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What Is Procurement Management

Procurement management involves acquiring goods and services from external parties in an efficient manner. It encompasses specification and planning, identifying and selecting suppliers, negotiating contracts, controlling deliveries, and measuring outcomes. Properly managing procurement saves money and resources while ensuring business operations run smoothly and projects are completed successfully. Key steps in the procurement process include determining requirements, requesting quotes, negotiating with vendors, receiving goods, verifying invoices, and record keeping. Modern procurement leverages digital tools and techniques to cut costs and improve efficiency.

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Naveed Chaudary
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5K views7 pages

What Is Procurement Management

Procurement management involves acquiring goods and services from external parties in an efficient manner. It encompasses specification and planning, identifying and selecting suppliers, negotiating contracts, controlling deliveries, and measuring outcomes. Properly managing procurement saves money and resources while ensuring business operations run smoothly and projects are completed successfully. Key steps in the procurement process include determining requirements, requesting quotes, negotiating with vendors, receiving goods, verifying invoices, and record keeping. Modern procurement leverages digital tools and techniques to cut costs and improve efficiency.

Uploaded by

Naveed Chaudary
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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What Is Procurement Management?

Key Steps and Importance of


Managing Procurement in an Organization

For companies in any industry, smart procurement practices are essential for ensuring
efficient operations and an optimal bottom line. Put simply, procurement comprises all
activities and processes involved in acquiring needed goods and services from external
parties. This may include everything from office supplies, furniture, and facilities to
heavy equipment, consulting services, and testing and training.

Properly managing all procurement activities not only keeps business operations running
smoothly, it also saves money, time, and resources. Procurement management ensures
that all items and services are properly acquired so that projects and processes can
proceed efficiently and successfully. In short, proper procurement management is
imperative for avoiding costly delays and errors.

Key Steps for Successful Procurement Management

 Specification and planning — Before anything, companies must put together a


cohesive procurement plan and specify what services and goods will be needed,
whether internally and externally. A detailed list should be made, which will help
in establishing a budget. Staying organized from the start is key to ensuring that
the next steps go as smoothly as possible.
 Identifying and selecting suppliers — Next, potential suppliers must be
researched and identified. Care should be taken to make sure these suppliers can
meet your company’s needs exactly, and comparisons should be made to analyze
specific supplier advantages and disadvantages. Vendor selection criteria — such
as cost, delivery times, social and environmental responsibility, safety, service
and support, and quality control — should all be analyzed.
 Proposal Requesting, Negotiating, and Contracting — Once potential suppliers
have been narrowed down, you can begin requesting proposals and negotiating as
needed. The negotiation process can shed light on potential suppliers’
dependability and trustworthiness. Take care during this step to clearly
communicate your requirements — delivery timelines, payment details, and so
on. Well-thought-out delivery schedules should be established as well. When all
terms are agreed upon, a contract can be signed.
 Control and Delivery — After you enter into a contract with a supplier, it’s up to
your purchasing department to properly control all deliveries and payments.
Regular meetings with vendors, careful delivery tracking, and review of all orders
against established specifications and quality standards are necessary for ensuring
smooth procurement processes. Over time, it may become necessary to makes
changes to procurement contracts as your needs shift.
 Measurement and analysis — Finally, the entire procurement process must be
analyzed using an established system of key performance indicators. This will
help in assessing the efficacy, cost efficiency, speed, and overall success of the
whole process. Now is the time to identify any areas for improvement and note
any changes that should be made. This, of course, will help in securing the
success of future projects. Observations should be shared with management or
stakeholders and key findings should be discussed in detail.

The Importance of Properly Managing Procurement Processes

Maintaining good relationships with your suppliers and staying organized throughout
every step of the procurement process are both crucial to ensure the success of all
business operations, allowing you to meet your specific goals while easily meeting all
stakeholder expectations. In establishing smart procurement processes, companies can
avoid costly downtime while boosting their bottom lines.

As technology continues to advance, digital procurement management techniques are


becoming increasingly popular, cutting down on delays and errors while helping skilled
buyers do their jobs more efficiently. Low-cost computing and data storage systems are
reshaping the way companies handle purchasing and procurement, allowing for more
advanced cloud and mobile capabilities, while the Internet of Things (IoT) is rapidly
changing the way all company operations are conducted.

For companies looking to stay relevant in today’s shifting landscape, it’s important to
stay abreast of these new technologies and determine the best course of action for your
specific needs.

What Is a Procurement Process?


It’s the series of processes that are essential to get products or services from requisition
to purchase order and invoice approval. Although we use ‘procurement’ and ‘purchasing’
interchangeably, they slightly differ from each other.

While purchasing is the overarching process of obtaining necessary goods and services
on behalf of an organization, procurement describes the activities involved in obtaining
them. The procurement process in an organization is unique to its context and operations.

Regardless of the uniqueness, every procurement management processconsists of 3 ‘Ps’,


namely Process, People, and Paperwork.

1. Process
The list of rules that need to be followed while reviewing, ordering, obtaining, and
paying for goods/services. Checkpoints/steps increase with the complexity of the
purchase.
2. People
These are stakeholders and their specific responsibility in the procurement cycle. They
take care of initiating or authorizing every stage of the process. The number of
stakeholders involved is directly proportional to the risk and value of the purchase.

3. Paper
This refers to the paperwork and documentation involved in every stage of the
procurement process flow, all of which are collected and stored for reference and auditing
reasons.

What Is the Procurement Process Flow? To keep the procurement management


process fair, transparent, and efficient, a good understanding of the procurement
process flow is key. Although the procurement process of organizations differs
from each other, the flowchart below sums up the important steps in a
procurement process.
Steps involved in a Procurement Process
Every procurement management process involves several elements, including
requirements determination, supplier research, value analysis, raising a purchase request,
reviewal phase, conversion to purchase order, contract administration,
monitoring/evaluation of received order, three-way matching, payment fulfilment, and
record keeping. These are the important stages in the procurement process flow:
Step 0: Needs Recognition

The preliminary step in a procurement process is recognizing the need for a product. Be it
a brand new order or a recurring purchase, needs are analyzed and the availability is
double-checked before creating a request for purchase.

Step 1: Purchase Requisition

Typically, a procurement process starts with a purchase requisition. The requester sends a
request for procurement (paper form, electronic, or phone) to the purchasing department.

Step 2: Review of Request

The purchase request is then reviewed by the procurement/finance team. Approved


requests become POs, while rejected requests are sent back to the requester with the
reason for rejection. All these can be handled with a simple purchase order app

Step 3: Budget Approval


In enterprises, once the procurement team raises a PO, it is forwarded to the accounting
department to receive budget approval.

Step 4: Quotation Requests

Once the budget is approved, the procurement team forwards several requests for
quotation (RFQ) to vendors with the intention to receive and compare bids to shortlist the
perfect vendor.

Step 5: Negotiation & Contract

Once a vendor is selected, the contract negotiation and signing are completed, and the
purchase order is then forwarded to the vendor. A legally binding contract activates right
after a vendor accepts a PO and acknowledges it.

Step 6: Receive Goods/Services

The vendor delivers the promised goods/services within the stipulated timeline. After
receiving them, the purchaser examines the order and notifies the vendor of any issues
with the received items.

Step 7: Three-Way Matching

At this step, three documents–purchase orders, packaging slips (that arrive with the
order), and vendor invoices–are lined up and reconciled to pinpoint discrepancies and
ensure that the transaction is accurate. Discrepancies should be addressed once they are
discovered.

Step 8: Invoice Approval Payment

Once three-way matching is complete, the invoice is approved and forwarded to payment
processing depending on organizational norms.
Step 9: Record Keeping

After the payment process, buyers make a record of it for bookkeeping and auditing. All
appropriate documents right from purchase requests to approved invoices are stored in a
centralized location.

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