10 steps in the procurement process

Procurement processes vary greatly depending on the structure and needs of each company but generally include the following ten core stages:

1. Identify what goods and services the company needs 

First, a business must identify its requirements for a specific item or service. This may be a new item that the company has not previously purchased; a restock of existing products, or a subscription renewal. This step usually involves digging into the finer details of the business’s needs, such as the exact technical specifications, materials, part numbers, or service features. At this stage, it is recommended that you consult with all business departments affected by the purchasing decision to ensure that the items being purchased accurately reflect the needs of each department.

2. Purchase requirement 

When an employee or business group needs to purchase a significant amount of new supplies or services, they submit a purchase requisition. A purchase requisition informs the company that there is a need, usually through department managers, the purchasing team, or the financial team, as well as specifications such as price, required time frame, quantity, and other essential things that the purchasing team needs to remember. The department overseeing the purchase can approve or reject the purchase request. If approved, the procurement team can proceed with selecting the supplier and making the purchase.

3. Supplier evaluation and selection 

With a clear list of requirements and an approved purchase requisition, it’s time to find the best supplier and submit a request for quotation (RFQ) – this is what the procurement team sends to potential suppliers to receive a quote – it’s essential to be as detailed as possible so we can compare prices. Evaluating suppliers should focus on cost, reputation, speed, quality, and reliability. Many companies also address ethics and social responsibility, as procurement is often intertwined with corporate identity. For example – a retailer that prides itself on sustainability will benefit from partnering with eco-friendly suppliers.

4. Negotiation of price and terms 

A common best practice is getting at least three quotes from suppliers before deciding. Scrutinize each section and negotiate if possible. Once you have agreed to the final terms, be sure to get them in writing.

5. Purchase order 

At this stage, we will create a purchase order (PO) and send it to the supplier. The order should be detailed enough to identify the needed services or goods and enable the supplier to fulfill the order.

6. Receipt and inspection of the delivered goods 

We will carefully check the shipments for errors or damage. We will ensure that everything is provided as specified in the order and that the quality meets expectations.

7. 3-way matching 

Accounting must reconcile the order with the invoice and the delivery note. The purpose is to ensure that the goods or services received are consistent with the purchase order and to avoid paying for unconfirmed or inaccurate invoices. If we adjust, as usual, we will solve many problems before we deliver the supplier.

8. Approving the invoice

The invoice should be approved and validated that the 3-way match was done accurately. Organizations should strive for an orderly process of paying invoices while validating the amount of the invoice and the due date. A standardized process can help ensure invoices are always paid on time, avoiding late fees and building good relationships with suppliers.

9. payment 

Once the 3-way match is approved, the payment is ready to go! AP can rest assured that they can pay the supplier with no worries

10. Recordkeeping

Keeping records for the entire procurement process is essential, starting with the purchase requisition, price negotiations, invoices, receipts, and everything in between. These records may be helpful for many reasons. They help the organization re-order products at the right price in the future and assist in auditing and tax calculation processes. Precise and accurate records can also help resolve any potential disputes.

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