Understanding 10 Stages of the Procurement Cycle

By Hugo Britt | February 8, 2022

The procurement cycle outlines the key steps procurement professionals should be taking each time they begin the practice of sourcing and procuring new goods and services.

The procurement cycle

Here are 10 key stages to observe to ensure your procurement processes are seamless and efficient.

1. Determine Your Business Needs

The procurement cycle begins at the point when you realize your organization needs to procure goods or services from an external supplier. At this stage, it’s important to understand your budget constraints, the overall objectives of your business, and the priorities of individual departments.

Clearly defining these needs will enable your team to make better and more informed buying decisions and drive cost efficiencies throughout your organization.

Pro Tip: During this process, be sure to seek guidance and input from cross-functional internal stakeholders. Not only will this research provide you with useful information regarding your organization’s needs, but engaging with subject-matter experts can ensure compliance and buy-in during the later stages of the procurement cycle. 

2. Complete a market analysis

Next up, you’ll need to complete a thorough market analysis. The purpose of this stage is to ensure you and your team have a robust understanding of the options available to you – ultimately enabling you to compile a list of prospective suppliers. Your market analysis ought to consider costings, key players, and challenges and dynamics, alongside how the market is evolving.

Pro Tip: Once you have completed your market analysis, produce a market summary document that details your key findings.

3. Compile a list of suitable suppliers

With your market summary in hand, you will be equipped with all the information you need to put together a list of suitable suppliers.

Pro Tip: Make sure you are shortlisting vendors with your top priorities in mind, be it driving innovation and sustainability throughout the supply chain, sourcing locally, efficiency, cost reduction, or fostering a close working relationship with your supplier.

4. Produce Tender Documents

You’ll need to provide your shortlisted suppliers with detailed specifications, outlining your budget, volume requirements, time scales, service level agreement, and terms and conditions.

Pro Tip: Your documents should distinguish between your specific requirements and personal preferences. For this reason, it’s a good idea to involve key stakeholders at this stage of the procurement cycle.

5. Issue RFI, RFQ, or RFP

Depending on the complexity of your procurement process, you may wish to issue a request for information (RFI), request for quote (RFQ), or request for proposal (RFP) to your shortlisted suppliers.

In more complex scenarios, an RFP can provide you with more detailed information around several factors. If, on the other hand, you know exactly what you want and when you need it, an RFQ might be more than sufficient.

Pro Tip: This process can be a little lengthy and time-consuming, but don’t be tempted to cut corners. It’s important to find a supplier that can best serve your business needs.

6. Negotiate and award the contract to your preferred supplier

Once you’ve collected and carefully reviewed the relevant information from your shortlisted suppliers, you’ll be ready to award the contract to your preferred supplier.

At this stage, it’s essential to negotiate contract terms that serve both parties as this will ensure you can embark on a long and healthy partnership. Your contract should address factors including costings, terms and conditions, key deliverables, break clauses, and KPIs.

Pro Tip: Review similar contracts your organization has signed with suppliers in the past to get a better idea of what you need to include, what’s been working well, and where you can reduce costs and drive efficiencies. This is also a great way to learn from former mistakes and eliminate unrealistic contract terms.

7. Finalize the purchase order

Once both parties are happy with the details outlined in the contract, you can finalize your purchase order. This should include a breakdown of the final details including a description of the goods and services you are buying, volume requirements, time frames, and costs.

Once approved by your organization’s financial team, the purchase order will be issued to the supplier to fulfill the order and issue an invoice.

Pro Tip:  Purchase orders serve as legal documentation so it’s important to outline the specifics of your agreement to ensure both parties are protected.

8. Process Payment

Your supplier will provide you with an invoice that details the agreed price and how you are required to pay them.

Pro Tip: Pay close attention to the supplier’s payment terms so you can be sure to pay them on time. Take advantage of payment technology to automate this process.

9. Audit Your Order

All being well, your chosen supplier will deliver your goods or services as specified and within the required time frame. Keep a record of when your order arrives and double-check its contents.

Make a note of any issues, whether it’s shipping delays, poor product quality, or incorrect inventory so you can quickly rectify these with your supplier or reference them when it comes to reviewing or renewing a contract.

Pro Tip: Be sure to keep records of all of the documents associated with your purchase, including contracts, invoices, order audits, etc. This will help you to accurately manage your procurement budget, analyze your organization’s spending, and make improvements in the future.

10. Review Contract Performance

You should continually review and revise your contracts to ensure your procurement team is extracting maximum value from them and hitting objectives. Your supplier KPIs, workflow, and key deliverables will help you to evaluate your progress and measure the success of your supplier partnership.

Pro Tip: Maintain regular communication with your suppliers and provide opportunities for them, and your internal stakeholders, to give feedback. Schedule review dates with your vendor, during which you can review feedback and discuss changing expectations and requirements to make any necessary amendments to the contract.

Driving efficiencies throughout the procurement cycle with GPOs

Making sure you’re completing each step throughout the procurement cycle can feel daunting at times. Luckily, businesses have the opportunity to cut down on the time it takes to source goods and services. 

Group purchasing organizations (GPOs) can prove invaluable when it comes to streamlining and simplifying the procurement cycle. At Una, our speed to savings timeline sets us apart. We’re able to connect our members to ready-to-go supplier contracts that align with your stakeholders’ goals in a matter of weeks.

And when it comes to supplier discovery, the RFQ/RFI/RFP processes, and contract negotiation, you’ll save significant time, money, and effort by partnering with a GPO like Una because that work has already been completed.

Contact us today to learn more.

Get new resources weekly!

Related Posts

Questions?

Get in touch with one of Una's expert Sourcing Advisors.

By submitting this information you are agreeing to our terms of participation.