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Procurement managers are responsible for overseeing a company’s entire procurement process, and for establishing rules and SOPs to allow for the successful performance of different tasks.
These processes generally vary depending upon the size of an entity and the industry it operates in. Procurement managers need a comprehensive understanding of the procurement lifecycle to achieve optimal efficiency.
The procurement lifecycle refers to a series of activities that are required for procuring goods and services. It is critically important for businesses to introduce efficiency in the procurement lifecycle to reduce costs and improve operational flows.
The procurement lifecycle begins from the organization’s first contact with a prospective vendor and ends when goods are received and stored or used by the business. The procurement lifecycle focuses on all activities that encompass procurement.
Reviewing the procurement lifecycle can allow businesses to identify inefficiencies, reduce delivery times, and find quality vendors to work with.
There are several critical steps in the procurement lifecycle that businesses must evaluate, either when establishing a new process or reevaluating their existing lifecycle.
The first step is to identify any required items or services that the company needs to source from another vendor. This could either be materials required for ongoing business operations, or materials that the business intends to sell.
At this stage, the company will want to shortlist different vendors who are capable of delivering the quantity and the quality of goods as required. It is important to create a shortlist and use strategic sourcing best practices to find the suitable vendors.
Issuing tender documents is important to different vendors to find those that are willing to bid on the business. It’s imperative that you create a list of documentation, including Requests for Quotations or Pricing. These are then sent to vendors, with a defined timeline.
The company then evaluates different options, compares bids, and decides which vendors to work with. Ideally, businesses prefer working with vendors that have a history of timely delivery and can meet their production requirements.
Once vendors have been shortlisted, the company can negotiate contract terms with them. This is a crucial stage as the two parties work on determining fair pricing. If there are any additional stipulations pertaining to payment terms, those are added into the contract too.
Before negotiating new terms, companies often review existing contracts to determine if there are any areas where they can save costs.
Once vendor onboarding is complete, the next step is to issue a purchase order. The purchase order describes the goods, the suggested costs, quantity required, and is sent to the vendor.
Once the purchase order is finalized and issued to the vendor, the company expects goods for delivery. Once goods are delivered, a Goods Received Note (GRN) is issued, confirming receipt and the condition of goods.
After goods are delivered, suppliers then issue an invoice. The invoice number often matches the one on the purchase order. The invoice is received by the AP department and matched with the purchase order and the GRN before it’s approved for payment.
The payment terms are generally the same as those mentioned on the purchase order. Companies keep detailed records of invoices to maintain audit trails.
The company then focuses on maintaining ongoing relationships with suppliers to improve the supplier lifecycle and to achieve the organization’s strategic objectives.
The organization must maintain proper documentation for audits and for updating financial records. Procurement records are also necessary for taxation purposes, so a system for recording this information is important.
SoftCo eProcurement is a comprehensive solution that offers organizations greater control and visibility over all their spend. It streamlines key spend categories, including operational, recurring, and capital spend. It simplifies the vendor management process and allows businesses to create approval workflows.
With a dedicated portal, organizations can easily select goods or services from vendors’ websites and automate regular spend. It also offers real-time reporting and AI analytical data to allow finance leaders to evaluate vendor performance and make informed decisions.