Procurement steps

Procurement life cycle in modern businesses usually consists of five steps: Identification of need: This is an internal step for a company that involves understanding of the company needs by establishing a short term strategy ( three to five years) followed by defining the technical direction and requirements. Supplier Identification: Once the company has answered important questions like: Make-buy, multiple vs. single suppliers, then it needs to identify who can provide the required product/service. There are many sources to search for supplier; more popular ones being Ariba, Alibaba, other suppliers and trade shows. Supplier Communication: When one or more suitable suppliers have been identified, requests for quotation, requests for proposals, requests for information or requests for tender may be advertised, or direct contact may be made with the suppliers. References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined or trials undertaken. Negotiation: Negotiations are undertaken, and price, availability, and customization possibilities are established. Delivery schedules are negotiated, and a contract to acquire the P/S is completed. Supplier Liaison: During this phase, the company evaluates the performance of the P/S and any accompanying service support, as they are consumed. Supplier scorecard is a popular tool for this purpose. When the P/S has been consumed or disposed of, the contract expires, or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier. Logistics Management: Supplier preparation, expediting, shipment, delivery, and payment for the P/S are completed, based on contract terms. Installation and training may also be included. Additional Step - Tender Notification: Some institutions choose to use a notification service in order to raise the competition for the chosen opportunity. These systems can either be direct from their e-tendering software, or as a re-packaged notification from an external notification company.

Types of Procurement Documents

RFP: A request for proposal is an early stage in a procurement process, issuing an invitation for suppliers, often through a bidding process, to submit a proposal on a specific commodity or service. RFI: A request for information (RFI) is a proposal requested from a potential seller or a service provider to determine what products and services are potentially available in the marketplace to meet a buyer's needs and to know the capability of a seller in terms of offerings and strengths of the seller. RFQ: A request for quotation (RFQ) is used when discussions with bidders are not required (mainly when the specifications of a product or service are already known) and when price is the main or only factor in selecting the successful bidder. Solicitations: These are invitations of bids, requests for quotations and proposals. These may serve as a binding contract. Offers: This type of procurement documents are bids, proposals, and quotes made by potential suppliers to prospective clients. Contracts: Contracts refer to the final signed agreements between clients and suppliers. Amendments/Modifications: This refers to any changes in solicitations, offers and contracts. Amendments/Modifications have to be in the form of a written document.

Purchasing is the formal process of buying goods and services. The Purchasing Process can vary from one organization to another, but there are some common key elements. The process usually starts with a 'Demand' or requirements this could be for a physical part (inventory) or a service. A requisition is generated, which details the requirements (in some cases providing a requirements speciation) which actions the procurement department. A Request for Proposal (RFP) or Request for Quotation (RFQ) is then raised. Suppliers send their quotations in response to the RFQ, and a review is undertaken where the best offer (typically based on price, availability and quality) is given the purchase order. Purchase Orders are normally accompanied by Terms and Conditions- which form the contractual agreement of the Transaction. The Supplier then delivers the products/service and the customer records the delivery (in some cases this goes through a Goods Inspection Process. An invoice is sent by the supplier which is cross-checked with the Purchase Order and Document which specifying that the goods received. The payment is made and transferred to GL.