Procurement Process: Stages and Best Practices
Stages in the Procurement Process
The procurement process involves planning purchases closely related to the needs of customers and conducting sales of previously incorrectly acquired items. A poor supplier selection can lead to increased transport costs, poor quality of products, unreliability, uneconomical prices, and delays in delivery times.
Stages of the Shopping Circuit
Start the process:
- Knowledge of the market
- Assess the needs and conditions for their satisfaction
Preparation of the purchase:
- Request for bids and their assessment
- Search and selection of suppliers
Execution of purchase:
- Negotiation and implementation of purchasing
- Receiving, checking, and monitoring of agreements
Market Information Analysis
Collect and analyze market information concerning the production, distribution, and sale of a given material to know the purchasing policy to be followed by the company. Sources of information include:
- Internet
- Yellow pages
- Official agencies (Chambers of Commerce)
- Business and professional associations
- Magazines and trade press
- Fairs and expos
- Business databases
- Foreign markets
- The Spanish Foreign Trade Institute
The Assessment of Needs
Analyze information related to the purchase, when to ask for the order, quantity, at what price, and the quality required. Companies often centralize purchases with the purchasing department. The purchasing department performs the following functions:
- Give preference to applications whose stocks are under minimal or minimum safety stock.
- Check if the company uses the product or material regularly or if it is a one-time purchase.
- Sort articles by the main supplier.
The Request for Proposals and Their Assessment
Request product information or materials that the company wants to buy and assess key factors in the delivery, such as product quality, reliability of deliveries, delivery times, continuity, flexibility, technological level, prices, location, and policies of the supplier company.
When is a Call for Tenders Required?
- When a product is purchased for the first time
- When the purchase cost is high
- When you want to expand the portfolio of suppliers or you are not satisfied with suppliers that are in your internal records
Information to Request
The requested information should focus on three aspects:
Economic Information:
- Unit price
- Trade discount
- Cash discount
- Price adjustments
- Packaging
- Insurance and freight transport
- Payment terms
- Deferring payments
- Deferring shipments
Technical Information:
- Quality characteristics
- Packaging and special labels
- Installation if necessary
- Test and warranty period
- Employee training if needed
- Spare parts and maintenance after purchase
Service Information:
- Delivery time
- Stock availability
- Returns of items in poor condition
- Special offers
Suppliers can be contacted via the internet, in person, by phone, or by letter.
Search and Sourcing
Key Issues: Examine whether the products offered will have a positive impact on the productivity, quality, and competitiveness of the company. The purpose of selection is to establish a list of companies or organizations that offer their products or materials. Then, request the products according to certain factors that interest you.
Supplier Selection Criteria
- Satisfactory quality of products
- Timely delivery
- Lowest price
- Service excellence
- Warranty and return policies
- Facilities
- Technology used
- Financial stability
- Reputation
- Location
Determine the number of suppliers to engage with based on two variables:
- Diversification to mitigate the risk of failure and mistakes in negotiation
- Supplier capacity based on handling large orders
Negotiation and Execution of Purchase
The aim is to achieve a balanced operation for both parties, a trade that endures over time, providing high-quality products and increasing the profitability of the company and suppliers. To achieve cost savings, specific agreements must be established with suppliers so that they are no longer adversaries but become partners.
Testing and Monitoring of Purchase
Review the requested material and verify that the supplier has complied with the agreements previously established in the purchase negotiation. If successful, the commercial relationship between both parties will be lasting, and for the following orders, it will not be necessary to perform the complete procurement process.