Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Procurement Process Flow — The Ultimate Guide of 2024
Key takeaways
- The procurement process flow are the steps followed in the procurement process or procurement cycle.
- The procurement process flow lets you visualize each stage in the process for more visibility.
- The three main types of procurement processes are direct, indirect, and service.
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 which will surely help you or your business.
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.
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 which creates transparency in the company. This will enable the financial status of the company to develop.
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.
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.
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.1. Identify the requirements
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.
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.
Importance of Visualizingthe 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.
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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 is what lets you visualize the procurement process.
Do the steps in the procurement process need to be strictly followed?
Yes. Following the steps streamline the procurement process.
Are all procurement processes the same?
No. It varies from each company. Companies may add or remove some procedures in the procurement process.
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.
