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• Understanding the procurement process flow in your organization is key to identifying areas of inefficiencies and taking the necessary corrective action.

• The process involves all the steps from needs identification to the payment of suppliers.

• Procurement is a combination of processes, people, and documentation. The management has to bring all these things together.

First, they have to sit and identify the various processes that need to happen and the rules or constraints for each. Next, they have to identify stakeholders in the various procurement processes and assign responsibilities to each of them. Finally, there has to be a methodology behind the documentation of all processes to enable audits.

Regardless of the type of goods to be procured, the process flow remains standard. Here are the steps involved in the procurement process flow.

Step 1: Needs Identification

Procurement begins when someone at the department level, or sometimes the organizational level, submits a formal request for goods or services. Organizations with a centralized procurement system will have a purchasing department to receive and review the requests. The request may be for something as routine as a renewal of a software license or as complex as overhauling the hardware used in an entire department. Either way, the request needs to be in written form and as detailed as possible.

Step 2: Review of the Purchase Requisition

The detailed document above is known as a purchase requisition. It contains details that will help the purchasing department review the request and cross-check it against the departmental budget. The funding may be available, but the need must also be justifiable. In other cases, funding may be unavailable but the need could be so pressing that a supplementary budget is granted to the department.

Successfully reviewed purchase requisitions and generated purchase orders.

Step 3: Sending out Requests for Quotes

The next step is to solicit for vendors of the required items. Let’s assume that this is the first time a particular item is being purchased. The company invites interested suppliers to send in their terms for supplying the required items. In other cases, the company is likely to have a database of suppliers whom they can directly invite to bid.

The company needs to have a strategy using which they will vet the interested suppliers. For some items, the price is the most important factor. In other cases, the capacity of the vendor to perform as specified in the contract specifications is more important than their quoted price. A predetermined evaluation strategy provides justification for the choice of vendor.

Step 4: Vendor Selection and Contracting

After reviewing the quotes from different suppliers and settling on one, the next step is to negotiate and sign a contract. Contracts are often bulky and it may take several weeks of negotiation before thrashing out every detail. Contracts need to foresee all possible scenarios during the life of the contract. They need to include clauses on dispute resolution, price fluctuations, or disruptions that may arise and are beyond the control of either party.

When an organization keeps templates for contracts, it might help to speed up the contracting process. It also ensures that the sort of language and terms used in the contract are familiar and will not result in an undue risk for the company.

Step 5: Contract Management

Once the contract signs, the contracting company requires a system for checking vendor performance. This may be checking items for quality in the case of normal supply contracts. However, in other situations such as the installation of special equipment or technology, the company may need to hire a consultant to sign off on the quality of delivery.

Step 6: Invoice Approval

Invoice approval is a delicate process because it is here that the organization risks losing money to procurement fraud. As indicated, documentation is an important element of procurement. Whenever a vendor sends in an invoice, the invoice needs to be verified against the matching purchase order. This is to ensure that the invoice is for the correct items and quantities. The invoice also needs to match the delivery note to make up what is known as three-way matching. In many organizations today, three-way matching can be done efficiently through procurement software. Such software can easily flag suspicious invokes so that they are subjected to investigations.

Step 7: Payment and Record-Keeping

Once invoices are approved, payments are made to the vendors and proper records are kept pending future audits. Automating the invoice approval process is key to prompt supplier payment, which also helps to maintain a healthy supplier relationship.

Optimizing the Procurement Process Flow

Each of the steps in the procurement process flow can be optimized as long as there is visibility into it. Therefore, the first step toward improving procurement should be to collect relevant data. Procure-to-pay software applications enable this to happen. From here, procurement managers can analyze spending across departments and product categories.

Strategy application in sourcing, procurement, and contract management is crucial. The strategy gives directions so that all departments are pulling towards the same goals. This is what will result in a positive ROI for procurement efforts.

Your company needs to have the right people handling the most important positions in the procurement process flow. These are people who can think analytically and make sense of analyzed data.

Finally, you must pick out the right procurement software to support your process flow. Help your departments prepare requisitions faster and hasten the approval process while documenting each step of the way. ProcurePort’s e-procurement solutions are customizable to suit your workflow. Schedule a consultation call with one of our team members to find out which of our premier solutions is the best fit for your needs.

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