Procurement is one of the most important functions in an organization. It is all about how an organization gets its supplies.
Of course, the procurement process can be quite complicated, and it requires the input of all the functional areas and departments of an organization.
Therefore, it calls for strategic planning and management. But what is strategic procurement planning?
Strategic procurement planning can be understood as the transformation of an organization’s goals, objectives, and mission into measurable activities that can be used to plan, manage, and budget the procurement function in the organization.
The objective of strategic procurement planning should be to introduce positive change in an organization’s culture, processes, and systems.
Therefore, every organization needs a strategic procurement team to align the overall direction of procurement with the prevailing business strategy.
Below are the basic steps that a strategic procurement process should follow;
Step 1: Need Identification
Before an organization can have a product or service procured, there has to be a need for it. Therefore, the first step of the procurement process has to do with recognizing the need for the product or service.
It could be something as small as a new laptop or a pen or even as big as a vehicle or a new office. This step can be handled by department heads, executives, business owners, or even other employees.
Step 2: Submitting a Purchase Request
Once a need has been identified, the individual in charge submits a purchase request to the organization, usually through the procurement department, an executive team or director.
The purchase request is then reviewed by the relevant team or even by the financial controller. Once it has been approved, the purchase request is turned into a purchase order.
If it is denied, the request is returned to the requestor that made it along with the reason for its rejection.
Step 3: Assess Vendors
This is one of the most important steps of procurement strategy and planning. Every organization has to identify where to buy goods and services.
Some of the factors that must be considered at this stage include the vendors’ dependability and reputation as well as the cost and the speed of delivery of their goods or services. The rule of the thumb is to get a quotation from at least three different vendors, but this is a rule that can be varied from one organization to another.
Some organizations have an approved vendor catalog that they use when picking the right suppliers. All in all, establishing a long-term relationship with suppliers is something that all organizations should focus on to make their procurement processes as swift as possible.
Always remember one of the greatest sisks to your organization is from the outside so maintain strict control of these vendors
Step 4: Negotiate
When you are buying something as an organization, chances are that you need it in bulk, and therefore, you may be in a better position to negotiate.
Once a vendor has been identified, those in charge of procurement should start negotiating for better prices and terms of the purchase. Every dollar that an organization saves in the procurement of goods and services will go a long way in improving its bottom line.
Step 5: Generate a Purchase Order
A purchase order can simply be understood as a formal contract that organizations use to buy a product. This document specifies the price and outlines product specification and the terms of delivery, among other additional obligations.
After all the relevant parties have negotiated and signed the contract, it is forwarded to the vendor. Once the vendor has accepted and acknowledged the purchase order, it becomes a legally binding contract.
Step 6: Receiving the Supplies
Once a vendor has fulfilled the order and delivered goods as ordered, the procuring organization has a duty to receive the goods, inspect them, and accept the receipt.
However, an organization can reject a receipt if some items are missing, damaged, or not up to standard. In most cases, rejections are usually as a result of damages.
Maintain traceability, at least one strep back through they chain but good CRS program will trace these items back to the point of origin
Step 7: Approve Invoice and Arrange Payment
Once the goods have been received and the receipt is accepted, the invoice has to be approved before a payment can be made. At this stage, procurement officers must reconcile three important documents to be sure that the transaction is above board. The three documents include the purchase order, packaging slips, and the vendor’s invoice.
If a discrepancy is discovered, it should be investigated and resolved expeditiously to avoid any losses. Once the documents have been reconciled, the procurement officers in charge will approve the invoice, and payment will be arranged.
Step 8: Record-keeping
Keeping accurate records for the purposes of accounting and bookkeeping is one of the most integral components of strategic procurement and management.
This implies that an organization should keep all the relevant documents that provide evidence of every complete procurement process.
These records will enable an organization’s accountants to generate financial reports that are accurate and reliable. Besides, failure to keep procurement records could set an organization at loggerheads with tax auditors.
The Bottom Line
As you can see, procurement is an integral component of every organization’s overall business strategy. Getting it wrong can lead to massive losses and even put an organization in trouble with tax auditors.
Generally, procurement strategy and planning should encompass a number of systematic steps that should be followed with the aim of making the procurement process as efficient and professional as possible.
In other words, the procurement process should be aligned with the overall goals, objectives, and mission of an organization.