Management in any company must understand the art
of obtaining products and services. The procurement cycle follows specific
steps for identifying a requirement or need of the company through the final
step of the award of the product or contract. Responsible management of public
and corporate funds is vital when handling this necessary process, whether in
strong or weak economic markets. Following a proven step-by-step technique will
help management successfully achieve its goals
Step 1: Need
Recognition
Step 2: Specific
Need
The right product is critical for the company.
Some industries have standards to help determine specifications. Part numbers
help identify these for some businesses. Other industries have no point of
reference. The company may have ordered the product in the past. If not, then
the business must specify the necessary product by using identifiers such as
color or weight.
Step 3: Source
Options
The business needs to determine where to obtain
the product. The company might have an approved vendor list. If not, the
business will need to search for a supplier using purchase orders or research a
variety of other sources such as magazines, the Internet or sales
representatives. The company will qualify the suppliers to determine the best
product for the business.
Step 4: Price and
Terms
The business will investigate all relevant
information to determine the best price and terms for the product. This will
depend on if the company needs commodities (readily available products) or
specialized materials. Usually the business will look into three suppliers
before it makes a final decision.
Step 5: Purchase
Order
The purchase order is used to buy materials
between a buyer and seller. It specifically defines the price, specifications
and terms and conditions of the product or service and any additional
obligations.
Step 6: Delivery
The purchase order must be delivered, usually by
fax, mail, personally, email or other electronic means. Sometimes the specific
delivery method is specified in the purchasing documents. The recipient then acknowledges
receipt of the purchase order. Both parties keep a copy on file.
Step 7: Expediting
Expedition of the purchase order addresses the
timeliness of the service or materials delivered. It becomes especially
important if there are any delays. The issues most often noted include payment
dates, delivery times and work completion.
Step 8: Receipt
and Inspection of Purchases
Once the sending company delivers the product,
the recipient accepts or rejects the items. Acceptance of the items obligates
the company to pay for them.
Step 9: Invoice
Approval and Payment
Three documents must match when an invoice
requests payment - the invoice itself, the receiving document and the original
purchase order. The agreement of these documents provides confirmation from
both the receiver and supplier. Any discrepancies must be resolved before the
recipient pays the bill. Usually, payment is made in the form of cash, check,
bank transfers, credit letters or other types of electronic transfers.
Step 10: Record
Maintenance
In the case of audits, the company must maintain
proper records. These include purchase records to verify any tax information
and purchase orders to confirm warranty information. Purchase records reference
future purchases as well.
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