The process of acquiring goods and services is called procurement. As simple as it may sound, procurement is a long process. This process is so important that failure to do it correctly may lead to enormous losses and in some cases collapse of businesses. Procurement as a process begins from when the need to purchase a commodity is realized. In certain occasions, the process goes up to when the audit is done.
When done properly, procurement can give one company a competitive edge over others. A company with a performing procurement department enjoys a myriad of advantages. Some of the gains of properly done procurement process are stated below.
Number one, good value for the company’s money is made. To determine this, the cost of procurement is compared to the profits made. The conclusion of a good procurement is if the cost of procurement is less than the profits made.
To know if a procurement department is performing at its peak one needs to understand it’s working. Procurement involves eight or nine steps. First the business has to determine need for a commodity or service. The main area of specialty of the firm is what gives this information. After determining its needs, plans for the purchase are made.
Next the standards of commodities required are established. How much will be used for the purchase is known here. Low quality goods cost less during purchase but might prove expensive in the end due to extra costs like expenses in repairs and replacements.
Researching on the best suppliers comes in next. The name given to this step is market research analysis. Possible research on sellers or paying them a physical visit can be used here. Tenders are invited at this stage.
The business will proceed from the research to analyze the vales given. Tender applications are compared with their costs. A company then goes for the supplier plan with the best cost deal to the firm.
The whole procedure may come to an end at this stage if the following step fails. It is the stage where finances are sought. Proposals and budgets are forwarded to the finance department. Money is availed to the department once the proposals go through.
With cash at hand, the procuring department may go directly to purchase the goods or order services. In other times, there may be some negotiations with the supplier. Discounts are one good thing that results from the negotiations.
Release is the final stage of the process. Warehouses is the place where goods land from the supplier. The flow of goods from the warehouse to the different departments is also the work of this department. It is important that the procurement department controls the release of goods to ease the keeping of inventory on all purchases. In this way, audit is made a lot easier.