essay about purchasing cycle

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The Purchasing Cycle Explained

• Written by Lyle Del Vecchio
• 11 min read

How much your company spends to do business, and how often, plays an important role in your overall success. Transforming cash into goods and services, the purchasing cycle is at the core of procurement and can have a major impact on your productivity, competitiveness, and profitability.

Understanding your company’s purchasing cycle is the first step toward optimizing it. With the help of technology and process improvements, you can ensure your purchasing department is building value for your company while reducing costs due to wasted time, energy, and resources.

What is the Purchasing Cycle?

The purchasing cycle—also called the procurement cycle or procure-to-pay (P2P)—is the process by which you order, obtain, and pay for the goods and services your business needs.

For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. In between, they may generate a purchase order, pay for goods directly, or invite tenders (also known as bids) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need.

The Purchasing Cycle, Step By Step

For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. 

In between, they may generate a purchase order , pay for goods directly, or invite tenders (also known as bids ) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need. 

Most companies have a quirk or two, but in general the process follows a fairly straightforward series of events:

Needs Analysis

This stage of the purchase cycle is dedicated to identifying the need to be met, whether it’s a reorder, raw materials for a new product produced by the company, or office supplies.

Needs Clarification

Once the need’s been identified, the variety (e.g., brand), amount required, and delivery schedule need to be established.

Purchase Requisition and/or Purchase Order

With the details settled, the requesting party has a couple of options. Generally, those without the authority to approve direct purchase orders will first create and submit a purchase requisition , which is an internal document requesting that approved parties obtain goods and services. Upon approval, the purchase requisition is used to create a purchase order , which is the actual order sent to the supplier for the goods and services required.

Authorization

The purchase order (generated from a purchase requisition or not) must also be approved. The purchase order process benefits from automation and artificial intelligence (AI), usually through the use of purchase order software that’s part of a comprehensive procurement software package.

Not only does automation permit role assignments and automatic routing and tracking of all purchase orders and approvals/rejections/revisions, but it allows for real-time adjustments and transparent communication between all parties involved. In addition, automatic reminders can be created to ensure no PR or PO is left to languish.

Supplier Review

If you’ve already integrated an automated procurement solution into your workflow, chances are the list of approved and available suppliers will obviate this step in the process—especially for repeat orders. But if you’re adding new products, or new suppliers for existing products to the system, then each candidate must be reviewed for compliance, performance, and reliability.

Supplier Selection

At this stage, the purchaser chooses the supplier who’ll be filling the order, either from the pre-vetted list in their software catalog or through other means.

Price and Term Negotiations

This step is also made infinitely easier if your workflow is built around procurement software automation. Centralized contract and document management and information sharing means previously-negotiated contract terms and best price are already available for each vendor on the approved list. New vendors being added to the system will have this information added as your legal team completes and certifies your company’s agreement(s) with the vendor.

If your company doesn’t use automation, then your team will need to sit down with the vendor to negotiate payment terms and conditions.

Order Placement

At this point, the buyer officially places the order and creates a binding purchase agreement between your business and the vendor.

Receiving and Inspection

For material goods, arriving shipments are inspected for completeness and integrity, with any shortages and broken goods marked to be credited back to the buyer. The invoice is either included with the goods or sent separately by the vendor.

Inventory management is either manually updated or handled automatically by the procurement software, which links the shipping documentation to the original purchase order, invoice, related correspondence, and other documents for data analysis and auditing purposes.

The invoice is reviewed for accuracy against the purchase order, invoice, and other documentation. Depending on the terms established for the supplier and the approval of the reviewing party, payment is issued (usually within 30, 60, or 90 days).

Records Management

Businesses still using manual systems follow up by updating their inventory totals and purchasing ledger. Purchasing software automates this step, as documents are cross-connected and update automatically across all departments.

What About Tenders?

The purchasing process when using tenders is very similar to the standard purchasing cycle , with a few important changes:

• Needs Analysis is much more narrowly defined at inception, and often supported by a business case.
• The Approval Process requires more review and may be granted by departmental or even C-level management.
• The Tender Process is used instead of the PR/PO model, and involves:
• A very specific Request for Proposal (RFP), written to formally outline the goods and services needed and request approval.
• Tender invitations, which are posts made to the public (either online or in print) inviting vendors to bid for the right to fulfill the request.
• Pre-Qualification Questionnaires (PQQs) are sent to each of the most promising candidates to provide greater detail about their capacity, history, and operations.
• Tenders (i.e., bids) arrive from the pre-qualified candidates within the specified period.
• Each bid is reviewed, and the candidates interviewed to further qualify them for consideration.
• All valid tenders are carefully reviewed over the course of days or even weeks. The winning bidder is granted the contract, based on their credentials.
• Negotiation brings the winning supplier and the buyer together to hammer out the terms and conditions (in general, price is already locked in during the tender process). The legal contract is formally awarded to the bidder when negotiations conclude.
• Contract Management is handled by the company’s procurement, financial, and legal staff. During the management period, goods are received and reviewed, and fulfillment of the required terms and conditions verified.
• Review, Approval, and Payment all rely on complete, accurate, and on-time fulfillment of the contract. Any exceptions are noted and the buyer is compensated according to the terms negotiated. Once the contract terms are confirmed, payment is made and the relationship either ends, or the supplier is added to the company’s vendor management system as a pre-approved candidate for future tenders.
• Records Management is identical to the standard procurement cycle.

Take Control of Your Purchasing Cycle

Having mastered the purchase cycle, you’re ready to squeeze maximum value from it. 

Combined with machine-learning-enabled software and automation, formalizing your purchasing cycle lets you fine-tune all the stages of the procurement process to reduce your workload, eliminate delays and errors, and simplify everything from inventory to materials management to financial forecasting.

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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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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.

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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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.

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IvyPanda. (2023, December 18). Procurement Cycle for Purchases. https://ivypanda.com/essays/procurement-cycle-for-purchases/

"Procurement Cycle for Purchases." IvyPanda , 18 Dec. 2023, ivypanda.com/essays/procurement-cycle-for-purchases/.

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

IvyPanda . 2023. "Procurement Cycle for Purchases." December 18, 2023. https://ivypanda.com/essays/procurement-cycle-for-purchases/.

1. IvyPanda . "Procurement Cycle for Purchases." December 18, 2023. https://ivypanda.com/essays/procurement-cycle-for-purchases/.

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Procurement 101

A step-by-step guide
to the procurement process.

Effective procurement is a vital function within any business, capable of making substantial contributions to an organization’s efficiency and financial prosperity when executed proficiently.

Despite its widespread impact, the process of procurement is often underappreciated in the hustle and bustle of everyday operations. Successful procurement operations may appear to be effortless, but for the individuals and expert teams that navigate its complexities, procurement is understood to require both method and discipline.

While there is a general outline for the procurement process, it’s important to keep in mind that the specifics are shaped by the needs and goals of each individual organization. Factors that will affect the procurement process stages include the size and location of the organization, the prevailing business model, the company structure, and budgetary and spending needs, among others.

We’ll cover the seven foundational stages that are typically employed in the procurement process.

Tactical Buying

When equipment breaks down unexpectedly, the organization might need to quickly procure replacement parts or services.

Tactical buying ensures swift resolution of issues.

After a vendor has been selected, investing time and energy in the relationship is critical. A good relationship with a supplier can unlock better savings and service, delivering maximum value in the long term.

Once you have chosen the best fit, it’s time to move on to contract negotiations. This is one of the most critical stages in successful procurement, as it serves as the legal framework for everything that follows.

During this stage, you will outline and agree to pricing—as well as details such as delivery schedules, recourse for missed orders or delays, and other specific terms and conditions. It is often useful to assess previous contracts to pinpoint opportunities for improvement, allowing you to potentially secure better terms going forward and address inadequacies in prior contracts.

A contract can be finalized with a Purchase Order (PO), Master Service Agreement (MSA), or Statement of Work (SOW).  A PO is used to order goods or services, an MSA establishes the overarching legal and operational framework for a business relationship, and an SOW defines the specific work to be done in a project or service engagement. These documents are often used together, with the MSA setting the general terms, the SOW specifying the project-specific details, and the PO defining the specific order details.

After the contract has been approved, the next stage is to finalize the PO. The contract typically governs the full buyer/supplier relationship, while a PO specifies the terms of an individual purchase.

This PO document can be considered as another formal contract, which details the following:

• Total costs/price
• Detailed description of goods and/or services
• Delivery date
• Buyer’s contact information
• Supplier’s contact information
• Billing address
• Shipping address
• Payment method
• Payment due date
• Payment currency
• Shipping method
• Warranty information
• Name and title of the person who approved the purchase
• Date of authorization
• Any other specific terms and conditions

With a final PO, you are ready to move to the final stage of the procurement process.

Successfully implementing a new contract requires a structured approach and a series of actions to ensure that the new supplier or new relationship with an incumbent supplier can be seamlessly integrated into your organization’s operations. Here are the key actions needed to achieve a successful implementation:

• Communicate with business stakeholders about the new supplier agreement’s conditions and its impact on current processes. For new suppliers, host welcome meetings to introduce them to your organization and address any concerns or expectations.
• Provide necessary training on your company’s systems, products, services, and quality and safety standards.
• Conduct technology integration with your procurement or inventory management systems, including providing access to collaboration and communication tools. By following these steps, you can ensure smooth and successful contract implementation.

Effective vendor communication is crucial for managing orders in the procurement process and forming long-term relationships. As goods or services are delivered, it is important for the purchasing side, especially the end-user, to confirm that all contract and purchase order standards have been met. This includes verifying delivery deadlines, product quantities, and product quality. In the event of any issues, such as damaged products, clear communication with the vendor becomes essential. Promptly addressing delivery problems and maintaining open lines of communication helps to build a strong and long-term relationship with the vendor. By effectively managing vendor communication, the procurement process can be streamlined, and orders can be successfully fulfilled.

Effective supplier management involves focusing on supplier performance, partnering to enhance value, and ensuring contract compliance. It is essential to establish clear performance expectations with defined KPIs and SLAs for mutual success. Ongoing supplier relationship management includes regular reviews, feedback sessions, and performance monitoring to drive quality, service, and cost improvements. Optimize your supplier management for success through maintaining open communications and clear escalation procedures, implementing quality control processes and tailored performance reports, and applying well-defined criteria for contract renewal or termination based on performance and evolving business needs.

Enhancing the process

Leading procurement organizations have evolved into strategic partners for the business stakeholders they serve, enhancing the value they deliver. They have fortified the stages of procurement by implementing rigorous strategic sourcing and category management practices. These advanced strategies are gaining prominence due to various factors, including the changing business landscape, increased cost scrutiny, integrated supply chains, and technological advancements.

However, this transformation has not been without challenges. Many procurement teams have struggled to shift their focus towards long-term value creation while addressing their organization’s day-to-day needs. In such cases, partnering with external procurement experts who possess cross-sector experience, and a deep understanding of economic cycles can be beneficial.

These experts can provide valuable insights and expertise to help organizations transform their procurement functions from transactional operations to strategic drivers of value creation.

By leveraging their guidance, organizations can achieve cost savings, improve efficiency, reduce risks, and cultivate stronger, more resilient supplier relationships. Ultimately, this will enable the organization to achieve its corporate goals and create value.

Overall, the procurement landscape has undergone rapid evolution, and embracing strategic partnerships and external expertise can empower organizations to unlock the full potential of their procurement functions.

Get started on your procurement transformation journey today.

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Procurement 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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