1. What is procurement?
Procurement is the full process of sourcing and gathering all the materials needed for your products and services. It is the moment when you are placing purchase orders for numerous printers, computers, and all other machines needed by the company.
To put it simply, procurement is when you buy things that are needed for your company.
For the procurement manager, the process of procurement involves from planning purchases, negotiating market prices, placing the order with each supplier, getting the order confirmation for each purchase, up until following up with the suppliers until all materials are delivered to the office come delivery day.
If a company doesn’t have a decent procurement process, operations within the company will most likely halt. Imagine if your company’s procurement manager failed to buy the computers that are needed for you and your co-workers to work in. It would be disastrous for the company and for you if the company closes.
This is why companies invest billions of dollars in procurement systems to make sure that the company’s procurement process is up to date and working perfectly for the company.
Still curious? Click here to find out what does the procurement process look like?
2. What is the difference between procurement and sourcing?
Sourcing, to put it simply, is to find the supplier where the materials you need to procure are being offered or sold.
Because if you can’t find a good supplier for the materials that you need to procure or buy, then to whom are you going to buy it from?
The process of sourcing is an actual stage that is set way before the procurement process. Again, if you can’t find a good retailer for the computers that you need to procure, then you are going to have a big problem.
A good sourcing process will give you a list of reliable, affordable, and quality suppliers who can give you the items that you need for procurement.
Still curious? Click here to find out what is the difference between procurement and sourcing?
3. Procurement process flow
Try to Google the term “procurement process” and you’ll end up with hundred (or even a thousand) search results.
You see, every expert in the field of negotiations and procurement has their procurement process and they’d very much want you to follow their ways too.
However, all it does is muddle the whole process. Some of the processes are either too complex or too simple that the actual important information needed for each process is forgotten or not discussed.
Thus, the need for a clear, practical, and simplified procurement process is needed. And that is what we are going to aim for with this article.
Have a look at the image below:
We know that there are a lot of procurement processes out there that offer dozens of steps but we believe that having too many processes will not only confuse you, it will also take you too much time to invest in.
Having a simple yet efficient procurement process will not just save you time and effort, but resources as well. The time saved can be spent on other important tasks, such as sourcing for other suppliers, canvassing for other solutions, and others.
But we’re already getting ahead of ourselves. Here are our 5 easy procurement process steps.
Step 1 – Market Research
The assignment to buy goods or services can come from companies, managers or procurement managers themself. More about that in step 2, but before a procurement manager starts procuring supplies, there must first be a need for the said supply. Therefore, it’s the procurement manager’s responsibility to recognize the need for supplies and to develop market research for the said supply.
Market research will help the procurement manager come up with the exact number or amount for the needed supplies.
For example, an IT company has around 40 people coming in as new hires and there are only 20 computers for use. The procurement manager’s market research must have data and research that will help him/her in making sure he knows everything needed for buying additional computers for their growing company.
Some of the questions that a procurement manager should ask during market research should be the following:
- Does the company have a current supplier?
- Does the company have an alternate supplier in case the original supplier is gone?
- Does the company have an ample budget for procurement?
- Is there a shortage of the material that the company is trying to procure?
- If yes, will this affect our company’s budget allocation for the procurement?
- Is there an alternative if the supply needed is not available?
The market research should also cover sourcing for new available suppliers. Depending on the company or not, sourcing specialists can help the procurement manager in identifying new sources of supplies.
Finally, the market research helps in identifying key information needed for the next steps. Information such as pricing per supply and brand quality is important and should be included in the research.
Step 2 – RFI (Request for Information)
The second step involves asking for information not just from suppliers, but from the heads of the department or branch that need the supplies.
Because before you create a purchasing order, you will need to come up with the exact number of supplies needed. Information such as the number of available supplies and the pricing per supply are just some that you can ask when making the request.
When doing market research, you must ask the following questions:
- Which department or branch in the company needs the supplies?
- How many supplies are needed?
- How long should supplies last? A month? A year?
- Does the branch already have a reliable supplier?
- Is there an opportunity to look for new suppliers?
- How much budget is allocated for the said supply?
This is why market research is the first step of our procurement process since it will help you identify key information about the supplies you need.
Once the procurement manager has enough data, a purchase request is then sent to higher management for budget approval. This is where company management will then decide how much budget is given to the procurement manager, based on data that was given by the initial market research.
The RFI can be considered a part of the process where you ask for more information from the branch managers, sourcing specialists, and others involved.
Step 3 – RFQ (Request for Quotation)
The request for quotation is the part of the procurement process where you ask suppliers for their initial pricing for the supplies needed. Usually done by letter, the procurement manager sends the request while the supplier responds by giving the initial price for the supplies.
For an idea on what to ask the supplier, here are some questions that one can ask:
- Does the supplier have a warehouse for the supplies?
- Where are the supplies located?
- For materials supplied outside of the country, how long will delivery take?
- For materials supplied locally, how long will delivery take?
- How much is the initial price per supply?
- Is there a shortage of the said supplies right now?
Once a reply from the RFQ or request for quotation is received from the supplier, the procurement manager should hold a meeting to discuss the quotes given. A detailed analysis for each pricing is considered while the initial market research will give the procurement manager an idea of how much each supply is priced at a market level.
The information from the market research, once again, is invaluable because it will give the procurement manager an edge when proceeding towards the next procurement process.
Step 4 – Negotiation Phase
Perhaps the most challenging yet exciting phase during the procurement process, the negotiation phase is where the procurement manager tries to get or procure the supplies either at a reasonable price or amount.
Negotiations can also extend towards the procurement manager offering concessions towards the supplier in the hopes of doing more business in the future.
During the negotiations phase, the negotiator should consider asking the following:
- Is there an ample amount of supplies for the order?
- Are there special discounts that the negotiator can take advantage of?
- Who is the contact person for the supplier and from the company?
The negotiation phase is also the event where the skills of a professional procurement manager may shine; once successful, this means he/she has proved his/her mettle as a master negotiator!
During the negotiation phase, always make sure to be ready with the information you gathered during the market research phase.
Step 5 – Contracting Phase
The final step of the procurement process, the contracting phase is where the procurement manager takes care of all contracts, invoices, receipts, and documents that were signed and are needed during, before, and after the entire procurement process.
During the contracting phase, there are only a few questions involved, but to make the process smooth, the procurement manager should check on the following:
- Were the supplies delivered in good condition?
- Were there any delays with the delivery?
- How can the supplier avoid delays (if it happened) in the future?
- Was payment settled with the supplier?
Most companies employ the use of procurement software to keep all important data and documents stored digitally. For more traditional companies, the procurement manager has to keep track of all receipts and must store them for future reference.
The contracting phase is also important because if there is a need to procure more supplies from the same supplier, all contracts, documents, and receipts can be used for market research once more.
Still curious? Click here to find out about the ultimate procurement process.
4. Learning Procurement
Become a Negotiation Gamechanger – Certificate Program.
Want to close better deals? Prepare faster and achieve deal results you have been dreaming of? Enroll in our Negotiation Gamechanger Certificate Program today! This course is a perfect fit for ambitious procurement & sourcing professionals.
“The Procurement Tactics Certificate Program is a great online course for procurement professionals who want to stay ahead of current trends & digitalization. I learned how better and easier preparation can help me to close better deals and how to transform data into negotiation power! I would recommend the course for anyone interested in starting their journey in contributing to long-lasting margin-improvement in their organization.”
“I highly recommend the Procurement Tactics certificate to any procurement professional who would like to improve their negotiation skills. My team has managed to learn how to move forward with further implementations of data-driven preparation for our upcoming negotiations and practices and how to tackle specific challenges that we are facing. The courses are very well structured and based on solid academic knowledge. Substance over form in a very user-friendly way.”
“I learned about how a better preparation can help me to add value to the business and grow to the next level in my role as a negotiator. I fully recommend the procurement tactics certificate course to any procurement professional. It is very easy to follow and provides realistic examples of how easy analytics can be implemented to drive better deal results.”
Still curious? Click here to find out all about the negotiation game changer certificate program.
5. Procurement templates – the ultimate script for your negotiation
The most important thing in preparing for a negotiation is to gather as much information as possible for yourself in order to be able to estimate the interdependence as well as possible (1) to make a good overview of the deal variables (2) and their importance for both parties (3), and then to think about what (4) and especially how you want to achieve your goal (5).
Step 1: Which questions are important to get answered? [Preparation]
Below I’ll take you through the steps above from my perspective, hopefully, it helps you.
- Who are you at the table negotiating with: are these just implementers, or can they really make decisions in the conversation about whether – let’s name it – the price can also become 10% lower?
- The decision-making authority at the table has no influence on your conversation, but it does on the negotiation. When the other side of the table can’t decide, engage in the conversation and put your demand on the table, but don’t have the illusion that it’s already going to be a negotiation.
- Do you know other people or companies that procure the same product or service? What do they pay? The more information the better, because with this you can put facts on the table without having to convince (I will come back to this later)
- How long have you been paying the current prices? Until when does your current contract run, or do you renegotiate every year? If it is an ongoing contract (to say it in football terms): just change the rules of the game while the match is in progress – is of course legally impossible.
- Power relationship: the fact that you outperform other branches is a negotiating advantage: it is easier to negotiate when the interdependence – for whatever reason – is high. Nice bridge to the next one:
- Replaceability: How easily can you replace your supplier and vice versa? This also says something about your position. The harder it is for them to replace you, the stronger your position and vice versa.
- Open every negotiation and start discussing all variables: what are the things that you have actually wanted to include in the contract for a long time, but that were never possible? Remember: which things are important to you? Which variable less? Which are important to them? Give that away ‘easily’.
- Risk: which party is exposed to more risk in this contract with a % of the sale? The writer or the publisher?
- Breakpoint: which deal are you satisfied with? Determine this in advance. So: what is your actual wanted outcome of the negotiation, are you satisfied when you improve, or also when you keep compensation equal to current?
- Always try to move in the head of your negotiating partner on the other side of the table: when is he/she satisfied? What is his / her breaking point?
Focus before every meeting on what is most important for the person’s company I am negotiating with? Make a long list of variables that are important for both you and the company you are negotiating with. The more variables on your list, the better. Rank them before you start negotiation in importance for you and your counterpart. Best deals are created when you exchange the variables with a low value to you and high for the other versus the ones with a high value to you and low for the other one.
Step 2: What does a perfect negotiation process look like? [Strategy]
- Gather information
- Decide if you want to make a proposal first, or let the other to
- After ranking the variables, determine your like, intent and breakpoint: when are you satisfied? For inspiration & help, see here-under
- Determine your own opening bid and determine when you want to put this on the table
- Ask as many questions as possible at the table to understand their opening bid (at the table much more information will come your way than in writing, use this)
- In the negotiation -if necessary-, give away important or unimportant variables in small steps. Be unpredictable!
- Does the deal tend to go below your breaking point? Don’t close the deal!
Step 3: Which tips should I as a Procurement professional apply? [Negotiation]
I often write down all possible variables on an a-4 before starting and rank them first in terms of importance for myself, and then for the counterparty. If you come up with a variable that is less important to you and important to them, the game is to play this variable up in the negotiation, pretend it is important to you, and eventually exchange it for something important to you.
Ask as many questions as possible that you cannot find out for yourself. Finds the other side of the table annoying, and strengthens your position (because: you can make a better counter-proposal in the end).
Although it is important to make your point, taking care is not just to ‘convince’ the other side of the table that you are right: first try to find out if you can convince the other side of your position without negotiating, but the fact that you are at the table on Thursday implies the opposite. So: make sure you know in advance what you want to achieve (what are the most important variables) and how (based on proposals).
Two important tips for every negotiation: try – if reasonable on the other side of the table – to always keep the conversation going and always make proposals conditional: “I am willing to agree with X if you agree with Y and Z. “
Still curious? Click here to find out all about a procurement template
6. Here are 12 advanced negotiation strategies
Tactics work both ways; they can be used on you and they can be used by you. But tactics don’t show themself by saying “Here look at me.” If they would, they would not be effective. Most used tactics are difficult to identify, very subtle, and used for multiple purposes. Getting to recognize the most used tactics, will help you to negotiate way more efficiently!
1. Drop the bomb
A suggestion that a failure to concede will lead to possible catastrophic consequences. This means using threats such as: “This may only be a small order, but failure to agree could affect all your business with the whole group”.
Putting off an item or issue that you had not planned for, to another meeting or to a later stage in the negotiation, giving yourself time to work out a position on the issue. Or – even better- as the negotiation proceeds, issues often resolve themself and there is no need to revisit it.
3. The ‘Journalist-trick’
Ask any journalist which is the part of interviews people are likely to give them the best quote and the answer is: “After the official part, walking towards the exit door when just asked my final question”. Remember this in any negotiation: just as the pen of the suppliers is poised above the contract, you may say something like…” and that does include this and that, doesn’t it?”
Always think ahead of any negotiation of two things that are nice to haves to include in your last sentence and use them at the end of the negotiation. It has taken some time to get this far? Even better! The chances to achieve another concession are high, working on the basis that the other party will not want to waste what has been agreed. Use this carefully and it can get you just that little bit more!
Bluffing is a good tactic to get you out of any unwanted situation in the negotiation, but it requires great skill to avoid falling over! If you are going to bluff, make sure to always be aware of what you will do if your bluff is called: have a backup plan!
5. Hanging gramophone record
Over and over again repeating the point or demand you are making will sometimes help, because the other party gets ‘fed up’ with its constant repetition, and feels that further progress
appears unlikely until this obstacle is removed. To use this tactic, you need to be very patient & persistent, but if you have both: try and enjoy the guaranteed results!
Pretty helpful if you have to close many deals. Deadlines can be imposed (always the most preferable option) or agreed and can encourage parties to concentrate on creative solutions, whilst simultaneously realizing that concessions are necessary.
7. Pretend to be less smart than you are
This is a particularly useful tactic to ‘buy’ time to think after a complicated proposal or explanation. ‘Could you just run through that again?’ either gets you time or
discourages the other party from using such complication. Alternatively, you throw in at the last minute “we naturally assumed that your price included packaging tax ” or “We thought that you would be aware that our standard payment terms are 90 days.”
Silence is a great tactic to diffuse the emotion and/or people with a temper. Generally, people are uncomfortable with silence. People feel they have to fill it, and usually what they fill it with weakens their position. Use this knowledge in your advance in negotiations: most people can’t stand silence and are the first to fill it, very often with a concession. Silence also allows you thinking time, enables you to gain or regain position, and puts pressure on the other party.
9. The Hypothetical Question
A technique that helps every conversation and thus negotiations: talk about ‘what if’. It helps to test your own hypothesis, to determine how serious the other person is and this technique helps negotiations forward when there seems no more room left to move.
“If I were to give you A how would you feel about doing B”?
By asking this question, you’re not making a step offer-wise; you’re using words to find out the level of flexibility at the other side of the table & what it might be possible to agree upon. This can be useful for checking a new idea or to help break deadlock and matters can be discussed without the fear of commitment. If used during the exploratory/testing stage it can open up useful alternatives and help shape a deal.
Design your negotiation in as many small pieces (slices) as possible and try to come to an agreement piece per piece until the other party says no. This tactic often
produces concessions because the other party wishes to get away from increasingly uncomfortable situations. Tell the other party that it will not be possible to reach an
agreement until all the issues are agreed on – only then can a full and fair agreement be reached.
Don’t be afraid to challenge the other party, especially at the start of the negotiation when positions are being defined. The more details in the storyline at the other side of the table, the greater the opportunity to find something which can be exploited to your advantage. Use the “Why?” tactic not every 5 minutes; if used too often to challenge every new idea or proposal, it can cause frustration and inhibit the other party from putting forward alternatives. If you do ask “Why?” you may get some very good reasons, which are difficult to refute, so you should plan for this eventuality.
12. All or nothing
You present the other party with just two options. One is so awful (think of an example the other party would never say ‘yes’ to) that they agree to the other option. Prepare for measures when they unexpectedly say no in advance!!
Still curious? Click here to find out about negotiation tactics.
7. Procurement negotiation styles
The negotiation style of your opponent should have a big impact on your strategy. Negotiation situations can often be tense. In these circumstances, most people have a tendency to fall back to their habits of dealing with conflict and negotiation.
If you’re in a negotiation, it’s important to be able to identify the negotiation style of your opponent.
But maybe even more important, you should be aware of your own negotiation style.
1. Competitive negotiation style / disagreeable negotiation style / distributive negotiation style
The competitive style is probably the easiest one to detect. You’re out to win at all costs. It’s often described as a win-lose approach. Playing hardball.
In this approach, one party is looking to get everything they want without giving anything in return that meets the needs of the other party.
The competitive negotiation style is frequently described as the disagreeable negotiator. Dealing with a disagreeable negotiator opponent is considered tough and should be avoided if possible. If possible, look for alternative solutions to avoid a disagreeable negotiation.
2. Accommodation negotiation style
Accommodation as a negotiation style is the opposite of the first one. It’s frequently described as a win-lose approach. Others might call it a soft negotiation style.
An accommodation style is an interesting option when the content of the negotiation isn’t that important to you – but it is to the other party. You’ll be able to build credits at little cost, which could help you in future negotiations. This is the key in the accommodation negotiation style.
3. Avoidance negotiation style
The avoiding negotiation style comes down to completely ignoring the entire negotiation.
4. Compromising negotiation style
The compromising negotiation style happens when both parties meet in the middle. Both you and your opponent don’t really get what you want. But none is ‘losing’ either. It’s a classic ‘let’s split the difference’.
5. Collaboration negotiation style / integrative negotiation style
The collaboration negotiation style, or integrative style is characterized by the intention of a win-win for both parties.
Still curious? Click here to find out about negotiation styles.
8. Advanced procurement strategies
As they all say, a day well spent for a procurement specialist is a day spent with a procurement book or course. Well, we don’t know who actually said that, but we here at Procurement Tactics do love learning and improving!
Course Owner: Procurement Tactics
Why we recommend this course:
For years, Procurement Tactics studied and researched information on how to become the best not just in procurement, but with negotiations as well. With negotiation skills as the foundation for all its courses, the Negotiation Gamechanger course has over 25 video lessons, assignments, and quizzes for those who are serious about stepping up their game.
The online course is self-paced. This means there is no rush and you can attend this online course once you’re done with your daily work in the office or with your business. The Negotiation Gamechanger course also comes with its own certificate and you have a year to obtain it, so do take the time to study and absorb everything that this course has to offer.
Course Owner: Moses Manuel, Skillshare
Why we recommend this course:
With over 10 years of experience in lecturing Legal, Business, and Development, Moses Manuel brings this unique procurement course for everyone to check and learn through Skillshare. As the founder of Zerite Network, he is dedicated to helping other people in realizing their potential. This course is designed to help the learner with basic and advanced learning material on contracting and negotiating.
Author: Peter Bailey, David Farmer, Barry Crocker, David Jesson, and David Jones
Why We Recommend this Book:
The book is neatly divided into 3 parts. It has an introduction to Procurement and then it explores issues that one may encounter during the process. Finally, the book also discusses the many different types of applications one can use for procurement. It’s very easy to read into and with each chapter described beautifully and carefully, it’s no wonder why this book is still very popular today. It’s been published and re-published for over 50 years already, so it’s no wonder why it’s a recurring favorite among professional negotiators and procurement managers.
The only thing that we didn’t like about it is the price. It’s expensive, but hey, it’s worth the investment!
Author: Dale Carnegie
Why We Recommend this Book:
It’s a well-known classic for both the complete beginner and the seasoned negotiator. Dale Carnegie’s book is simple and understandable. It gives you a basic understanding of how to interact with people and how to influence their decisions. Which are two of the best things that you need to know as a negotiator. No wonder it’s considered one of the best procurement books this 2021.
Author: Chris Voss, Tahl Raz
Why We Recommend this Book:
If you are going to negotiate as if your life depended on it, then who else is suited to write a book about negotiation than an ex-FBI negotiator?
In this book, Chris Voss talked about his experiences in negotiating the release of hostages from the hands of deadly criminals. I think you managed to uncover his secrets of getting criminals to agree with his demands, then you’ll most likely have no problems negotiating with common people.
“Very useful course, many actionable strategies”
Want to close better deals? Prepare faster and achieve deal results you have been dreaming of? This course is a perfect fit for ambitious procurement & sourcing professionals. Enroll now and equip yourself with the full range of skills needed to master the deal.