People often use Procurement and Purchasing in a synonymous fashion. However, while the two are similar, purchasing is only one component of the overall procurement umbrella.
There are 5 main categories in the procurement process.
- Vendor Selection
- Request for Purchase
- Vendor Payment
Vendor Selection process actually starts as part of a company's strategy. For example, if your company is building an identity around an environmentally conscious ethic, you may want to select vendors who echo that stance. You should create a short list of vendors who meet your quality and service requirements needs. If you are a large corporation, this requirements phase can be a significant undertaking. Once you have a shortlist of potential vendors (3-5), you should request quotes, terms and minimum service levels. Finally, you will negotiate with the top 2-3 vendors to solidify your primary, secondary and tertiary vendor for a particular product(s).
Request for Purchase will occur at the operational levels of the organization by the individuals who have a need for a product/service/expenditure. These requests range from office supplies to reorders of production materials. Companies should maximize pre-defined items or "punch out catalogs" to standardize and expedite the requisition process. A highly functional company will have workflow around the requisition process to help streamline the approval process.
Purchasing may be handled by various authorized individuals within a company or through a centralized purchasing department. The approved requisitions will be received by the purchaser and converted into a purchase order for the applicable vendor(s). Highly functional companies will review purchasing expenditures against the capex and operating budget to assure they are staying within the approved guidelines.
Receiving will occur both physically and in the company ERP system. Highly functional companies have dedicated receiving areas and/or individuals. Goods received should be confirmed against the purchase order with variances noted and managed. Individuals receiving goods should be able to interface with the company ERP as well as upload and attach documents. The accounting department will receive the vendor invoice and complete the 3-way match (PO-Receiver-Invoice).
Vendor Payment is the final step in the procurement process. After all items have been accepted in the company's ERP systems, the vendor invoice is ready for payment. Payments can be via credit card, check, or electronic payment. Most often, multiple vendor invoices are being paid at one time. It is important to send the vendor the applicable information as to which invoices are being paid. These are the five basic steps in the Procurement Process.
There are numerous other smaller details associated with the process. Tribridge has deep expertise in helping companies set up best practice procurement process and technology. Reach out to our Business Consulting team for help.