Understanding 10 Stages of the Procurement Cycle
By Hugo Britt | November 10, 2022
The procurement cycle outlines the key steps procurement professionals should be taking each time they source and procure new goods and services.
The procurement cycle
Here are 10 steps in the procurement process and hacks for making your procurement department more 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. This ensures your team has 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 research, 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. Priorities may include driving innovation 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 launch the RFx process to your shortlisted suppliers. This could include a request for information (RFI), request for quote (RFQ), or request for proposal (RFP).
In more complex scenarios, an RFP can provide you with more detailed information around several factors. On the other hand, if 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 reviewed the 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. 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 in the past for a better idea of what you need to include. This will highlight what’s been working well and where you can reduce costs and drive efficiencies. It’ll also serve as a 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 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 so you can rectify these with your supplier. 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. Supplier KPIs, workflows, and key deliverables will help 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 to review feedback and discuss changing expectations and requirements. Make any necessary amendments to the contract at this time.
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.
When it comes to the supplier discovery and contract negotiation process, partnering with a GPO will save significant money, time, and effort. The heavy lifting is already done.
Contact Una today to learn more.