Goods and services are acquired through a process called procurement. Though it may sound simple, 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.
The difference in performance of one business with its competitors may be through good procurement processes. A company with a performing procurement department enjoys a myriad of advantages. Doing good procurement has advantages as stated below.
Firstly, The company gets good value for its money. 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.
Understanding the working of the procurement department may be key in gauging its performance. Eight or nine steps may be involved in the whole sequence. 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. When plans for acquirement of the commodities are made, this step ends.
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.
Next, embark on a research of the best possible suppliers. We call this step market research analysis. This may involve physical movement to the suppliers or rely on previous record of possible sellers. Tenders are invited at this stage.
The business will proceed from the research to analyze the vales given. Values quoted by tender applicants are compared. 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. It is the stage where finances are sought. Here budgetary plans are forwarded to the finance desk. Money is availed to the department once the proposals go through.
Goods are ordered once the department receives the funding needed. In other times, there may be some negotiations with the supplier. Negotiations are important as sometimes the supplier may give a discount.
The process ends at release. 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. This is crucial since it helps in inventory keeping of the goods as they come and leave the stores. Doing this solves many would be tussles when auditing is done.