Steps Of the Procurement Process And The Risks Involved
The market value of the global supply chain is estimated at $15.85 billion, and procurement is the initial step of the supply chain process. Most businesses have a centralized procurement system and a specialized team to handle this process. Though the procurement process flow varies from one business to another due to individual specifications, a generic workflow of five steps is as follows.
Identification of business needs
This stage refers to the basic commodities you need for your business, not just initially but also regularly as per the need. For instance, a software company needs electronic gadgets with the necessary software, while a business that provides electric goods needs the right manufacturers to shape its products. If the business sets up a well-planned budget for the month beforehand for this step, it can go smoothly.
Inadequate analysis of the business needs is a major risk here. To make the needs analysis process smooth and accurate, the business should assess factors like who the consumer is, when we need the goods and services, which locations need them the most, and more. Check the budget and the schedule for receiving the goods to align them with your business plan.
Sending a purchase request
Often, an employee in charge or a manager uses customized procurement software to submit a purchase request with a list of items that the department needs. The procurement department then reviews the request before approving or rejecting it. Items are procured after the request is approved. Following this step could place a check on reckless spending and, instead, smoothen the transaction flow.
The most common procurement mistake at this stage is the inefficiency in managing the contract. The purchase request should detail the items required without any discrepancy. You could track spending on business equipment periodically by keeping a record of all purchase requests. Also, timely and effective communication with the vendors regarding the contract can help to mitigate risks and prevent losses.
Choosing the suppliers and vendors
Maintaining a catalog of vendors who meet your requirements is a good idea. You could then send a request for quotation to some selected vendors. The procurement team would then verify the individual quotations, catalog price, and other features and finalize the vendor.
Choosing the wrong supplier can be one of the costly mistakes in your business flow. Your business should have an effective supplier selection process to avoid this pitfall. Whether it regards purchases, payments, or approvals, dealing with a trusted vendor can take your business a long way. If the vendor does not deal well with the contract, it may pop up a host of ESG issues for the business.
Additionally, it is very important to maintain long-term relations with good suppliers so that your business can have reliable suppliers for future contracts.
An experienced vendor consolidation partner could help you find the right vendor.
Negotiating and finalizing the contract
The business validates and agrees upon all the terms and conditions of the contract before finalizing it. Many factors, including the total price compared to the market price, additional costs, the number of goods, delivery date, and more, are reviewed in this stage. The business also considers any previous misses or areas of improvement through past orders to discuss the terms clearly and more specifically.
While every procurement department tries to acquire goods at the best price, some consider just the price factor when deciding the vendor to settle the contract with. It is a potential mistake because the price is only part of it. Many other factors come into the picture, like other products that the suppliers provide, their company ethics, supplier performance, how much accountability they take, and more. A mistake by the procurement team can lead the entire company into financial loss.
Verification of the order
It is the turn of the end user to verify if the order has been delivered successfully following all the terms of the contract. Your team could reject the delivery in case of any misses.
Another common mistake is the tendency to skip verifying the order. Anyone can make a mistake, and so does your vendor. It is your need and best practice to check the order against quality standards before accepting it.
Having considered the risks and common procurement mistakes at every step of the procurement process, many organizations seek the assistance of a vendor consolidation partner to avoid mistakes in their supply chain process.
The Best Procurement Process Solution
Violin Technologies are contract manufacturers and vendor consolidation partners who help meet your business’s sourcing and purchasing needs. They also offer services in the manufacturing industry, like manufacturing line leasing, developing supplier quality metrics for you to choose the right supplier, and customizing the manufacturing process and control plan. They also help with pre-production and first-production samples, source audits, reverse logistics, and developing a global, cost-effective logistics plan. They are the best partners to make the procurement process of your business error-free and efficient.
About the Author
Priyamvada B admires Nature, loves painting and takes interest in poems and short stories. She has a Masters Degree in English literature and a Bachelor’s degree in Science. She loves learning new things and solving puzzles based on logic. While she has a flair for creative writing, she is also good at researching valuable information and presenting it to the readers in the form of technical content writing.