Paper-driven procurement has a cascading effect on an organization’s bottom line. Manual inefficiencies cost organizations a huge chunk of cash in long purchase cycles, missed discounts, and transaction disputes. Trying to speed up procurement processes with outdated tools like spreadsheets and emails is like trying to start a microwave with steel and flint.
To take advantage of early purchase and payment discounts, organizations need to toss stone-age procurement practices out the window and embrace technological solutions. A great way to do that is to automate your procurement process. It comes with a host of benefits. Modern procurement tools can transform a painfully slow procurement strategy into world-class overnight. Here's an ebook that will help you automate your P2P process and grow your business.
If your procurement process still relies on ancient tools, it’s time for a major technology makeover. Here’s all you need to know to power up the procurement process.
What is Procurement?
Procurement refers to techniques, structured methods, and means used to streamline an organization’s procurement process and achieve desired results while saving cost, reducing time, and building win-win supplier relationships.
What’s the difference between indirect, direct, and services procurement?
Direct, indirect, and services procurement are subsidiaries of the overarching procurement process and differ in aspects like definition, assignments, and more. By taking a deeper look at the difference between these processes and understanding what they comprise, stakeholders will have an easier time taking appropriate measures to fulfill their needs.
|Acquisition of goods, materials, and/or services for manufacturing purposes||Sourcing and purchasing materials, goods, or services for internal use||Procuring and managing the contingent workforce and consulting services|
|Ex: Raw materials, machinery, and resale items||Ex: Utilities, facility management, and travel||Ex: Professional services, software subscriptions, etc.|
|Drives external profit and continuous growth in revenue||Takes care of day-to-day operations||Used to plug process and people gaps|
|Comprises of stock materials or parts for production||Used to buy consumables and perishables||Used to purchase external services and staff|
|Establish long-term, collaborative supplier relationships||Resort to a short-term, transactional relationship with suppliers||Maintain one-off, contractual relationships with suppliers|
What is a Procurement Process?
The term procurement process is 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 process consists of 3 Ps’, namely Process, People, and Paperwork.
The list of rules that must to be followed while reviewing, ordering, obtaining, and paying for goods/services. Checkpoints/steps increase with the complexity of the purchase.
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.
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.
7 Steps involved in a Procurement Process
Every procurement process involves several steps, 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 7 important steps in the procurement process:
- Step 0: Needs Recognition
- Step 1: Purchase Requisition
- Step 2: Requisition review
- Step 3: Solicitation process
- Step 4: Evaluation and contract
- Step 5: Order management
- Step 6: Invoice approvals and disputes
- Step 7: Record Keeping
Step 0: Needs Recognition
The needs recognition stage of a procurement process enables businesses to sketch out an accurate plan for procuring goods and services in a timely manner and at a reasonable cost.
Step 1: Purchase Requisition
Purchase requisitions are written or electronic documents raised by internal users/customers seeking the procurement team’s help to fulfill an existing need. It comprises key information that is required to procure the right goods, services, or works.
Step 2: Requisition review
The procurement process will officially commence only after the purchase requisition is approved and cross-checked for budget availability. In the review stage, functional managers or department heads review the requisition package and double-check if there is a genuine need for the requested goods or services and also verify whether necessary funding is available.
Approved purchase requests become POs, while rejected requests are sent back to the requisitioner with the reason for rejection. All these can be handled with a simple purchase order software
Step 3: Solicitation process
Once a requisition is approved and PO is generated, the procurement team will develop an individual procurement plan and sketch out a corresponding solicitation process. The scope of this individual solicitation plan depends ultimately on the complexity of the requirement.
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 4: Evaluation and contract
Once the solicitation process is officially closed, the procurement team in conjunction with the evaluation committee will review and evaluate supplier quotations to determine which supplier will be the best fit to fulfill the existing need.
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 5: Order management
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 6: Invoice approvals and disputes
This is a crucial step in the procurement process and having procurement software like Kissflow Procurement Cloud gives you a competitive edge over others. With Kissflow, you can perform three-way matching between GRN, Supplier Invoice, and PO to check if you have received the order correctly and if there aren’t any discrepancies. Once three-way matching is complete, the invoice is approved and forwarded to payment processing.
Step 7: 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.
How to optimize your procurement process?
A streamlined procurement process offers better control over every stage of the procurement lifecycle. Here are some steps to follow to optimize your procurement process.
- Invest in a good procurement software like Kissflow Procurement Cloud
- Enable swift employee adoption with training
- Define a clear procurement strategy.
- Determine costs and plan according to your budget
- Create an open communication channel with suppliers
- Integrate your procurement processes with APIs
- Establish policy and process compliance
Sounds like a lot of work to do? A simple way to optimize your procurement process is to get your hands on procurement software like Kissflow Procurement Cloud. It comes with all the capabilities listed above and you can go live in as quickly as four weeks!
Cloud-based procurement automation tools like Kissflow are suitable for both SMBs and enterprises. Kissflow procurement cloud allows organizations to create a dynamic procurement management process that provides them with a tactical advantage.
Organizations can resolve procurement hurdles they face with archaic procurement tools. Today’s e-procurement tools are capable of straightening the procurement process flow in a jiffy. Kissflow offers tools and resources every business needs to automate end-to-end procurement and scale it up or down to meet their business needs.
Looking for software that strengthens the procurement process and minimizes the chance for fraud and errors? Read this head-to-head comparison of popular procurement tools in the market.