How to implement procurement processes
What is procurement?
Procurement is the acquisition or sourcing of goods and services to support business operations.
What is a procurement process?
The procurement process is the steps that the company follows when procuring goods or services. As a business scales, a formalised procurement process becomes increasingly important to improve efficiency and reduce unnecessary spending.
Why do businesses need procedures for procurement?
Having a strong procurement process helps to reduce maverick spending, secure the most competitive rates from suppliers, maintain compliance and verify that the business pays the correct amount for the goods and services it receives.
Stages in the procurement process
The procurement process varies for businesses of different sizes and structures, and may include the following steps:
Identifying the need for goods and services
Businesses should decide how they determine the need for new purchases, how staff can request them, and who'll approve these requests.
For some office supplies, vendor research may be unnecessary. However, if you’re purchasing on a regular basis, you may want to establish some preferred suppliers and negotiate preferential rates with them.
With high-value goods, you may need to carefully research and compare vendors through a formal request for proposal or request for quotation process.
Negotiating supplier contract terms
It’s important to negotiate the most favourable terms with your vendors. To encourage you to buy from them, business-to-business suppliers may offer longer payment terms or price discounts for:
longer contract agreements
Internal purchase request
This is when an employee requests authorisation for a purchase. Small businesses may not need a formal process if one person is in charge of all purchasing decisions. In larger organisations, guidelines may explain the process of submitting purchase requests and when a purchase request is necessary (such as when purchases exceed a certain dollar amount).
When the purchase request is approved, the company needs to create a purchase order to send to the supplier. This document details the exact services and goods they require from the supplier. Larger companies may use procurement software to automatically generate a purchase order when the purchase requisition is approved.
Inspecting the goods
Inspecting goods upon receipt is an important part of the procurement process. This can be as simple as verifying that what’s inside is the correct item and that the quantities are as per the purchase order. Alternatively, it may involve testing the functionality of machinery.
Perform three-way matching
Three-way matching is the process of comparing the purchase order, supplier invoice and receipt (or packing list). The person conducting this process needs to cross-check the number of items in the shipment, cost per item and total order cost against the purchase order and invoice to verify the company pays the right amount for the goods and services it orders and receives.
Approve invoicing and make the payment
If the goods are undamaged and the three-way matching process confirms the order is correct and complete — or that the invoice tallies with the quantities received, accounts payable can issue payment for the invoice.
Record invoices and payments
Record-keeping is essential. Store all invoices and payments, including the date of payment and payment method.
How to improve procurement in business
Select a procurement model
Choose between one of these procurement models:
Centralised — procurement is specific to location and/or department
Decentralised — procurement occurs locally where the purchase request originates
Hybrid — procurement occurs at a local level in some but not all instances.
Large companies with multiple locations may prefer a centralised or hybrid model, because it gives locations and departments the autonomy to make the best decisions for their needs.
Centralise your procurement information
Keeping all procurement records within one software platform increases efficiency and makes it easy to analyse purchases, locate service agreements and create reports, as needed.
Create a vendor directory
Often a lot of effort goes into finding the right vendors and negotiating the best prices. Storing vendor information in an organised directory means anyone who needs key contact details and pricing sheets can find them quickly.
Automate purchase orders
When you use the right software, you can rely on it to automate purchase orders for everyday essentials, based on your inventory levels. You can also use software to compare vendor pricing and delivery times to find the best deal.
Invest in procurement software
Procurement software helps businesses of all sizes standardise procurement activities, improve document management and increase efficiency. This investment can be very cost-effective, given the efficiency gains and cost savings the software can help generate.
Train your staff
Whether you’re relying on manual processes or using procurement software, training your employees on your procurement processes will help you get the best results. Some software platforms offer self-serve training content that employees can access as they need it — and revisit when they need a refresher.
Ready for procurement software?
Find out how MYOB Advanced purchase order management can make a difference to your business.