The process of procurement is a vital function of every business organization. The effectiveness and efficiency of the procurement process can influence an organization’s entire performance. But what exactly is the procurement process – which steps does it consist of? And what are the different types of procurement? Read this article to find out!
The procurement process: a definition
The procurement process essentially consists of several steps in which a company obtains the products and services that it needs for the manufacturing of end products as well as for continuing the day-to-day operations of the organization.
The steps that the procurement process consists of are the following ones:
- Acknowledging the demands of the company to obtain new goods and services in order for the company to continue its operations.
- Choosing potentially suitable suppliers and evaluating the pool of suppliers to evaluate which one(s) are most appropriate.
- Discussing the prices and terms of the contract that will be set up with the selected supplier(s).
- Ordering the necessary products and services.
- Receiving and examining the delivered goods and services to ensure that there are no damages.
- Paying for the products and services and keeping record of all the documents that were essential in the procurement process in order for the payment to run smoothly.
Moreover, there are different types of procurement:
Direct procurement means that an organization attempts to purchase goods and services that are necessary for the manufacturing or production process. This implies that the goods and services are related to the core operations of an organization. Examples are raw materials, equipment and other resources. These are directly used in the manufacturing process.
Indirect procurement involves the products and services that support the organization’s operations, but are not directly used in the production process. Think for example about office supplies or furniture – they help employees perform their tasks, but they do not directly produce the end products of a business.
Outsourcing the procurement process
The procurement process can be difficult to understand and manage when you do not have any experience. Luckily, there is the option to outsource the procurement process so you no longer need to worry about the entire procedure running smoothly. Two kinds of services can be offered, namely procure to pay (P2P) or source to pay (S2P) services. The P2P services include the entire process from ordering to paying the necessary goods and services, while the S2P services go one step further – they also incorporate the phase of strategic sourcing. This means that specialists will consciously search for the most efficient and useful resources for a company.
Moreover, the S2P services have several advantages. For instance, outsourcing the procurement process from the strategic sourcing phase all the way to the payment step will increase supply chain efficiency, since specialists will have the most knowledge about managing such a supply chain well. This advantage definitely shows that outsourcing the procurement process is completely worth it.