Procurement Process Flow — The Ultimate Guide of 2022
The procurement process flow is different for each business but some parts stay the same. The process flow is important to make the purchasing of goods or obtaining of services easy.
For this article, we will talk about what procurement process flow is. We will explore the different steps to streamline the procurement process. Additionally, we will check the flow of the procurement process.
After this article, you will learn about procurement process flow and how to utilize it in your business. This will also allow you to visualize the flow of the process that will surely help you or your business.
What is Procurement Process Flow?
Before exploring the world of procurement process flow, we must first understand what the procurement process is. The procurement process covers all the processes in obtaining the needed goods or services of a company.
The procurement process is important as it streamlines the purchasing of goods or services that will benefit the company.
Now that we have a brief introduction to the procurement process, let’s now go to the procurement process flow. The procurement process flow is the steps followed in the procurement process or procurement cycle.
The procurement process flow allows you to visualize each process that creates transparency in the company. This will enable the financial status of the company to develop.
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Types of Procurement Process
1. Direct procurement process
Direct procurement involves purchasing materials needed to create the end product of the company. This type of procurement has a great impact on the performance and profitability of the company.
The production of the end product of the company will stop if there is a delay in the direct procurement process.
2. Indirect procurement process
The indirect procurement process deals with the materials not directly part of the end product but needed to manufacture it. This material includes equipment, office supplies, and utilities.
The indirect procurement process is simply the materials needed for the day-to-day operation of the company.
3. Service procurement process
The service procurement process deals with obtaining an outside workforce or consulting services. This includes professional services and also software subscriptions.
Steps in Procurement Process Flow
1. Identify the requirements
We all know that the first thing the procurement department needs to do is to inquire about each branch of the company of their needs.
The company needs to consult their stakeholders as they are the one who knows what is lacking in their respective departments. Once the company identifies the required materials, the procurement process will now begin.
2. Source for suppliers or service providers
It will now source for potential suppliers or service providers once the company has identified all the materials. The pre-existing list to source for suppliers is available if the company has done the procurement process in the past.
The company may also create a new list of potential suppliers and service providers. This allows the company to seek lower prices that still offer the best quality.
3. Selection of suppliers
The company has narrowed down the list of potential suppliers for selection. This is where the bidding process begins. The company may consider choosing the supplier or service provider with the best bid.
4. Submission of technical and financial proposal
Once the supplier or service provider is selected, it will now lay down its proposal to the company. The supplier or service provider submits the technical proposal before the company opens the financial proposal.
The company evaluates the proposal submitted by the supplier or service provider for further discussions. They will all negotiate if the parties involved agree with the terms.
Parties may opt to compromise if there are any disputes with the terms. If there is no agreed resolution, the company may try to select another from the selection list.
6. Finalization of purchase order
It will now move to the finalization of purchase orders if all parties agreed with the terms of the contract. A purchase order will be created that details the needed materials or services of the company.
The purchase order details include the quantity, price, time, and date of delivery of the materials. Purchase orders must be compared against the quote and purchase requisition to check the accuracy of the orders.
7. Delivery and inspection
The purchase order will be sent to the supplier once finalized. After this, the company can follow up on its orders to ensure the timeliness of delivery.
A purchase order will be created that details the needed materials or services of the company. . Additionally, they must also check if there are any defects in the materials to contact their supplier immediately.
8. Payment process
The company will send the payment once it has validated the purchase order. Both parties must discuss and resolve if there are any discrepancies found. The payment terms are dependent on the agreed terms in the contract.
9. Recording of transactions
The procurement process must be documented for auditing and taxation purposes. The company can review the transactions to identify if there are any discrepancies in the procurement process.
Recording of transactions can be automated to streamline the procurement process. Automation will allow companies to save time and money as manual procedures are prone to errors.
Procurement Process Flow Chart
The procurement process flow varies for each company. Some may have additional procedures to streamline their process further. Moreover, some elements stay the same in each company.
To visualize the procurement process flow, we have made a chart for you to easily identify each process.
You must note that this is only the standard procurement process flow. As we said, it varies for each company.
Frequently asked questions
1. What is the procurement process flow?
The procurement process flow is what lets you visualize the procurement process.
2. Do the steps in the procurement process need to be strictly followed?
Yes. Following the steps streamline the procurement process.
3. Are all procurement processes the same?
No. It varies from each company. Companies may add or remove some procedures in the procurement process.
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