Procurement Lifecycle

Procurement can be defined as the acquisition of good or services from any external sources. Procurement can be of two types: Direct and Indirect. Though the difference is not very significant, direct procurement is mainly concerned with procurement of items which are part of the finished products. Contrary to this, indirect procurement mainly deals with acquisition of resources required for operations.

The procurement cycle is the entire process from acquisition to delivery to payment. Following a step by step process helps management to successfully achieve its goals. The steps involved in the procurement cycle are as follows:

1. Need Identification
   This is the initial step in the process of procurement. A company must identify what it needs and initiate the process of procurement. The product may need to be re-ordered or it may be an entirely new item. In order to identify needs, a company must establish a strategy.
   
   
2. Supplier Options
   Once the need is identified and approved, the company must look for suitable suppliers to fulfil their need. The supplier list may already be approved or the business might need to find a new supplier based on the budget and requirements.
   
   
3. Supplier Communication
   After the suppliers are short-listed, request for information, request for proposals, quotations or tenders are communicated. Based on the results, negotiations are undertaken for the availability, price, delivery and the supplier is finalized.
   
   
4. Purchase Order
   With the help of a purchase order, the buyer buys materials from the seller. The purchase order specifies the order quantity, price, terms and conditions, etc. Both the parties sign the Purchase Order and retain a copy.
   
   
5. Logistics
   The supplier prepares for the delivery and shipment of the materials. The payment is completed based on the Purchase Order and terms of the contract. Once the goods are received, they are inspected and then approved. The payment process might be completed after the goods are accepted and invoice is received.
   
   
6. Record Maintenance
   Companies maintain all the Purchase Orders and Records for audit purpose. Also, in order to claim warranty, it is essential to maintain all records.

The above described procurement cycle is what is usually seen in the market today. This cycle may change based on the products, region, etc.  However, it is essential that a company implement a proper procedure for procurement in order to standardize the activity within the company and also maintain proper records that may be required for inspection later.

About Author:
Kintu Racca is a consultant in Systems Plus Pvt. Ltd. Within Systems Plus, she actively contributes to the areas of Technology and Information Security. She can be contacted at kintu.r@spluspl.com