Procurement Process
Module 1
Objectives
• Define Procurement
• Identify the difference between direct, indirect and service procurement
• Understand the procurement process flow
• Discuss the advantages of automation in procurement management process
Procurement
• Procurement refers to techniques, structured methods, and means used to
streamline an organization's procurement process and achieve desired results
while saving cost, reducing time, and building win-win supplier relationships.
Procurement can be direct, indirect, reactive, or proactive in nature.
• Procurement refers to all of the tasks involved in obtaining the optimal
product from the optimal vendor, on optimal terms.
Difference between indirect, direct and service
procurement
Direct Procurement Indirect Procurement Services Procurement
Acquisition of goods, materials, and/or services Sourcing and purchasing materials, goods, or Procuring and managing contingent workforce and
manufacturing purposes services for internal use consulting services
Ex: Raw materials, machinery, and resale items Ex: Utilities, facility management, and travel Ex: Professional services, software subscriptions,
etc.
Drives external profit and continuous growth in Takes care of day-to-day operations Used to plug process and people gaps
revenue
Comprises of stock materials or parts for productionUsed to buy consumables and perishables Used to purchase external services and staff
Establish long-term, collaborative supplier Resort to short-term, transactional relationship with Maintain one-off, contractual relationships with
relationships suppliers suppliers
3 P’s in Procurement Management Process
• Process
• List of rules that needs to be followed while reviewing, ordering, obtaining and paying
for goods and services
• People
• These are the stakeholders and their specific responsibility in the procurement cycle
• Paper
• Refers to the paperwork and documentation involved in every stage of the
procurement process flow
Procurement Process Flow
Stages of a Procurement Management Process
• Step 0: Need Recognition
• The need recognition stage of a procurement process enables businesses to sketch out an
accurate plan for procuring goods and services in a timely manner at reasonable cost.
• Step 1: Purchase Requisition
• Are written or electronic documents raised by internal users/customers seeking the
procurement team’s help to fulfill an existing need
• Step 2: Requisition Review
• The procurement process will officially commence only after the purchase requisition is
approved and cross-check for budget availability
• Step 3: Solicitation Process
• Once a requisition is approved and PO is generated, the procurement team will develop an
individual procurement plan and sketched out a corresponding solicitation process.
• Step 4: Evaluation and Contract
• Once the solicitation process is officially closed, the procurement team in conjunction with
the evaluation committee will review and evaluate supplier quotations to determine which
supplier will be the best fit to fulfill the existing need
• Step 5: Order Management
• The vendor delivers the promised goods and services within the stipulated timeline. After
receiving them, the purchaser examines the order and notifies the vendor of any issues with
the received items.
• Step 6: Invoice Approvals and Disputes
• Once, three-way matching is complete, the invoice is approved and forwarded to payment
processing depending on organizational norms
• Step 7: Record Keeping
• After the payment process, buyers make a record of it for bookkeeping and auditing. All
appropriate documents right from purchase requests to approved invoices are stored in a
central location
Why Automate Procurement Process?
• Minimizes the chaos made by paperwork
• Shortens the procurement lifecycle
• Reduces human dependency intervention and errors
• Lessens the workload of all stakeholders
• Keeps the process accurate and consistent
• Injects transparency into the process flow
• Sticks to the predefined procurement cycle