How Does it Work?

1. Know the demand

The first step in this approach to procurement is to know the demand. It involves a lot of time to know what materials or services the company needs to continue its operation. 

Once you have found out all the details of what the company needs, it’s time to determine the sources. In this phase, you will answer the questions of who will be able to deliver the materials or services when needed and where they will be used.

2. Selecting a supplier that best suits you

It is necessary to make supplier selections based on the current purchase time, quantity, and quality. 

If the procurement department or team does not currently have a contracted supplier to meet the needs of the requisition, they can send out a request for quotation (RFQ) to ask suppliers about their terms for the specific order. 

Suppliers that can meet the requirements will provide a quote that lists their exact terms and conditions for the order delivery. This transaction becomes the first binding document of the operational procurement process. 

If the quote is accepted but the terms aren’t complied with, then it can be considered a breach of contract which may constitute legal action. 

The procurement department will compare the quotes and select the best offer. The factors in selecting the best supplier are that it is the most affordable price, offers the highest quality, and can deliver the goods or services on time.

3. Order Monitoring

Once you have selected a supplier, it is time to convert the purchase requisition to a purchase order so that it can be a legally binding document. 

Of course, while waiting for the orders to be delivered, the orders should be monitored. This phase involves checking to see if the stocks are going to be available on time. 

Once the goods arrive, they are registered in the inventory and checked against the order to ensure that the supplier fulfilled it correctly. 

If there are inconsistencies between the purchase order and the goods that arrived, you can call your supplier to resolve the problem. If the supplier will not comply, it may be necessary to pursue legal action.

4. Invoicing

Once the goods have been received and match the purchase order, then it’s time to move to invoice processing. The invoice is the final document in the procurement process.

The payment should be processed immediately after receiving the order receipt from your supplier. Late payments can damage your relationship with your supplier which leads to costly late fees and delayed repeat orders. 

How can it be Optimized?

Integration and training in the ERP system and order management software are needed for efficient operational procurement nowadays. These systems handle the completion of some tasks and reduce process effort. 

Additionally, contractual conditions, suppliers, and product  procurement and delivery conditions, and sizes can be preset. These software tools can greatly reduce process costs without neglecting the procurement’s control of condition and specification. 

To efficiently support the monitoring and control of costs in procurement, there are analysis dashboards that can be integrated into operational procurement. 

How can Companies BenefitFrom it?

Companies can gain financial benefits from operational procurement because larger contracts can be negotiated with suppliers for goods or services utilized in a different company location. 

Additionally, a company can save on labor costs as the entire workflow runs smoothly and procurement processes do not need to start over and over again from scratch. The history of the procurement process is accessible and shared within the organization. 

Furthermore, a company can see improvements in its reporting capabilities as it can extract data from the system and generate reports on a variety of key performance indicators that pertains to the entire procurement process.