Product Procurement – The Ultimate Guide for 2022

Are you familiar with product procurement? If not, then don’t think too much about it. It’s pretty much commercial procurement, the same as what most procurement teams use to buy materials or services that the company needs.

For this article, however, we are going to expound more on how to follow the correct product procurement for this year 2022. We believe that this year, there are a lot of possibilities for companies who are able to procure materials efficiently. 

After reading this article, you’ll probably be extremely knowledgeable about the procurement processes that the company where you’re working is going to promote you to procurement head or manager because of your expertise!

Product Procurement, Again, in a Nutshell

We at Procurement Tactics love to quiz our procurement managers, so we’d like to ask you an important question about procurement.

Do you have any idea what direct and indirect procurement means?

For those who are stumbling with their answer, the answer is quite simple really. Direct procurement is the typical procurement of goods or services that will be used towards a company’s growth or to enhance its performance. Think of procuring materials for a special product that is being built for an anniversary sale or a very popular item that is on sale for the next few months. The company is going to need to buy a lot of materials in order to build the said product.

Indirect procurement is different. It means procuring goods or services for the continued operations of a company or organization. For example, if you are a printing company and one or several of your printers ran out of printing materials, then it’s the procurement manager’s job to get those printing materials delivered to the office at once. In short, it is the process of buying needed supplies in order for a company to continue its daily workload.

Now that you understand what direct and indirect procurement means, you ask why this is very important. Why this knowledge is crucial for a procurement manager in building his/her own procurement process. Without this, you’ll be most likely confused as to how to start the procurement of materials, along with other processes that are important for the company.

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
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Why Does a Simple Procurement Process Work?

A simple question like this requires a very simple answer as well. 

The reason why a simple procurement process works is that the procurement manager is able to direct his/her strategies towards implementing each of the processes while assigning his/her team important tasks. 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.

It’s really a no-brainer. This is the concept of our Procurement Tactics Procurement Process; we want to build a procurement system so simple that procurement managers are able to process and memorize them in their heads!

All of the bigger concepts, of course, are also present. But those are for another time. You can subscribe to our Negotiation Gamechanger Course if you want the really juicy details.

But for now, let’s focus on the Procurement Tactics ideal Procurement Process!

STEP 1- MARKET RESEARCH

So 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 convincing the company in 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 two processes. 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. 

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.

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.

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.

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.

FAQs

What is product procurement?

Product procurement is, simply put, private procurement. It is the process of buying supplies for the use of a company or organization.

Why is product procurement important?

Depending on the type of procurement you have, product procurement is important because it allows a company to create products through the supplies they buy or purchase.

Who does product procurement?

A procurement manager and his team of procurement specialists are the ones in-charge of product procurement.

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