Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Procurement Process Flow — Chart and Essential Steps
As taught in the Junior Procurement Management Course / ★★★★★ 4.9 rating
What is a procurement process flow?
- The procurement process flow outlines the steps followed in the procurement cycle.
- The procurement process flow lets you visualize each stage in the process for more visibility and understanding.
- The three main types of procurement processes are direct, indirect, and service.
What is a 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 which creates transparency in the company. This will enable the financial status of the company to develop.
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 which will surely help you or your business.
To support you in mastering the procurement process and its implementation in your organization, I have created a free-to-download editable procurement process: 7 steps template. It’s a PowerPoint file, together with an Excel file, that can help you streamline your procurement process flow. I even included a video where I’ll explain how you can use this template.
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.
Steps in Procurement Process Flow
You may be asking how you’ll go about the procurement process flow and you don’t have to worry because we got you covered, and we try our best to never let you down.
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.
5. Negotiation
The company evaluates the proposal submitted by the supplier or service provider for further discussion. 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 agree 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.
Pro Tip: Always use a structured supplier evaluation matrix during the selection phase—it keeps decisions transparent, traceable, and aligned with business priorities.
⭢ In the Junior Procurement Management Course, we dive deeper into this topic, and you’ll learn how to build scoring frameworks, weigh criteria effectively, and choose suppliers with confidence.
Importance of Visualizing the Procurement Process
Understanding the procurement process flow becomes easier with visuals. You can create a customized flowchart that fits your workplace’s needs and processes.
This chart can include extra steps your company uses to make the process smoother. Apart from boosting efficiency, making an electronic visual representation of the procurement process can give you quick links to important resources.
For example, you can add approved suppliers’ information to the chart. This helps when you need to reach out to them for materials.
Also, think about putting internal forms like purchase orders, purchase requisition forms, and quote requests on the chart for easy access. You can even store contact details of key people involved in the right sections of the flowchart.
For example, you can include the finance department head’s contact information in the “Review by finance department” part of the chart. This way, it simplifies the procurement process and makes it more effective.
Types of Procurement Processes
Here are the 3 important types of procurement processes you have to know!
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.
The three Psin Procurement
The procurement process flow comprises three essential components, all easy to remember because they start with the same letter, and these are the following:
1. People
When establishing your procurement process flow, it’s important to consider the schedules and availability of all participants. This includes decision-makers within the company, such as managers from departments like human resources, finance, purchasing, operations, and legal. The number of individuals involved may vary based on the cost and risk associated with the purchase.
2. Processes
These processes define the rules and procedures for ordering, receiving, and paying for goods and services. The complexity of these steps can vary depending on the nature and value of what is being procured. Adhering to these established procedures is crucial to ensure the efficiency and success of the procurement process.
3. Paperwork
Throughout the procurement process, various stages generate supporting documentation and paperwork. It’s essential to maintain and organize these documents for future reference and auditing purposes. To streamline this, some organizations use procurement software to document and track transactions within the procurement process.
Conclusion
Understanding the procurement process flow is vital for efficient and effective operations within any organization. A well-structured and tailored flowchart can serve as a valuable tool to visualize and manage this complex process.
Visual representations not only simplify the process but also provide quick access to essential resources, contributing to successful and well-managed procurement practices in your company.
Frequently asked questions
What is the procurement process flow?
The procurement process flow refers to the sequential steps and stages that an organization follows to acquire goods and services. It provides a visual representation of each phase in the procurement cycle, from identifying needs to payment and recording transactions. By mapping out these steps, organizations can enhance transparency, streamline operations, and ensure accountability throughout the procurement process.
Do the steps in the procurement process need to be strictly followed?
Yes, adhering to the defined steps in the procurement process flow is essential for several reasons. Following these steps ensures consistency and efficiency, minimizes the risk of errors, and helps maintain compliance with organizational policies and regulatory requirements. Deviating from the established flow can lead to delays, miscommunication, and potential financial discrepancies, impacting the overall effectiveness of the procurement process.
Are all procurement processes the same?
No, procurement processes can vary significantly across organizations based on factors such as industry, company size, and specific operational needs. While many organizations follow a standard procurement process flow, they may customize it by adding or modifying steps to better align with their unique requirements. This flexibility allows companies to optimize their procurement strategies and improve efficiency in obtaining the necessary goods and services.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
