Procurement is the process of acquiring goods and services. The process of procurement is long even if it sounds simple. Failure to follow the process correctly may lead to huge losses and sometimes total failure of the business. The process begins when the company gets the need for a commodity. Sometimes, it may extend to the final audit done on the performance of the business.
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. By comparing the cost of procurement and the profits made, this can be calculated. If profits surpass the cost of procurement, this is a proof that good procurement was done.
If you know how this department works then you can be able to assess its performance. The process involves eight or nine steps. First the business has to determine need for a commodity or service. Rely mostly on what the company has majored in. This stage ends with making plans for acquiring the goods.
Next the standards of commodities required are established. The amount of money to be used can be determined here. Repairs and replacement costs are hidden costs that make low quality goods expensive in the long run although they may be cheap at purchase.
Researching on the best suppliers comes in next. The name given to this step is market research analysis. This can be done by visiting the suppliers or going through their previous work. This is the step where tendering comes in.
Analysis of given values from the research is what follows. Tender applications are compared with their costs. Selection of the tenderer with the best deal is then made.
The whole procedure may come to an end at this stage if the following step fails. The stage involves looking for funding. The made plans with quoted prices are taken to the finance department. Money is availed to the department once the proposals go through.
Services or goods are ordered from the supplier once money is received. The department may also go into some negotiations with the supplier. Negotiations are important as sometimes the supplier may give a discount.
The final stage is the release stage. Materials delivered by the supplier are deposited to the company’s warehouses. Procurement is also tasked with controlling the flow of goods from the stores to the other departments within the organization. Keeping of inventory is one of the things that necessitates the control of this step by the procurement department. Doing this solves many would be tussles when auditing is done.