One of the most critical steps in business is the procurement of goods and services. While procurement involves multiple forms for each industry and different stages, each can be narrowed down to the acquisition of quality goods and services at a speedy pace. Back when the technology industry wasn’t as famous as it is today, procurement processes were limited to face-to-face transactions. If we look back in the pages of our history, we can drive back to the early times when bartering and trade were practiced. Several centuries have passed, and what we used to know as trade has now evolved into new branches of business – and one of its branches is procurement.
Within the recent decade, the procurement process has grown into expanding its wings, sailing through the seas of the digital world, and reaching different markets. With this, the cost is eliminated by a large sum, and operations are improved by both supplier and buyer companies. The procurement process is one of the drivers of operational efficiency in a business. Know precisely how the procurement process works and how you can become the next supplier in a highly competitive market!
Table of Contents
What is the Procurement Process?
Why do companies need Procurement?
Everything you need to know about Procurement
How the Procurement Process works
Boosting your company’s procurement process
The Gist
What is the Procurement Process?
Procurement is the process of acquiring goods or services by a business from a supplier company. Through the process of procurement, businesses can acquire goods and services at cheaper costs and with more efficient delivery. Since there are many steps to procurement, we’ll highlight some of the features it involves. Included in the process is the identification of materials or services the business needs. Business owners and teams must decide what materials or services they need, along with the indication of the number of goods they require. Procurement also requires finding a dependable supplier company that can furnish the business with their required goods or services.
Through the procurement process, business managers have the task of identifying whether or not a particular supplier is suitable for their company or not. Teams have to sift through a broad selection of supplier companies to identify which company they will work with. Normally this takes a lot of work hours, and it turns out to be a tiresome task. However, there are also other ways that companies can explore, and one of these ways includes Shoppable. Later we can get into detail about what Shoppable is, but just to give you a brief background on the company, Shoppable is a startup eCommerce business that is specifically designed for procurement. Shoppable is the Philippines’ first digital procurement platform.
Procurement is a process that reduces the overall expenditures a business spends on the acquisition of goods or services. The process also involves obtaining the best quality goods or services for the business that is purchasing the supplies. On the part of the supplier, companies who provide supplies generate good effort in showcasing what they can offer to reach the different companies looking for their products or services.
Why do companies need Procurement?
Procurement plays a vital role in helping reduce the cost of expenditures for businesses. The process of procurement helps in sealing the guarantee for supply chain management. Forging reliable supplier partnerships will offer a competitive advantage for a business. In any case, should a company be searching for the acquisition of manufactured products or raw materials, the procurement process is the driver of success for this business step.
When a company is able to cut costs for their acquisition of goods or services through the procurement process, they are able to shed a sufficient amount for other investments and business strategies – such as social media marketing. The quality of products or services you will be producing as a business will also depend on the quality your suppliers provide.
Everything you need to know about Procurement
The process of procurement as a whole can seem like a broad topic to explore; however, if we narrow it down to its divisions, we can better understand it through the identification of its types. The different types of procurement are as follows…
- Procurement of Services
As the title suggests, Procurement of Services requires the acquisition of hiring individuals to conduct a specific task or be employed under a specific job title. Some companies require full-time employment for their service procurement; others require only contractual services that will be used only for a specific time period. There are also companies that require services that will be set on a freelance or part-time basis.
- Procurement of Products
The procurement of goods is one of the most relatively large types of procurement. Businesses would often require supplier companies to have products shipped in large quantities. These physical items like office chairs, tables, and other products are goods that are agreed upon by the buyer business and the supplier company, which transacts through the process of procurement.
- Direct Procurement
Direct procurement includes the acquisition of products that have a goal of creating an end product; this can be referred to as the procurement of raw materials. Some businesses, such as manufacturing companies, require their suppliers to provide different offers which they can choose from to create their finished products or services.Â
- Indirect Procurement
Indirect procurement involves purchasing items that are critical for the operations of companies. These may be in the form of material goods or services; an example would be the acquisition of tables and ergonomic office chairs. Anchoring from its title “indirect,” the goods or services acquired in this type of procurement are not directly related to the product or service that will be produced by the company buying the supplies.
How the Procurement Process works
The process of procurement works around a couple of steps. Diving deeper into what we mentioned in the introduction of this article, the process of procurement involves gathering information about what products or services a company needs for its operations and the products or services they want to create. Businesses would have to identify how much of a particular product or service supply they will need, along with the negotiation discussions they are willing to extend with their selected supplier partners.
Companies of different sizes have different needs. Small-scale businesses often require fewer office desks, for example, compared to large-scale businesses, which would order a bulk of around 500 office desks. Understanding the requirements of a company’s indirect and direct procurement will help in deciding how well it can be served by the supplier company. Some companies that are unestablished yet may also require indirect procurement, such as consultancy about their business ventures – another example of a type of procurement that we mentioned earlier is indirect procurement. Procurement takes a lot of time and management, especially by a dedicated team that is assigned to work and oversee the efforts being exerted in the process of procurement.
The 7 Steps of Procurement
- Identification of Products or Services required by the company
In this process, you will have to ask yourself a couple of questions. What does my company need to begin or continue operations? What does my company need to produce our products or services? How much budget are we allotting for the expenditure of all the goods or services we are looking for? What would be the quantity we will be indicating to our prospective suppliers? These are some of the questions that you will ask yourself as you begin the process of procurement.
When identifying all the materials or services, you need to acquire from your selected supplier partner, you must remember to include even the tiniest details. Be precise about identifying which materials or services you need from your supplier partner. Your suppliers can’t guess how many chairs or office tables you need; you and your team will be the ones assigned to provide all the information about the products or services that you want to purchase.
On the note of the supplier, you’ll have to be clear with what portfolio of products you will be offering your client buyers. Once they share the list of materials or services they need, see to it that you can meet them accordingly. Meeting your buyers by the eye doesn’t mean going above and beyond what you can offer. Let your company’s products or services speak for themselves; if there is anything that you do not have or should you have an alternative, then let your buyers know about it.
- Requesting for Purchases and Processing
This step involves the formal request of a buyer company to acquire a selected quantity of goods or services from a supplier company. This process typically takes a single course of action from the buyer company which will be requesting the goods or services, with specifications including quality, price, sizes, and other details to the supplier. This purchase request is often prepared by the buyer company’s finance department. Requesting any purchase for processing is also referred to as “Purchase Requisition.”
- Assessment and Selection of Listed Supplier Companies
Buyer companies are presented with a list of suppliers who can provide them with the products or services they are looking to purchase. This is where the approved Purchase Requisition comes in. Suppliers, who are also referred to as “vendors,” will review the purchase request and begin a negotiation or agreement with the buyer company.
The process of selection and assessment of supplier companies is reflective of the background they have built for their company. Past transactions, social media image, and overall brand credibility are factors that help buyer companies decide whether or not a supplier company is reliable enough to become a partner in their procurement process. For suppliers, it is an integral part of forging partnerships with buyer companies to provide transparent and updated information about their company and the products that they offer at particular prices. No person or company wants to be misled or treated as inferior – especially when an interested buyer company is a small-scale business. When supplier companies are selected, the company is expected to follow through with the deal that has been agreed upon by their party and the buyer company. One of the top identifiers of a good supplier company is found through the efficient and complete accomplishment of its agreed order.
- Discussion and Negotiation
This may be considered one of the most hectic and sensitive steps of the procurement process. Enticing your potential buyers entails effort, but discussions and effective negotiations about price and quantity are other things. Buyers will always want to exert their requests, and it may get a little challenging if you will be negotiating with your clients without a strategy. One strategy you can take with you is to request at least two to three quotations from your client, indicating the specific materials or services they need, alongside the quantity and dates that they need these materials or services.
Never let yourself be caught off guard. Some companies or entrepreneurs become so excited about making a sale that they forget about the details that they promise their clients. If you feel that a quotation request is far too demanding, you may kindly negotiate and offer alternatives to your client. If your client disagrees with all your efforts and offers alternatives, then do not be disheartened about losing the sale. Know that it is better to work with a company that you can make ends meet with than a company that turns a deaf ear to everything that you offer.
- Creating a Purchase Order
This step is one of the most straightforward steps in the procurement process. In this step, if you are a supplier, you are only required to receive the purchase order from your buyer company. If it is the other way around, then you will be the one creating the request, which you will then be sending out to the supplier company, who will furnish your business with the goods or services you need.
- Acquisition and Review of Supplies Delivered
Once all is said and done, this is when you deliver all the purchased goods or services to your buyer company. On the other hand, if you are a buyer, then here is the part when you cross-check and review the materials or services that have been delivered to you by your partner supplier. Upon receiving your orders, see to it that you check its quality and that there is nothing missing from your order. Ensuring quality control is one of the most essential aspects of all businesses in any industry.
- Payment and Accounts Management
As the title says, payments and accounts management is the step of procurement that deals with the handling of financial transactions and their recordkeeping. Some companies assign a specific department to head the ins and outs of payments and accounts. If you are a supplier company, your role is to check if what has been paid to you is correct according to the deal that you have agreed on with your partner buyer company. On the other hand, if you are a supplier, then your role is to correctly account for the expenses that you have shed for the acquisition of the materials or services you have ordered.
If you want to skip all the trouble of going through different steps one by one, then you can continuously operate your supplier or consumer business online. In the earlier part of this article, we mentioned a brand called Shoppable, a company that specializes in the fulfillment of digital procurement in the country. Every step mentioned above is 100 times easier when you operate your business with Shoppable. You wouldn’t have to worry about looking for buyers or suppliers because they are all there on the platform, which serves you 24/7 every year. The platform features countless tools and accessibility features that will help brands and supplier companies alike to come together in one place.
Here’s why you should join Shoppable…
- It’s FREE – It’s free to start selling on the Shoppable platform. As long as you’re a legally registered business, you’ll be able to list products for free on Shoppable. You only pay a commission if an item sells on the platform, and you get paid.
- Expand your Customer base – Through Shoppable, you’ll reach thousands of new customers for free. Think of Shoppable as your marketing arm that you only pay when you have a sale.
- Get your eCommerce Store – Increase sales by digitizing your product catalog and reaching customers worldwide. Print catalogs are dying, costly, and not environment friendly – digital is the future. Sellers can get their eCommerce store on Shoppable Business that can be given to any client.
- Procurement Technology – Enable your customers to pay you online through Bank Transfers, Credit Cards, Over-the-Counter Payments, Recurring Payments, and more. Easily track and manage orders, payments, and shipping through the Shoppable platform.
- Shipping Technology – Shoppable has integrated directly with multiple shipping couriers, enabling you to provide same-day to next-day delivery to your customers.
- Compliance – Sales invoices and 2307’s required? Don’t worry. Shoppable has got you covered! The platform keeps sellers fully compliant, never worrying about missing documents.
- 3PL & Fulfillment Services – Need additional manpower? Shoppable can provide you with warehousing and fulfillment solutions so you can expand your brand to different locations enabling you to get products delivered faster to your customers.
- Real Sellers, Real Buyers and Real Products only – We vet and interview sellers that join the platform so you will be assured that all of the products and transactions are authentic and legitimate.
Boosting your company’s procurement process
Boosting the health of your company’s procurement process, whether you are a supplier or consumer company, requires only three main components. A dedicated focus on people, a strategic focus on process, and a meticulous focus on all the paperwork involved. In order to establish a company that is driven to meet its customer’s needs, there must be a qualified and dedicated team of individuals who will work together to manage the process of procurement. Tasks such as managing finances will have to be organized without flaws. Creating high-value products or services is highly dependent on the selection of goods or services acquired from the procurement process – this is why it is critical to form a team that will solely act on the responsibilities of accomplishing the goals set to create excellent results.
Strategically working on the process of procurement boils down to one specific goal – which is the lowering of costs. The strategic acquisition of goods or services must coincide with getting quality materials or works from suppliers – despite the lowered costs per unit at wholesale prices. Acquiring products or services that are substandard defeats the purpose of gathering resources and shedding costs on wholesale goods or services that have been carefully selected by the buyer company.
Having meticulous focus on paperwork is essential in ensuring that no information or details required will be missed by either the buyer or supplier party. After all, nobody wants to be fined or faced with the court’s gravel. Methodically arranged and organized paperwork helps companies become more efficient and ensure that there will be less to no amount of information overlooked. Keen attention to detail will also help the entirety of either company party to refer to their history of documents. This way, companies of buyers or suppliers can skillfully keep track of their work and how they accomplish each task.
The Gist
Procurement utilizes a company’s value for money. If a company can acquire the goods and services they need at no large hefty amount, matched with excellent quality products received from suppliers, then the goal of the procurement process is achieved. Cost-benefit measures must be achieved by both parties to create a harmonious partnership for both buyers and suppliers. One of the defining characteristics of a good collaboration between a buyer and supplier is marked by their fairness towards each other.
Establishing a good competitive advantage for your brand is not solely limited to the process of procurement. This process is only one part of the pie that makes up the whole. Along with your effort in working for the success of your business are also strategically taking your business to the route where it can accelerate and flourish most. As we mentioned earlier, Shoppable offers all the advantageous tools and perks that you need for a business to succeed in a highly condensed market.
Drive your business to success and join Shoppable now! Start by saying hello at [email protected].
