Ten (10) Steps of Procurement Cycle:
Management in any company must understand the art of obtaining materials and services which they really require for their operations. The procurement cycle follows specific steps from identifying a requirement till the settlement and recording of transaction. Management of public and corporate funds is even more important when handling this necessary process. Following are necessary 10 steps to complete a purchasing cycle.
Step 1: Need Recognition:
The requisitioning department must identify its need on strong rationale and should be able to justify. The requirement can be fulfilled either from internal or external sources. The material or services may be one that needs to be reordered, or it may be a new item or being revised after lapse of longer period than required for reordering.
Step 2: Specifying Material:
Selection of the right product and vendor are critical for the company. Some industries have standards to help determine specification with prequalified vendor list. Any way, it never mean to close the door for new comers. It is always important to be in touch with new vendors, products and technologies. The Company may specify the necessary product by using identifiers and technical points.
Step 3: Locating Source:
The business needs to determine all possible sources to obtain the product. The company might have an approved vendor list. If not, the business will need to search for a supplier using various resources through market visit, internet, sales representatives, directories etc. The company needs to qualify the suppliers on predetermined criterion before enlisting them and awarding a contract.
Step 4: Negotiation (Price, Terms):
The Procurement department will investigate all relevant information to determine the best price and terms for the organization. Negotiations are considered as the very basic job of a procurement manager after sourcing. Good negotiations does not always end up with the cheapest cost but acquiring he best cost of ownership of required quality on or before time.
Step 5: Contract Document:
The purchase order or contract is used to buy materials and specifically defines the price, specification, terms and conditions of the product or service. It also covers additional obligations, if applicable on one or both the parties such as late deliveries or late payments etc.
Step 6: Expediting:
Expedition of the purchase order addresses the timeliness of the service or materials ordered. It becomes especially important to avoid delays through appropriate correspondence and finalize handover/takeover processes between two parties.The issues mostly relate which payment dates, delivery times and work completion according to specifications and schedule.
Step 7: Receiving of Material Services:
The acknowledgement of receiving of material and services against order or contract is vital before it qualify to proceed to payment. Procurement needs to ensure cent percent compliance of all agreed terms & conditions before accepting delivered material or services.
Step 8: Receipt and Inspection of Purchases:
Once the vendor has delivered the product, the company needs to accept or reject upon receipt. Acceptance of the items obligates the company to pay while rejection entails replacement by vendor or cancellation or order.
Step 9: Invoice Approval and Payment:
Three documents must match when a vendor requests payment, the invoice itself, the delivery challan and good receiving note. The numeric agreement of all these documents authenticate completion of transaction from both; the ordering company and vendor. In case of any discrepancy; it must be resolved before the recipient clear the bill. Usually, payment is made in the form of cash, cheque, bank transfers, letter of credit or any other types of electronic transfers.
Step 10: Record Maintenance:
The company must maintain proper records of all transactions which take place in procuring material and services for the organization. These include purchase records, purchase requisition to which reference purchases were made, the working paper including comparative statement and approvals from approving authorities. Records also need to ensure compliance with organizational polices & procedures.
