order is generally meant for a particular item or a group of items required to be ordered repetitively from a single supplier. It is basically an open order effective for a specified period, say, for one year. It eliminates the need for issuing a separate purchase order whenever there is a need for materials.

The buyer will enter into a blanket purchase order through due negotiations after which ordering of any item covered by the blanket purchase order only requires a release order. Through this mechanism, the order and receipt of materials as per the production schedule become a routine matter between the buyer and the supplier.

Most purchases in the organization covering routine standard items happen only through blanket purchase orders. Standard purchase orders are used only for one-off purchases from new suppliers.

When a blanket purchase order for an item is negotiated, the buyer and the supplier evaluate the anticipated demand for the item over a period of time. The two parties then agree to the terms and conditions including price, quantity, discounts, specifications, quality, and delivery lead times.

For a purchase to be made by the blanket purchase order, individual purchase orders and GRNs are not raised. The blanket purchase order reduces transaction processing costs which can have a significant positive impact on the total acquisition costs of materials.

Features of Blanket Purchase Order

Release orders and system-generated purchase orders, open-end orders.

The salient features of a blanket purchase order are summarised below:

  • A blanket purchase order is a type of long-term purchase order and is the most preferred and widely adopted method for all repetitive and standard purchases.
  • A blanket purchase order covers a procurement commitment to a supplier for specific products at an agreed-upon price for a specified period.
  • A blanket purchase order eliminates the need of issuing a purchase order every time there is a requirement for the material.
  • To manage routine and standard inventory items, buyers enter into blanket agreements that enable the shipment of items through release orders obviating the need to go through an elaborate purchasing cycle.
  • A blanket purchase order is based on negotiated terms and conditions including price, quantity, discounts, and projected demand over a period. It leaves the delivery date and the ship-to location open.
  • Release orders are issued against blanket purchase orders as and when material requirements are identified in the MRP system.
  • On shipment, the supplier raises the invoice for payment.
  • No GRN is raised for shipments based on blanket purchase orders
  • Two-way matching is done while making payment for shipments on the basis of blanket purchase orders.
  • Total invoices raised against a blanket purchase order cannot go beyond the limit set for blanket purchase orders.

Release orders (also called material purchase releases) are authorizations issued to suppliers to make shipments as and when required as per the blanket purchase order agreement.

A copy of material purchase releases is also sent to purchasing, accounts payables, and store departments. Release orders specify the current quantity to be shipped, delivery date, and ship-to location. These orders are based on material requirements identified by the MRP system. These orders raised by the MRP system are based on the BOM associated with the finished product.

For example, for a desktop PC, there is a demand for 1,000 finished products, that is 1,000 PCs. To cater to this demand, release orders derived from BOM, for components or parts to be replenished will require the shipment of 1,000 monitors, 1000 keyboards, 1000 mouses, 1,000 hard disks, etc (assuming these are externally sourced from suppliers).

In an ERP system, automatic release orders for each of these components will be directly issued to the suppliers as per the respective blanket purchase order details. Such release orders are called system-generated purchase orders/release orders. In the real world, most purchases happen only through such automatic system-generated release orders.

In such release orders, in the first few weeks (or days depending on lead time), the material requirement indicated will be the actual shipments required as per the delivery date specified, while the requirement stated for the subsequent period will be the quantity forecast for the period.

It is also practiced by many supply chain-driven manufacturing organizations to share material requirement forecasts with their suppliers. This would help the supplier plan supply requirements in advance.

Open-end orders are similar to blanket purchase orders. However, they allow for the inclusion/deletion of additional items over a period of time. Such orders are useful for procuring MRO and production support items discussed in the previous chapter.

Usually, these items are of low cost, high volume, and large in number. The required items can also change and can be unpredictable. Open-end orders allow the convenience of modifying standard blanket purchase orders. The period of the order could be up to one year or till renewal.

  • Baily, P., Farmer, D., Crocker, B., Jessop, D., & Jones, D. (2008). Procurement principles and management. Pearson Education.
  • Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.
  • Bower, D. (2010). Management of procurement (1st ed.). London: Thomas Telford.
  • Blanket Orders | (2017). Retrieved 1 March 2023, from
  • APICS – The Premier Association for Supply Chain Management. Retrieved 1 March 2023, from
  • Blanket Order: Procurement and Payment Services – Northwestern University. Retrieved 1 March 2023, from
  • Supply Chain Management Publications | American Purchasing Society. Retrieved 1 March 2023, from

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13 Stages of the Procurement Life cycle Explained

What is a procurement cycle.

Procurement cycle is the  sequence of steps involved in the procurement process  from the start till the end. It encompasses the steps required to manage procurement from your first interaction with the potential suppliers until the delivered goods are taken care of and are put to use by the appropriate department within the organization.

Understanding the procurement cycle  will give your organization an easy-to-follow blueprint for building out your procurement operations and running them efficiently and effectively.


In this article, we’ll explore the 13 steps of the procurement cycle, examine what tasks and responsibilities they cover, and their significance to your organization’s procurement operations.


1. Define the business needs

The first step of the procurement cycle is completely internal.

Here’s the stage where stakeholders within your organization define a need that should be filled.

Whether it’s a product or a service that needs to be acquired to support your internal operation, the aim at this stage is to identify the need, frame it, and define it in terms of what it should do for you within your organization.

Defining needs also involves developing specifications to determine exactly what the supplies in question should offer in terms of actual usage.


2. Conduct market analysis

Once you have a clear picture of what the supplies you’re looking to acquire look like, the next step is to conduct appropriate market research. This involves analyzing the options available from different vendors and determining what it’d cost to either produce the need in-house or acquire from a third party.

3. Develop a strategy

Strategy planning is the stage where you’ve defined your needs and agreed upon a supply tactic. Next up is to define how you intend to leverage the option you chose at the market analysis stage.

If, for example, you realize that your company makes up a significant portion of your potential suppliers’ turnover, this will provide you an opportunity to demand competitive prices or invite suppliers to bid for your business.

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4. perform market testing.

Market testing is simply testing out market sentiments to determine what needs to change in your procurement strategy .

You take a small fraction of your procurement budget and make moves in the market to acquire your desired supplies.

At this stage, you take note of determiners such as prices, legislation, and market dynamics to get a clear picture of what your supply circumstances look like. For example, if your desired supply is scarce over the holidays, your strategy might change to stockpiling them ahead of the holiday price hikes.

Market testing informs you on how your procurement strategy needs to change to adapt to prevalent market forces.

5. Develop documentation and detailed specification

The specification stage is where relevant stakeholders define the requirements you need for each supply item, including the product quality, quantity, and functionality specifications.

Your aim here is to develop detailed preferences to guide your procurement choices to ensure the supplies you’re buying will serve the intended purpose.

6. Supplier selection to participate in the tender process

Depending on your industry, it might be impossible to have all the possible suppliers bidding for your business.

The ideal tactic to utilize here is to create a list of desirable tactics and use that to shortlist suppliers who qualify to participate in the tendering process.

7. Issue tender documents

Tender documents, including Requests for Quotations, and Requests for Pricing are sent out to shortlisted vendors with a definite timeline for their reply.

8. Bidding, tender evaluation, and validation

After shortlisted suppliers have sent in their bids, the evaluation process involves making a thorough, transparent analysis of each supplier and their offerings to determine which bid offers the most benefit to your organization.

As the penultimate stage before  procurement contracts  are awarded, you conduct in-depth reviews of each supplier’s capacity to deliver on their bids, including analysis of previous projects undertaken, and sampling products and services, if available.

9. Contract award and implementation

Once you’ve agreed on a preferred vendor, the contract award stage is where a contract spelling out the terms of the customer-vendor relationship is drafted and once both parties have an agreement on contract performance KPIs, supply dynamics, logistics, invoicing, and contract management terms, the contract is signed and work on the items agreed upon commences.

10. Warehouse logistics and receipts

With the supply contract binding, the vendor is responsible for delivering supplies at the customer’s request matching the specifications agreed upon during the contract award stage.

Logistics and warehousing agreements that were made earlier on apply here to ensure smooth, efficient management of the supply deliveries. This includes product coding and classification, spacing, layout, racking, and frequency of delivery agreed upon.

11. Contract performance and improvement

From time to time, as stipulated in the terms of the contract, both parties, i.e. the vendor and you, the supplier should conduct periodic reviews to determine how efficiently the customer-vendor relationship has been operating, identify any lapses in the customer-vendor relationship, and chart a way forward to support improved performance.

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12. supplier relationship management.

Supplier relationship management  is the ongoing process required to manage your relationship with your vendors, analyzing each supplier to gauge the right level of input required to maintain your relationship to realize your strategic goals. 

13. Asset management

Over time, your organization’s needs might change due to a variety of factors, from changing your focus to new niches in your industry, expanding or adjusting your product line.

As a result, from time to time, it’s important to evaluate your procurement needs to determine if there’s been any change and how you can adapt your procurement to the changes you’ve discovered.

Asset management is the process of staying on top of your procurement needs to ensure your procurement process can still support your business operations.

Kissflow streamlines the procurement lifecycle

A  procurement management software like Kissflow empowers organizations of all sizes to run the procurement cycle efficiently and effectively, freeing you up from manual tasks with intelligent tools. With Kissflow, you can

  • Communicate effectively with stakeholders using tools like chat, comments, and @mentions
  • Automate manual tasks with workflows and processes
  • Assign tasks to team members and stakeholders
  • Manage and share files efficiently
  • Match invoices, purchase orders, and receipt notes with  three-way matching
  • Support multiple payment options, and
  • Manage vendors proactively

Kissflow serves as the final link you need to complete the procurement cycle and empower your procurement for speed and efficiency.

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The modern purchasing process: a comprehensive guide.

Welcome to the era of modern purchasing! In today’s fast-paced and ever-evolving business landscape, staying ahead of the competition requires a comprehensive understanding of the purchasing process. Gone are the days when procurement was simply about buying goods and services. It has now transformed into a strategic function that can drive cost savings, ensure compliance, enhance efficiency, and ultimately propel your company to new heights.

In this comprehensive guide, we will unravel the intricacies of the modern purchasing process and explore best practices to optimize it. From requisition to payment, we will delve into each step with an aim to help you streamline your operations, reduce risk, and improve overall productivity. So buckle up as we embark on this journey towards excellence in procurement!

But first things first – let’s clear up any confusion by differentiating between purchasing and procurement

Understanding the Purchasing Process

The purchasing process is a series of steps that organizations follow to acquire goods and services. It begins with identifying a need, creating a requisition, and obtaining approvals before moving forward with the purchase. Once authorized, a purchase order is generated and sent to the supplier. After receiving the goods or services, they are inspected for quality and compliance. Payment is made to complete the transaction.

Having clarity on each stage of this process is crucial for efficient procurement management. From requisition to payment, every step must be well-defined and executed seamlessly to ensure timely delivery, cost control, and satisfaction of internal stakeholders as well as external suppliers . Understanding these nuances will empower you to optimize your purchasing process for maximum effectiveness.

Differentiating Purchasing from Procurement

Understanding the distinction between purchasing and procurement is crucial in optimizing your company’s purchasing process. While the terms are often used interchangeably, they have distinct meanings and functions within an organization.

Purchasing focuses on acquiring goods or services at the best possible price, quality, and delivery terms. It involves activities such as identifying suppliers, negotiating contracts , issuing purchase orders, and managing relationships with vendors. On the other hand, procurement encompasses a broader set of strategic activities aimed at ensuring that the organization has all necessary resources to fulfill its objectives efficiently. This includes not only purchasing but also sourcing strategies, supplier evaluation and selection processes, contract management, risk assessment, and performance measurement.

By clearly understanding these differences, you can develop a more comprehensive approach to managing your company’s supply chain operations. This will enable you to optimize both cost savings through effective purchasing practices and overall resource utilization through well-executed procurement strategies.

The Importance of a Well-Defined Purchasing Process

When it comes to running a successful business, having a well-defined purchasing process is essential. Why? Because it sets the foundation for efficient and effective procurement operations. Without a clear and structured approach to purchasing, companies can encounter countless challenges that can hinder their growth and profitability.

One of the key reasons why a well-defined purchasing process is important is because it helps businesses streamline their procurement activities. By clearly outlining each step in the process, from requisition to payment, organizations can ensure that everyone involved understands their roles and responsibilities. This not only minimizes confusion but also reduces the risk of errors or delays in procurement activities.

Another reason why a well-defined purchasing process matters is because it enables better control over spending. When every purchase goes through established channels and requires proper approval, it becomes easier for businesses to monitor expenses and prevent unauthorized purchases. Additionally, by implementing standardized procedures for vendor selection and contract negotiation, organizations can optimize costs and secure favorable terms with suppliers.

In short, having a solid framework for your purchasing process is crucial if you want your business to thrive in today’s competitive marketplace. It provides clarity and control while minimizing risks associated with procurement activities. So take the time to assess your current processes and make necessary improvements – your bottom line will thank you!

Best Practices to Optimize Your Purchasing Process

To ensure smooth and efficient operations, it is crucial to optimize your purchasing process. Here are some best practices that can help you achieve just that.

Implementing strategic sourcing can greatly enhance your purchasing process. By analyzing supplier capabilities, market trends, and total cost of ownership, you can make informed decisions about which suppliers to engage with and negotiate favorable terms.

Additionally, leveraging SaaS technology can streamline your procurement activities. Cloud-based solutions offer real-time visibility into inventory levels, automate purchase order creation and approval workflows, and facilitate seamless communication between stakeholders. This not only saves time but also reduces the risk of errors or delays in the procurement cycle.

By adopting these best practices and continuously evaluating and refining your processes, you can optimize your purchasing process for maximum efficiency and effectiveness.

Taking Your Company to the Next Level with the Purchasing Process

Are you looking for ways to propel your company forward and stay ahead of the competition? Look no further than optimizing your purchasing process. By implementing best practices and leveraging modern strategies, you can take your company to new heights.

One key aspect is strategic sourcing, which involves identifying reliable suppliers and negotiating favorable terms. This ensures that you have access to high-quality products or services at competitive prices. Additionally, embracing technology such as SaaS solutions can streamline your purchasing operations, improve efficiency, and enhance collaboration with suppliers. With these approaches, you can elevate your company’s performance and achieve significant cost savings while maintaining a high level of quality and customer satisfaction.

By continuously improving your purchasing process through automation, training programs for employees, and adopting a bottom-up approach to optimization, you can drive innovation within your organization. This will not only help you meet customer demands more effectively but also foster long-term growth. So why wait? Take advantage of the modern purchasing process today and transform your company into a leader in its industry!

Related Blog Posts and Resources

Looking for more information on the modern purchasing process? Here are some additional blog posts and resources to help you optimize your purchasing practices.

In our previous articles, we’ve covered topics such as reducing procurement risk, enhancing spend visibility, and ensuring compliance with buying policies. These pieces provide valuable insights into specific aspects of the purchasing process that can make a significant impact on your organization’s bottom line.

Additionally, there are resources available that focus on managing software licenses efficiently, defining and communicating purchasing policies, setting SMART goals for your procurement team, and monitoring key performance indicators. By leveraging these materials, you can gain a deeper understanding of how to streamline your operations and achieve better outcomes in today’s fast-paced business environment.

Remember that continuous learning is essential in staying ahead in the ever-evolving world of purchasing. By exploring these related blog posts and resources, you’ll be well-equipped with the knowledge needed to take your company to new heights through an optimized modern purchasing process.

The Requisition Stage

The requisition stage is the starting point of the purchasing process. It involves identifying the need for goods or services and initiating a request for purchase. This could be triggered by various factors, such as inventory depletion, equipment malfunction, or new project requirements.

During this stage, it is crucial to gather all relevant information about the requested items, including specifications, quantity needed, preferred suppliers, and budget constraints. Effective communication between departments and stakeholders is key to ensure accurate requisitions. A well-defined requisition process sets the foundation for a successful purchasing journey by streamlining decision-making and minimizing errors from the get-go.

Approval and Authorization

Approval and authorization are crucial steps in the modern purchasing process. Once a requisition has been submitted, it needs to undergo approval from relevant stakeholders before moving forward. This ensures that all purchases align with company policies and budgets.

During the approval stage, managers or designated personnel review the requisition to determine if it meets necessary criteria. They evaluate factors such as budget availability, compliance with procurement regulations, and alignment with organizational goals. Once approved, the purchasing department can proceed with creating a purchase order and initiating the procurement of goods or services.

The authorization step involves granting permission for the purchase to take place. This may involve obtaining signatures from higher-level decision-makers or utilizing electronic approvals through workflow systems. Authorization adds an extra layer of accountability by ensuring that all purchases are properly authorized by individuals who have the authority to do so within the organization. By streamlining these processes and establishing clear guidelines for approval and authorization, companies can enhance efficiency while maintaining proper controls over their purchasing activities.

Creating a Purchase Order

When it comes to the modern purchasing process, one crucial step is creating a purchase order. This document serves as an official record of a company’s intent to buy goods or services from a supplier. It outlines important details such as item descriptions, quantities, unit prices, and delivery dates.

A well-crafted purchase order ensures clear communication between the buyer and supplier, minimizing misunderstandings and potential disputes. It also helps streamline inventory management by providing accurate information on what items are needed and when they should be delivered. By taking the time to create thorough purchase orders, businesses can maintain better control over their purchasing process and improve efficiency in procurement operations.

Remember that each blog section should have no more than 80 words.

Receiving and Inspection of Goods

Receiving and inspecting goods is a crucial step in the modern purchasing process. Once your order has been placed and approved, it’s time to ensure that you receive exactly what you requested. This involves carefully checking the quality, quantity, and condition of the goods upon arrival.

During this stage, it’s important to have a well-organized system in place to track incoming shipments and verify their accuracy. This includes matching the received items against the purchase order and conducting thorough inspections for any damages or defects. By diligently carrying out these checks, you can avoid unnecessary delays or disputes with suppliers while maintaining high standards of product quality for your customers.

Remember, receiving and inspection are not just about ticking boxes – they play a vital role in safeguarding your business and ensuring customer satisfaction. So be vigilant, document any discrepancies or issues encountered during this process, and communicate with relevant stakeholders to resolve them promptly.

Invoicing and Payment

When it comes to the modern purchasing process, one crucial step that cannot be overlooked is invoicing and payment. Once goods or services have been received and inspected, it’s time to settle the financial aspect of the transaction. This involves generating an invoice that accurately reflects the agreed-upon terms and sending it to the buyer for payment.

Prompt and accurate invoicing is essential for maintaining a healthy cash flow and building strong relationships with suppliers. It ensures that all parties are on the same page regarding costs, quantities, and any additional charges. Once an invoice has been issued, buyers should promptly review and validate its accuracy before proceeding with payment.

Efficient payment processing plays a vital role in optimizing your overall purchasing process. By adopting streamlined electronic payment methods such as online banking or digital wallets, you can expedite payments while minimizing errors associated with traditional manual processes like check writing. Embracing technology also allows for easier tracking of transactions and provides greater transparency into your financial operations.

Invoicing and payment may seem like routine administrative tasks, but they are pivotal components of a well-oiled purchasing process. By prioritizing accuracy, efficiency, and leveraging digital solutions where possible, businesses can ensure smooth transactions from start to finish.

Reducing Procurement Risk

In today’s dynamic business landscape, reducing procurement risk is crucial for companies to maintain a competitive edge. By mitigating potential risks associated with the purchasing process, organizations can protect their bottom line and ensure smooth operations.

One way to reduce procurement risk is by conducting thorough supplier evaluations. This involves assessing vendors based on their financial stability, reputation, and track record. Additionally, implementing strong contract management practices can help minimize legal and compliance risks. By carefully reviewing and negotiating contracts, businesses can avoid costly disputes or non-compliance issues.

Another effective strategy is to diversify your supply chain. Relying too heavily on one supplier increases the vulnerability of your procurement process. By sourcing from multiple suppliers or exploring alternative options, you can mitigate the impact of disruptions such as shortages or price fluctuations.

Remember that reducing procurement risk requires ongoing vigilance and proactive measures. Stay informed about market trends and industry regulations to stay ahead of potential challenges in the purchasing process.

(Note: The word count for this section is 96 words.)

Enhancing Spend Visibility

Enhancing Spend Visibility is a crucial aspect of the modern purchasing process. By gaining clear insights into your organization’s spending patterns, you can make informed decisions and identify areas for cost-saving opportunities.

One way to enhance spend visibility is by implementing robust data analytics tools that provide real-time reports on expenditures. These tools can help you track and categorize expenses, identify trends, and pinpoint any irregularities or discrepancies. With this level of transparency, you can proactively manage your budget, negotiate better deals with suppliers, and ensure compliance with financial regulations.

Another effective strategy for enhancing spend visibility is streamlining your procurement processes through automation. By digitizing purchase orders, invoices, and payment records in a centralized system, you eliminate manual errors and delays while capturing essential data points. This enables you to generate accurate spending reports at any given time and gain valuable insights into your overall expenditure landscape.

Remember: improving spend visibility not only boosts operational efficiency but also empowers decision-makers to optimize costs effectively throughout the entire purchasing cycle.

Ensuring Compliance with Buying Policies

When it comes to purchasing, following buying policies is crucial for a smooth and efficient process. By ensuring compliance with these policies, companies can avoid costly mistakes and maintain transparency. This involves adhering to established guidelines regarding suppliers, pricing, contracts, and ethical considerations.

To ensure compliance with buying policies, it’s essential to clearly define and communicate these policies throughout the organization. This includes providing training sessions for employees involved in the purchasing process so they understand their roles and responsibilities. Regular audits should also be conducted to identify any potential breaches or non-compliance issues.

By diligently maintaining compliance with buying policies, businesses can safeguard their reputation, protect against legal risks, and uphold ethical standards in all procurement activities.

Managing Software Licenses Efficiently

Managing software licenses efficiently is crucial for any modern purchasing process. With the increasing reliance on technology, organizations must ensure they have proper control and visibility over their software assets. This involves accurately tracking licenses, managing usage rights, and optimizing costs.

One way to manage software licenses efficiently is by implementing a robust license management system. This system can help maintain an accurate inventory of all software licenses, track license usage and compliance, and automate renewals and updates. By having a centralized repository of license information, organizations can easily monitor their licensing status and make informed decisions about purchasing new licenses or renewing existing ones.

Another important aspect of efficient license management is conducting regular audits to identify any discrepancies or non-compliance issues. Audits can help uncover unused or underutilized licenses that can be reallocated within the organization or retired altogether. Additionally, audits ensure that organizations are in compliance with vendor agreements and avoid costly penalties associated with unlicensed or unauthorized use of software.

By effectively managing software licenses, organizations not only optimize costs but also enhance security by ensuring that all installed software is legitimate and properly licensed. Furthermore, efficient license management allows businesses to strategically plan for future needs based on actual usage data rather than relying on guesswork. Managing software licenses efficiently is a critical component of the modern purchasing process that should not be overlooked.

Defining and Communicating Purchasing Policies

Defining and communicating purchasing policies is an essential aspect of optimizing your modern purchasing process. These policies serve as a guide for your team, ensuring consistency and adherence to best practices throughout the procurement journey.

To start, it’s crucial to clearly define your company’s purchasing policies. This includes outlining the preferred vendors, acceptable payment terms, approval thresholds, and any specific processes or procedures that need to be followed. By establishing these guidelines upfront, you can avoid confusion and streamline the decision-making process when it comes to purchasing goods or services.

Once you have defined your policies, effective communication is key. Make sure all relevant stakeholders are aware of these policies and understand their importance in maintaining a smooth procurement flow. Regular training sessions or informative documents can help ensure that everyone has the necessary knowledge to comply with the established guidelines effectively.

By defining and communicating your purchasing policies effectively, you can create a cohesive approach within your organization that enables smoother transactions while minimizing errors or delays.

Setting SMART Goals

Setting SMART goals is an essential part of optimizing your purchasing process. SMART stands for Specific, Measurable, Attainable, Relevant, and Time-bound – all elements that contribute to the effectiveness of your goals.

By setting specific goals, you provide clarity and direction for your team. It helps everyone understand exactly what needs to be achieved. Measurable goals allow you to track progress and determine whether you’re on the right path or need adjustments. Ensuring that your goals are attainable ensures they are realistic and within reach. Relevant goals align with your company’s overall objectives and contribute meaningfully to its success. Time-bound goals create a sense of urgency and help prioritize tasks effectively.

Incorporating SMART goal-setting into your purchasing process enables you to focus on tangible outcomes while keeping everyone aligned towards a common objective. With clear guidelines in place, it becomes easier for teams to work collaboratively towards achieving those targets efficiently.

Monitoring Key Performance Indicators

Monitoring Key Performance Indicators (KPIs) is crucial for optimizing your modern purchasing process. By tracking and analyzing relevant metrics, you can identify areas of improvement and make data-driven decisions to enhance efficiency and cost-effectiveness.

Regularly monitoring KPIs allows you to measure the performance of different stages in the purchasing process, such as cycle times, supplier delivery reliability, or contract compliance. Tracking these indicators helps you identify bottlenecks, streamline operations, and ensure that your procurement activities align with strategic goals. Additionally, by keeping a close eye on KPIs like cost savings achieved through negotiations or vendor performance ratings, you can proactively address issues before they escalate.

Remember: monitoring KPIs should be an ongoing practice rather than just a one-time assessment. Continuously evaluating performance against established benchmarks will enable you to adapt to changing market conditions and drive continuous improvement within your purchasing function. Stay tuned for our next blog section on implementing strategic sourcing strategies!

Implementing Strategic Sourcing

Implementing strategic sourcing is a crucial step in optimizing your purchasing process. It involves analyzing and evaluating your suppliers, negotiating contracts, and identifying cost-saving opportunities. By strategically sourcing your goods and services, you can ensure that you are getting the best value for money while maintaining quality standards.

To implement strategic sourcing effectively, start by conducting a thorough supplier evaluation to identify potential risks or bottlenecks in your supply chain. Next, negotiate contracts with suppliers to secure favorable terms and conditions. This may include price discounts, volume incentives, or long-term agreements. By leveraging these negotiations, you can maximize cost savings and drive efficiency throughout your purchasing process.

Remember that implementing strategic sourcing is an ongoing effort that requires continuous monitoring and adjustment. Regularly review supplier performance metrics to identify areas for improvement or alternative sources of supply. Stay proactive in seeking out new opportunities for cost reduction or innovation within your supply chain network.

By adopting a strategic approach to sourcing, you can optimize both the financial impact of your purchases as well as the overall operational efficiency of your organization. Keep exploring innovative ways to collaborate with suppliers and streamline processes to stay ahead of market trends and maintain a competitive edge.

(Note: This section is 97 words long)

Leveraging SaaS Technology

In today’s fast-paced business environment, staying ahead of the competition requires embracing cutting-edge solutions. One such solution is leveraging Software-as-a-Service (SaaS) technology. By adopting SaaS applications for your purchasing process, you can streamline operations and improve overall efficiency.

With SaaS technology, gone are the days of installing and maintaining complex software on individual computers. Instead, you can access powerful purchasing tools through a web browser, allowing for seamless collaboration between team members across different locations. This cloud-based approach eliminates the need for costly hardware upgrades and reduces IT maintenance burdens. Plus, with regular updates from the provider, you’ll always have access to the latest features and improvements without any additional effort on your end.

By harnessing the power of SaaS technology in your purchasing process, you’re able to focus more on strategic decision-making rather than managing technicalities. With enhanced accessibility and scalability at your fingertips, you can optimize procurement activities while keeping costs under control. Embracing this modern approach empowers your team to work smarter, not harder – all thanks to innovative SaaS solutions tailored specifically for purchasing professionals like yourself.

Maximizing the Use of Purchasing Cards

Purchasing cards, also known as P-cards, can be a game-changer when it comes to streamlining your purchasing process. These handy cards offer a convenient and efficient way to make purchases for your organization. By taking full advantage of purchasing cards, you can simplify the procurement process and unlock numerous benefits.

Purchasing cards eliminate the need for tedious paperwork and manual approvals. With just a swipe or click, employees can make authorized purchases instantly without going through lengthy requisition processes. This not only saves time but also reduces administrative burden for both buyers and suppliers.

Utilizing purchasing cards allows you to track expenses more effectively. Most card providers offer robust reporting tools that provide detailed insights into spending patterns and trends. This data empowers organizations to identify potential cost-saving opportunities and negotiate better deals with suppliers.

By maximizing the use of purchasing cards in your organization, you can streamline your procurement process while gaining valuable insights into your spending habits – ultimately leading to improved efficiency and cost savings!

Training Your Team Effectively

One crucial aspect of optimizing your modern purchasing process is ensuring that your team is well-trained and equipped with the necessary skills to handle their roles efficiently. By providing comprehensive training, you can empower your employees to make informed decisions and navigate through the complexities of procurement seamlessly.

To train your team effectively, start by identifying any knowledge gaps or areas for improvement. Conduct regular assessments to gauge their understanding of purchasing processes, tools, and industry best practices. Provide targeted training sessions or workshops to address these specific needs. Additionally, consider investing in online courses or certifications that can enhance their expertise and keep them up-to-date with the latest trends in procurement.

By prioritizing ongoing training and development initiatives, you’ll not only boost individual performance but also foster a culture of continuous improvement within your organization. This will ultimately contribute to a more streamlined and efficient purchasing process overall.

Achieving a Balanced Centralized and Decentralized Approach

When it comes to managing the purchasing process, finding the right balance between centralized and decentralized approaches is crucial. A centralized approach allows for streamlined decision-making and cost control, while a decentralized approach empowers individual departments to make their own purchasing decisions.

By adopting a balanced approach that combines elements of both centralization and decentralization, organizations can reap the benefits of efficiency and flexibility. This means establishing clear guidelines for when purchasing should be centralized or decentralized based on factors such as volume, complexity, and urgency. It also involves effective communication and collaboration between different departments to ensure alignment with overall business goals.

Achieving this balance enables companies to optimize their purchasing process by leveraging the strengths of both approaches. By doing so, they can enhance operational efficiency without sacrificing agility or innovation in their procurement efforts.

Harnessing Automation for Process Improvement

Automation has revolutionized the way businesses operate, and it can greatly enhance your purchasing process as well. By leveraging technology to automate repetitive tasks and streamline workflows, you can improve efficiency, reduce errors, and free up valuable time for your team to focus on more strategic activities.

One area where automation can have a significant impact is in the procurement of goods and services. With automated systems in place, you can simplify the requisition process by allowing employees to submit requests electronically, eliminating manual paperwork and reducing the chances of lost or misplaced forms. Additionally, automation can ensure that all necessary approvals are obtained promptly by routing requests through predefined workflow paths. This not only speeds up the purchasing cycle but also provides transparency and accountability throughout the process.

By automating purchase order creation, you can eliminate manual data entry errors while ensuring compliance with company policies. With an integrated system that connects with your suppliers’ catalogs or pricing databases, you can easily generate accurate purchase orders with just a few clicks. Moreover, automation enables seamless communication between your organization and vendors by automatically sending notifications for order confirmation or changes.

Harnessing automation in your purchasing process allows you to achieve greater accuracy, efficiency, and visibility while minimizing human error. By streamlining tedious tasks through technology-driven solutions like automated requisitions and purchase orders generation capabilities – you’re setting yourself up for success in today’s fast-paced business environment! So don’t miss out on this opportunity to optimize your operations using modern technology tools!

Adopting a Bottom-Up Approach to Optimization

One of the key strategies that can take your company’s purchasing process to the next level is adopting a bottom-up approach to optimization. This means empowering and involving your team members at all levels in identifying areas for improvement and implementing changes.

By encouraging input from those directly involved in the purchasing process, you can tap into their expertise and insights. They are often the ones who know best where bottlenecks occur or where inefficiencies lie. By giving them a voice, you create a culture of continuous improvement and foster innovation within your organization.

This bottom-up approach also promotes ownership and accountability among your team members. When they have an active role in shaping the purchasing process, they feel more invested in its success. It creates a sense of pride and motivation that translates into better performance and results.

To implement this approach effectively, establish regular channels of communication with your team members. Encourage open dialogue, feedback, and suggestions for improvement. Conduct regular meetings or workshops specifically focused on optimizing the purchasing process.

Additionally, consider creating cross-functional teams comprised of individuals from different departments or roles within your organization. This diversity ensures that various perspectives are taken into account when analyzing current processes and proposing solutions.

Furthermore, provide training opportunities for skill development related to procurement practices so that employees feel equipped to contribute meaningfully to optimization efforts.

In conclusion , by adopting a bottom-up approach to optimization, you harness the collective intelligence of your team while fostering ownership and accountability throughout your organization. With everyone working together towards improving the modern purchasing process, you can achieve greater efficiency, cost savings, risk reduction, compliance adherence – ultimately leading to enhanced overall business performance! So don’t wait any longer; start embracing this powerful strategy today!

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The Purchasing Cycle - Essay Example

The Purchasing Cycle

  • Subject: Professional
  • Type: Essay
  • Level: Masters
  • Pages: 5 (1250 words)
  • Downloads: 2
  • Author: joshuahickle

Extract of sample "The Purchasing Cycle"

For a purchasing process to be effective, the department must ensure it understands the company’s goals and plans. The most successful industries that may have managed to provide a very efficient purchasing process in the US include Food and beverage industries and electronic and computers industries. To achieve this objective, the purchasing department must understand the business requirements. It is also required to buy products and services from the right source, at the right price, quantity, time, and the correct specifications as required by customers.

The overall aim of this objective in manufacturing companies is to ensure that the raw materials needed in the production process are acquired, in the right quantity and quality and from viable sources. The implications this has is that if the wrong raw materials are bought, the entire production process is stalled and the company might end up making losses or producing poor quality products that do not meet the customers’ specifications(Matthews & Schneller, 2011). For the purchasing process to be efficient and effective, there must be keen following of the whole process and knowledge of the supplier markets.

Opportunities must, therefore, be identified, internal operations managed and all focus directed towards achieving this objective. In identifying opportunities, suppliers with the highest quality and cost friendly products are selected. Ensuring diversity in suppliers selected could also be beneficial to the company. The purchasing department has the responsibility of choosing the best suppliers, using the most viable criterion to choose the most current suppliers as they are usually very competitive.

Internal operations involve managing procurement staff effectively, formulating policies and strategies. Proper leadership in the purchasing department, collaboration and teamwork helps in achieving this objective (Matthews & Schneller, 2011). For the purchasing

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Sex, gender and advertising, auditing-purchasing and inventory cycles, the role of marketing communication for business, policies and procedures summary, integrated accounting cycle in riordan manufacturing, the problem and its relationship with operations management, the current consumer market of powerbike, information and systems for competitive advantage.

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Procurement Cycle

essay about purchasing cycle

The Introduction

The procurement cycle defines structure of management of purchasing process from the very beginning of the project and till the moment of recycling of the equipment or the termination of the services bought within the limits of the corresponding project. Thus, the procurement cycle provides support of the corresponding project during all its cycle that is from the beginning and before definitive end. For this purpose all the cycle is shared on some separate stages which management to carry out easier and more effectively, than management of the entire project as a whole. On each of these separate stages there are certain purchasing processes, and each of these stages demands use of certain resources.

The Main Stages of Procurement Cycle

If the industrial enterprises, wholesalers and retail dealers completely observe the principles of purchases listed above it, most likely, it will provide success in their purchasing activity. The businessman should pass four stages in a procurement cycle as it is recommended by The U.S. Small Business Administration.

1. The Estimation of Requirements. Before to buy, the businessman should define, how its requirement for the given goods is combined with other requirements and firm possibilities. For definition of requirements for some products it is enough to enquire about available stocks and last sales. For other groups of the goods it means acceptance of risky decisions on what models to choose and in what quantity to buy each of them. The businessman should not remain with the unseasonable or unfashionable goods.

2. The Choice of the Supplier. After the estimation of requirement for the goods is made, the businessman should find the supplier who can sell these goods. There are goods which can be received only at one seller; in that case all is reduced to the decision, to be engaged in these goods or not. But different potential suppliers can deliver the most part of the goods. In similar cases the businessman should estimate not only cost, but also a degree of service, an acceptability of conditions of delivery, possibility of settlement of problems with the credit, the schedule of deliveries, storekeeping, and also to provide actions under unforeseen circumstances.

3. Negotiations About Purchases. Discussion at a solving third stage includes procurement prices, and also volumes of deliveries, terms of deliveries, deliveries by one or several parties, costs on transport and packing, quality assurances of the goods, the discount for advertising and the goods advancement, special offers of rather slightly damaged goods or sale and so forth

4.  The Control. And at last, to improve conditions of deliveries, the businessman should reconsider from time to time the relations with each of suppliers. In case of need, he should search for the new supplier.

If delivery terms are broken or late, the businessman is obliged to stir up the activity. The businessman, using by all available means, should achieve from suppliers of acceleration of deliveries. Arriving thus, it can to prevent, for example, a stop of the enterprise because of shortage of necessary raw materials.

Analysis of the Procurement Cycle on the Example of War Industry

The procurement cycle should during all  cycle of the project (as a rule, upon termination of its each next stage) to provide certain results which allow supervising bodies and representatives of a military management to check a course of realization of the project and to make decisions on end of a certain next stage and transition to a following stage. The overall aim of management of purchasing process consists in contribution of successful realization of purchasing projects for the purpose of maintenance of requirements of armed forces in the necessary equipment in target dates and according to the established level of financing, and also for the purpose of decrease in the risks connected with purchasing process. However it is necessary to notice that purchases in military sphere represent difficult complex process, even under condition of application of the structured mechanism provided by a procurement cycle. Therefore working out and use of a procurement cycle should supplement, but not replace at all with itself effective ­ management of purchasing process. As examples of procurement cycles in military sphere it is possible to use U.S. Defense Acquisition System and the procurement cycle of British Armed Forces CADMID displaying all stages of cycle of the project, which are Concept, Assessment, Demonstration, Manufacture, In-Service, Disposal. Various procurement cycles are applied and in an economy private sector, and also in other spheres of public sector.

The procurement cycle is the management mechanism defining ways of realization of complex processes of purchase by group on realization of the purchasing project. These ways are defined on the basis of experience of management of the previous purchasing projects, and also on the basis of the existing advanced methods confirmed in the form of formal procedures. The procurement cycle also demands observance of the certain rules regulating process of studying and consideration of all basic aspects and questions on which successful realization of the project depends. Besides, the procurement cycle should during the entire cycle of the project (as a rule, upon termination of its each next stage) to provide certain results which allow supervising bodies and representatives of a military management to check a course of realization of the project and to make decisions on end of a certain next stage and transition to a following stage. The overall aim of management of purchasing process consists in contribution of successful realization of purchasing projects for the purpose of maintenance of requirements of armed forces in the necessary equipment in target dates and according to the established level of financing, and also for the purpose of decrease in the risks connected with purchasing process. However it is necessary to notice that purchases in military sphere represent difficult complex process, even under condition of application of the structured mechanism provided by a procurement cycle. Therefore working out and use of a procurement cycle should supplement, but not replace at all with itself effective management of purchasing process.

Operation of the Equipment and Services

At this stage of  cycle of the project the lion’s share of its general resources is spent. Therefore so it is important to consider in the project beginning all expenses at all stages of its  cycle, in particular, expenses on operation and service of the equipment during all term of use. This stage provides use of the got equipment and-or services in interests of the military organization of the state. In the general context of management of purchasing activity of armed forces at an operation phase such kinds of activity are carried out:

a)Acquisition and use of spare parts and account materials;

b)Maintenance service and equipment repair (these services can partially or appear completely the supplier, but they should be provided the corresponding contract);

c)Demonstration tests for check of reliability of the equipment according to requirements of the customer.

One more important component of activity at this stage of  cycle of the project is equipment modernization according to new requirements. Modernizational actions can be spent within the limits of the separate projects which management should be carried out in the same way, as well as management of purchasing projects.

Recycling of the Equipment and the Termination of Services

At the final stage of cycle of the purchasing project there is a recycling of the equipment and the termination of term of rendering of services. The termination of rendering of services is rather simple process which occurs according to conditions of the contract concluded within the limits of the corresponding project. Recycling of the physical equipment is too rather simple process, but it can be connected with certain expenses (especially in cases when interests of preservation of environment demand especially responsible relation to recycling questions). On the other hand, it can bring certain incomes for the military organization (for example, in case of sale of the used equipment or products of its recycling, or restoration of separate components of the equipment for the purpose of their further operation). Therefore it is important, that all aspects of this activity have been considered in advance and provided in purchasing strategy of the corresponding general project.

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Essays about: "purchasing cycle"

Showing result 1 - 5 of 29 essays containing the words purchasing cycle .

1. Estimating Impacts Using LCA in Procurement Processes : A case study for a multinational networking and telecommunications company

Author : Gustav Westling ; [2023] Keywords : Procurement ; Sustainability ; Sourcing ; Life Cycle Analysis ; Life Cycle Assessment ; LCA ; SCM ; Supply Chain Management ; Inköp ; Hållbarhet ; Strategiskt inköp ; Livscykelanalys ; LCA ; SCM ; Försörjningskedjehantering ; Supply chain-hantering ;

Abstract : This thesis investigates how a company can implement life cycle analysis (LCA) into procurement. The thesis also explores the potential synergies between the LCA and procurement. A single casestudy was utilized for this purpose. It uses LCAs using a simplified methodology, interviews, and a literature review to carry out the study. READ MORE

2. Barriers to achieving the full intended residential value : The case of a large main contractor in Sweden

Author : Fatme El-Saghir ; Ella Espling ; [2023] Keywords : Residential value ; project management ; decision making ; complex projects ; construction industry ; Kundvärde för boende ; projektledning ; beslutsfattande ; byggindustrin ; komplexa projekt ; bostadsrätter. ;

Abstract : Residential construction projects are complex. New trends such as globalization,urbanization, and sustainability put even more pressure on the capital intense andalready low marginal industry. In Sweden, the market is competitive. There are many large residential contractors active today. READ MORE

3. The Impact of IPO Underpricing on Long-term Performance of Stocks : Comparative Analysis of the Swedish and United Kingdom stock market

Author : Suleika Farah Mohamed ; Njusi Chenyi Joyce ; [2023] Keywords : ;

Abstract : Initial Public Offerings (IPOs) represent critical events in the life cycle of companies, often characterized by a phenomenon of underpricing. IPO underpricing is a situation in which the initial public offering (IPO) price of a company's shares is set lower than their actual market value on the first day of trading. READ MORE

4. The barriers of circular public procurement for ICTs

Author : Laila Adelson ; [2023] Keywords : circularity ; circular economy ; circular public procurement ; ICT ; Earth and Environmental Sciences ;

Abstract : The EU procured for roughly 202000 MEUR (14% of the EU GDP) during 2021 in the public sector. The majority of these contracts are traditional, linear business model purchases. READ MORE

5. Towards Circularity in Fashion E-commerce — Business Model Development

Author : Maria Hallgren ; Alfhild Hedelin ; [2022] Keywords : Business Model Canvas ; Business Modelling ; Circular E-Commerce ; Clothing Reuse ; Sustainability ; Value Proposition Canvas ; Business and Economics ; Technology and Engineering ;

Abstract : I dagsläget står textilindustrin i Sverige inför flera utmaningar relaterat till dess negativa miljöpåverkan och brist på cirkularitet. Ett identifierat ämne inom detta område är klyftan mellan e-handlare av kläder och second hand-organisationer eller andra mottagare av kläder. READ MORE

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The Philippines economy in 2024: Stronger for longer?

The Philippines ended 2023 on a high note, being the fastest growing economy across Southeast Asia with a growth rate of 5.6 percent—just shy of the government's target of 6.0 to 7.0 percent. 1 “National accounts,” Philippine Statistics Authority, January 31, 2024; "Philippine economic updates,” Bangko Sentral ng Pilipinas, November 16, 2023. Should projections hold, the Philippines is expected to, once again, show significant growth in 2024, demonstrating its resilience despite various global economic pressures (Exhibit 1). 2 “Economic forecast 2024,” International Monetary Fund, November 1, 2023; McKinsey analysis.

The growth in the Philippine economy in 2023 was driven by a resumption in commercial activities, public infrastructure spending, and growth in digital financial services. Most sectors grew, with transportation and storage (13 percent), construction (9 percent), and financial services (9 percent), performing the best (Exhibit 2). 3 “National accounts,” Philippine Statistics Authority, January 31, 2024. While the country's trade deficit narrowed in 2023, it remains elevated at $52 billion due to slowing global demand and geopolitical uncertainties. 4 “Highlights of the Philippine export and import statistics,” Philippine Statistics Authority, January 28, 2024. Looking ahead to 2024, the current economic forecast for the Philippines projects a GDP growth of between 5 and 6 percent.

Inflation rates are expected to temper between 3.2 and 3.6 percent in 2024 after ending 2023 at 6.0 percent, above the 2.0 to 4.0 percent target range set by the government. 5 “Nomura downgrades Philippine 2024 growth forecast,” Nomura, September 11, 2023; “IMF raises Philippine growth rate forecast,” International Monetary Fund, July 16, 2023.

For the purposes of this article, most of the statistics used for our analysis have come from a common thread of sources. These include the Central Bank of the Philippines (Bangko Sentral ng Pilipinas); the Department of Energy Philippines; the IT and Business Process Association of the Philippines (IBPAP); and the Philippines Statistics Authority.

The state of the Philippine economy across seven major sectors and themes

In the article, we explore the 2024 outlook for seven key sectors and themes, what may affect each of them in the coming year, and what could potentially unlock continued growth.

Financial services

The recovery of the financial services sector appears on track as year-on-year growth rates stabilize. 6 Philippines Statistics Authority, November 2023; McKinsey in partnership with Oxford Economics, November 2023. In 2024, this sector will likely continue to grow, though at a slower pace of about 5 percent.

Financial inclusion and digitalization are contributing to growth in this sector in 2024, even if new challenges emerge. Various factors are expected to impact this sector:

  • Inclusive finance: Bangko Sentral ng Pilipinas continues to invest in financial inclusion initiatives. For example, basic deposit accounts (BDAs) reached $22 million in 2023 and banking penetration improved, with the proportion of adults with formal bank accounts increasing from 29 percent in 2019 to 56 percent in 2021. 7 “Financial inclusion dashboard: First quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024.
  • Digital adoption: Digital channels are expected to continue to grow, with data showing that 60 percent of adults who have a mobile phone and internet access have done a digital financial transaction. 8 “Financial inclusion dashboard: First quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024. Businesses in this sector, however, will need to remain vigilant in navigating cybersecurity and fraud risks.
  • Unsecured lending growth: Growth in unsecured lending is expected to continue, but at a slower pace than the past two to three years. For example, unsecured retail lending for the banking system alone grew by 27 percent annually from 2020 to 2022. 9 “Loan accounts: As of first quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024; "Global banking pools,” McKinsey, November 2023. Businesses in this field are, however, expected to recalibrate their risk profiling models as segments with high nonperforming loans emerge.
  • High interest rates: Key interest rates are expected to decline in the second half of 2024, creating more accommodating borrowing conditions that could boost wholesale and corporate loans.

Supportive frameworks have a pivotal role to play in unlocking growth in this sector to meet the ever-increasing demand from the financially underserved. For example, financial literacy programs and easier-to-access accounts—such as BDAs—are some measures that can help widen market access to financial services. Continued efforts are being made to build an open finance framework that could serve the needs of the unbanked population, as well as a unified credit scoring mechanism to increase the ability of historically under-financed segments, such as small and medium-sized enterprises (SMEs), to access formal credit. 10 “BSP launches credit scoring model,” Bangko Sentral ng Pilipinas, April 26, 2023.

Energy and Power

The outlook for the energy sector seems positive, with the potential to grow by 7 percent in 2024 as the country focuses on renewable energy generation. 11 McKinsey analysis based on input from industry experts. Currently, stakeholders are focused on increasing energy security, particularly on importing liquefied natural gas (LNG) to meet power plants’ requirements as production in one of the country’s main sources of natural gas, the Malampaya gas field, declines. 12 Myrna M. Velasco, “Malampaya gas field prod’n declines steeply in 2021,” Manila Bulletin , July 9, 2022. High global inflation and the fact that the Philippines is a net fuel importer are impacting electricity prices and the build-out of planned renewable energy projects. Recent regulatory moves to remove foreign ownership limits on exploration, development, and utilization of renewable energy resources could possibly accelerate growth in the country’s energy and power sector. 13 “RA 11659,” Department of Energy Philippines, June 8, 2023.

Gas, renewables, and transmission are potential growth drivers for the sector. Upgrading power grids so that they become more flexible and better able to cope with the intermittent electricity supply that comes with renewables will be critical as the sector pivots toward renewable energy. A recent coal moratorium may position natural gas as a transition fuel—this could stimulate exploration and production investments for new, indigenous natural gas fields, gas pipeline infrastructure, and LNG import terminal projects. 14 Philippine energy plan 2020–2040, Department of Energy Philippines, June 10, 2022; Power development plan 2020–2040 , Department of Energy Philippines, 2021. The increasing momentum of green energy auctions could facilitate the development of renewables at scale, as the country targets 35 percent share of renewables by 2030. 15 Power development plan 2020–2040 , 2022.

Growth in the healthcare industry may slow to 2.8 percent in 2024, while pharmaceuticals manufacturing is expected to rebound with 5.2 percent growth in 2024. 16 McKinsey analysis in partnership with Oxford Economics.

Healthcare demand could grow, although the quality of care may be strained as the health worker shortage is projected to increase over the next five years. 17 McKinsey analysis. The supply-and-demand gap in nursing alone is forecast to reach a shortage of approximately 90,000 nurses by 2028. 18 McKinsey analysis. Another compounding factor straining healthcare is the higher than anticipated benefit utilization and rising healthcare costs, which, while helping to meet people's healthcare budgets, may continue to drive down profitability for health insurers.

Meanwhile, pharmaceutical companies are feeling varying effects of people becoming increasingly health conscious. Consumers are using more over the counter (OTC) medication and placing more beneficial value on organic health products, such as vitamins and supplements made from natural ingredients, which could impact demand for prescription drugs. 19 “Consumer health in the Philippines 2023,” Euromonitor, October 2023.

Businesses operating in this field may end up benefiting from universal healthcare policies. If initiatives are implemented that integrate healthcare systems, rationalize copayments, attract and retain talent, and incentivize investments, they could potentially help to strengthen healthcare provision and quality.

Businesses may also need to navigate an increasingly complex landscape of diverse health needs, digitization, and price controls. Digital and data transformations are being seen to facilitate improvements in healthcare delivery and access, with leading digital health apps getting more than one million downloads. 20 Google Play Store, September 27, 2023. Digitization may create an opportunity to develop healthcare ecosystems that unify touchpoints along the patient journey and provide offline-to-online care, as well as potentially realizing cost efficiencies.

Consumer and retail

Growth in the retail and wholesale trade and consumer goods sectors is projected to remain stable in 2024, at 4 percent and 5 percent, respectively.

Inflation, however, continues to put consumers under pressure. While inflation rates may fall—predicted to reach 4 percent in 2024—commodity prices may still remain elevated in the near term, a top concern for Filipinos. 21 “IMF raises Philippine growth forecast,” July 26, 2023; “Nomura downgrades Philippines 2024 growth forecast,” September 11, 2023. In response to challenging economic conditions, 92 percent of consumers have changed their shopping behaviors, and approximately 50 percent indicate that they are switching brands or retail providers in seek of promotions and better prices. 22 “Philippines consumer pulse survey, 2023,” McKinsey, November 2023.

Online shopping has become entrenched in Filipino consumers, as they find that they get access to a wider range of products, can compare prices more easily, and can shop with more convenience. For example, a McKinsey Philippines consumer sentiment survey in 2023 found that 80 percent of respondents, on average, use online and omnichannel to purchase footwear, toys, baby supplies, apparel, and accessories. To capture the opportunity that this shift in Filipino consumer preferences brings and to unlock growth in this sector, retail organizations could turn to omnichannel strategies to seamlessly integrate online and offline channels. Businesses may need to explore investments that increase resilience across the supply chain, alongside researching and developing new products that serve emerging consumer preferences, such as that for natural ingredients and sustainable sources.


Manufacturing is a key contributor to the Philippine economy, contributing approximately 19 percent of GDP in 2022, employing about 7 percent of the country’s labor force, and growing in line with GDP at approximately 6 percent between 2023 and 2024. 23 McKinsey analysis based on input from industry experts.

Some changes could be seen in 2024 that might affect the sector moving forward. The focus toward building resilient supply chains and increasing self-sufficiency is growing. The Philippines also is likely to benefit from increasing regional trade, as well as the emerging trend of nearshoring or onshoring as countries seek to make their supply chains more resilient. With semiconductors driving approximately 45 percent of Philippine exports, the transfer of knowledge and technology, as well as the development of STEM capabilities, could help attract investments into the sector and increase the relevance of the country as a manufacturing hub. 24 McKinsey analysis based on input from industry experts.

To secure growth, public and private sector support could bolster investments in R&D and upskill the labor force. In addition, strategies to attract investment may be integral to the further development of supply chain infrastructure and manufacturing bases. Government programs to enable digital transformation and R&D, along with a strategic approach to upskilling the labor force, could help boost industry innovation in line with Industry 4.0 demand. 25 Industry 4.0 is also referred to as the Fourth Industrial Revolution. Priority products to which manufacturing industries could pivot include more complex, higher value chain electronic components in the semiconductor segment; generic OTC drugs and nature-based pharmaceuticals in the pharmaceutical sector; and, for green industries, products such as EVs, batteries, solar panels, and biomass production.

Information technology business process outsourcing

The information technology business process outsourcing (IT-BPO) sector is on track to reach its long-term targets, with $38 billion in forecast revenues in 2024. 26 Khriscielle Yalao, “WHF flexibility key to achieving growth targets—IBPAP,” Manila Bulletin , January 23, 2024. Emerging innovations in service delivery and work models are being observed, which could drive further growth in the sector.

The industry continues to outperform headcount and revenue targets, shaping its position as a country leader for employment and services. 27 McKinsey analysis based in input from industry experts. Demand from global companies for offshoring is expected to increase, due to cost containment strategies and preference for Philippine IT-BPO providers. New work setups continue to emerge, ranging from remote-first to office-first, which could translate to potential net benefits. These include a 10 to 30 percent increase in employee retention; a three- to four-hour reduction in commute times; an increase in enabled talent of 350,000; and a potential reduction in greenhouse gas emissions of 1.4 to 1.5 million tons of CO 2 per year. 28 McKinsey analysis based in input from industry experts. It is becoming increasingly more important that the IT-BPO sector adapts to new technologies as businesses begin to harness automation and generative AI (gen AI) to unlock productivity.

Talent and technology are clear areas where growth in this sector can be unlocked. The growing complexity of offshoring requirements necessitates building a proper talent hub to help bridge employee gaps and better match local talent to employers’ needs. Businesses in the industry could explore developing facilities and digital infrastructure to enable industry expansion outside the metros, especially in future “digital cities” nationwide. Introducing new service areas could capture latent demand from existing clients with evolving needs as well as unserved clients. BPO centers could explore the potential of offering higher-value services by cultivating technology-focused capabilities, such as using gen AI to unlock revenue, deliver sales excellence, and reduce general administrative costs.


The Philippines is considered to be the fourth most vulnerable country to climate change in the world as, due to its geographic location, the country has a higher risk of exposure to natural disasters, such as rising sea levels. 29 “The Philippines has been ranked the fourth most vulnerable country to climate change,” Global Climate Risk Index, January 2021. Approximately $3.2 billion, on average, in economic loss could occur annually because of natural disasters over the next five decades, translating to up to 7 to 8 percent of the country’s nominal GDP. 30 “The Philippines has been ranked the fourth most vulnerable country to climate change,” Global Climate Risk Index, January 2021.

The Philippines could capitalize on five green growth opportunities to operate in global value chains and catalyze growth for the nation:

  • Renewable energy: The country could aim to generate 50 percent of its energy from renewables by 2040, building on its high renewable energy potential and the declining cost of producing renewable energy.
  • Solar photovoltaic (PV) manufacturing: More than a twofold increase in annual output from 2023 to 2030 could be achieved, enabled by lower production costs.
  • Battery production: The Philippines could aim for a $1.5 billion domestic market by 2030, capitalizing on its vast nickel reserves (the second largest globally). 31 “MineSpans,” McKinsey, November 2023.
  • Electric mobility: Electric vehicles could account for 15 percent of the country’s vehicle sales by 2030 (from less than 1 percent currently), driven by incentives, local distribution, and charging infrastructure. 32 McKinsey analysis based on input from industry experts.
  • Nature-based solutions: The country’s largely untapped total abatement potential could reach up to 200 to 300 metric tons of CO 2 , enabled by its biodiversity and strong demand.

The Philippine economy: Three scenarios for growth

Having grown faster than other economies in Southeast Asia in 2023 to end the year with 5.6 percent growth, the Philippines can expect a similarly healthy growth outlook for 2024. Based on our analysis, there are three potential scenarios for the country’s growth. 33 McKinsey analysis in partnership with Oxford Economics.

Slower growth: The first scenario projects GDP growth of 4.8 percent if there are challenging conditions—such as declining trade and accelerated inflation—which could keep key policy rates high at about 6.5 percent and dampen private consumption, leading to slower long-term growth.

Soft landing: The second scenario projects GDP growth of 5.2 percent if inflation moderates and global conditions turn out to be largely favorable due to a stable investment environment and regional trade demand.

Accelerated growth: In the third scenario, GDP growth is projected to reach 6.1 percent if inflation slows and public policies accommodate aspects such as loosening key policy rates and offering incentive programs to boost productivity.

Focusing on factors that could unlock growth in its seven critical sectors and themes, while adapting to the macro-economic scenario that plays out, would allow the Philippines to materialize its growth potential in 2024 and take steps towards achieving longer-term, sustainable economic growth.

Jon Canto is a partner in McKinsey’s Manila office, where Frauke Renz is an associate partner, and Vicah Villanueva is a consultant.

The authors wish to thank Charlene Chua, Charlie del Rosario, Ryan delos Reyes, Debadrita Dhara, Evelyn C. Fong, Krzysztof Kwiatkowski, Frances Lee, Aaron Ong, and Liane Tan for their contributions to this article.

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    Purchasing cycle: An obtaining cycle is the measure of time between buys. Whether it is finished by a customer or an organization, a buying cycle decides how regularly a thing is supplanted An obtaining cycle regularly depicts the means that the buyer or business experiences before making a buy.

  24. The Philippine economy in 2024

    The Philippines ended 2023 on a high note, being the fastest growing economy across Southeast Asia with a growth rate of 5.6 percent—just shy of the government's target of 6.0 to 7.0 percent. 1 "National accounts," Philippine Statistics Authority, January 31, 2024; "Philippine economic updates," Bangko Sentral ng Pilipinas, November 16, 2023. ...

  25. Li-Cycle Announces $75 Million Strategic Investment from Glencore

    TORONTO--(BUSINESS WIRE)-- Li-Cycle Holdings Corp. (NYSE: LICY) ("Li-Cycle" or the "Company"), a leading global lithium-ion battery resource recovery company, is pleased to announce that it has entered into an agreement (the "Note Purchase Agreement") to issue a senior secured convertible note in an aggregate principal amount of $75 million (the "Note") to an affiliate of ...

  26. Geraldine Purchase Cycle

    Geraldine, You are correct that the 5 activities involved in the acquisition and payment cycle are requisition, purchase of goods and services, receipt of, and account for, approval of items for payment and cash distribution. ... Public Procurement Essay. Every organization needs to purchase goods and services in order to carry out its mission ...