The 7 Steps Of A Strategic Procurement Process

The 7 Steps Of A Strategic Procurement Process By ​DocuCollab

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Contracts being at the heart of every business relationship are instruments through which commitments and essential elements of business transactions are defined and governed. They are key assets to build competitive advantage to organizations in today’s fast paced and multilateral business landscape.

Organizations today are redesigning the entire business process workflows to improve productivity in front line functions like procurement or sales deal cycles (buy-side and sell-side).

In contrast to its tactical past, procurement today is on a journey to becoming a long term strategic function. The modern procurement organization, by embracing contract management and adhering to best practices, is an important force in creating and sustaining value to the businesses today.

Buy Side Contract Management On the buy-side contract management, procurement professionals are empowered to take control of their supplier management processes. It is imperative for an

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organization to have a well managed supply chain which is integral to profitability and also a streamlined contract process.

Contract lifecycle management (CLM) has been well-established on the buy-side which deals with procurement and supplier contracts due to the increasing need for monitoring off-contract purchasing, managing compliance and costs.

Aberdeen Group Report states that many organizations have not yet realized the strategic competitive advantage coming from a mature contracting process despite the increasing significance of contract lifecycle management (CLM), and thus their contract management for the most part involves fragmented, labor intensive and ad hoc processes.

In this article, the objective is to explore how procurement professionals today are able to bring in efficiency and enhance productivity by following a well structured and effective procurement process.

7 Steps in Procurement Process

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To streamline the supply chain, an effective procurement process is crucial for an organization to procure the best products or services at the best price. This involves supplier selection, screening, negotiating payment terms, setting up contracts, and purchasing the required goods at the best possible rates.

A multi-faceted process like procurement helps an organization achieve cost savings objectives and also enhances supplier performance, compliance, risk management, sourcing cycle time and, contract utilization.

Identify Goods and Services to Procure When a business has a need for goods or services, the onset of the procurement process begins. The ​procurement department must identify the products that are needed in order to purchase it. Selecting the right product is critical for the business.

This stage also includes setting a budget.

Explore & Select Vendors The next stage is very important to sourcing potential suppliers and determining their ability to provide best value and high quality for the goods and services, getting them

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at the right price. This process to evaluate relevant suppliers involves issuing RFQs, RFIs, and RFPs.

This best practice is called strategic sourcing. During this stage, ​procurement professionals should short list the different vendors that provide the goods and services they require. Evaluation metrics such as cost, quality, reputation, speed of service, warranty, guarantee provisions, and customer service would be assessed and only the supplier who offers the best value will be selected based on the factors.

Negotiation of Contracts with Preferred Suppliers In this stage after the supplier is selected, the contract process begins. For maximum value creation and establishing buyer- supplier collaboration, contracting is a crucial step for any organization. Critical factors like price structure, timelines for delivery, terms and conditions are assessed in this process. Businesses get insights into cost saving opportunities such as dynamic discounting through detailed analysis and ​negotiation of contracts​.

Submit Purchase Requisition & Create Purchase Order

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Once the contract is finalized with a supplier, the next step involves submitting a purchase requisition (PR) that has a description of the good/service, pricing and quantity, supplier information, and the approval workflow.

After this is approved, the finance team releases the purchase order (PO) to the supplier. A purchase order is a formal contract between the buyer and seller to buy goods or services which has information like the price, specifications, terms and conditions of the product or service and other obligations.

Payment Process upon Receiving an Invoice Once the vendor receives a PO, he sends an invoice mentioning the price for requested goods or services. The procurement team matches the PO and the invoice to ensure quality and quantity. Then the respective departments validate the invoice and send it to finance team for payment.

Within the payment terms defined in the agreement, the payment has to be made. In the accounts payable process, there is a best practice followed by matching the invoice against an approved PO and the delivery details for the order called three-way matching.

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If everything matches up the accounts team sends payment to the vendor within the specified timeframe. The payment is released pre or post delivery depending on the payment terms established between the organization and its suppliers.

Receive and Audit Delivery of Requested Goods or Services Based on payment and contractual terms, suppliers deliver the goods or services.

Upon receipt, audit must be done by the companies to ensure that the suppliers have met expectations of their quality standards.

Maintenance of Proper Records of Invoices As a best practice, it is important to effectively store all documents from purchase requisition through invoice in one central location in order to track spend and other various expenditure categories within the organization.

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DocuCollab​ ​- 1604 Spring Hill Road, Suite 216, Tysons, Virginia, 22182, USA Contact Number:​ +1-571-228-7037 | ​Email:​ sales@docucollab.com