The Seven Steps Of A Procurement Process
A strong procurement process is key to the financial efficiency of any business. It aids in paying the right price for goods and services, minimises delivery times and helps you choose the best partners to work with your business.
How a procurement process looks is completely dependent on the size and type of business. Whether you’re looking at documenting a procurement process from scratch, or you feel that your business needs to reassess theirs, this article will outline 7 key steps you should follow.
Identify Goods or Services Needed
Your procurement process should start when you realise that you need to obtain goods or services from an outsourced company. With this in mind, your first step should be looking at the whole business and recognising the needs of each department.
By doing this, you’re presented with a great level of visibility of all the spending that’s required in your company. Therefore, you can outline the areas of the business that you can look at saving money and cutting costs. This stage of your procurement process is where you’ll set your budget.
For example, if an embroidery business was just starting out, in this stage they’d outline how many and what type of embroidery machine they’d need. Or, if a larger embroidery business was expanding, they’d come back to this stage and assess what machine they needed to meet customer demands and needs.
2. Consider a List of Suppliers
Finding the right supplier for your business is vital, so it’s not a decision that you should take lightly. If you choose to work with the wrong supplier it could have a knock-on effect throughout your whole business.
Not only could you end up paying more than you should for your goods or services but the delivery times may not be suited to your business – which could delay your business operations.
Your suppliers are your partners and you wouldn’t enter a partnership without doing your research, would you?
So, when you’re looking at your suppliers you should weigh up your options. We recommend that you make a list and compare all the different options on offer. That way, you can compare the competition against each other and can see the different areas in which they excel.
3. Negotiate Contract Terms with Selected Supplier
After you’ve made your decision on which supplier to work with, you need to negotiate your contract terms with them. This stage is important as you want to agree on a price that’s fair for both parties and that you’re both happy to work with.
Contracts don’t only cover pricing either. The scope of the whole project – terms, conditions and timelines of delivery are all areas that should be taken into account. You should always keep a copy of your contract so that you can refer to it should anything not be up to your expected standard.
Analysing previous contracts are a great way of scoping where you can streamline your costs and save money. If you feel that you’ve agreed to a too high a price point in the past or have agreed on unrealistic terms, then learn from your mistakes going forward with your negotiations.
An embroidery company may have a contract with several suppliers. After all, to be able to embroider their products they’re going to constantly need a refreshment of stock and materials. So, rather than having to manually order them each time, a rolling contract can save time and may incur certain discounts too.
4. Finalise the Purchase Order
Once you’ve submitted your contract to your supplier and both parties are happy with the detailing, it’s time to finalise your purchase order.
When you’ve approved your purchase order, it signals to the finance team to release the details to the supplier. That way, they then have access to all the key bits of information that they need. This document shows a further agreement between the two parties. Whereas a contract agrees with the whole collaboration, purchase orders tend to contractually agree to individual jobs. A purchase order is typically sent via email.
Using the embroidery business example again, when they require an upgrade to a machine they’ll have to get internal approval for their request to upgrade. So, a purchase order will be prepared including the description of the new machine, pricing and any other details.
Once approved, the finance team will then share the purchase order with the supplier who’ll begin to prepare the order and sort payment.
5. Receive Invoice and Process Payment
Once your supplier has received your purchase order, you’ll receive an invoice from them detailing the agreed price and instructions on how to pay. On this invoice you’ll find details of your order too, so make sure that you keep a record of them for any future reference necessary.
Depending on what you’ve agreed in your contract you’ll have a certain amount of days to make the payment. A lot of businesses offer 30 days credit notice, which gives you leeway to make the payment if you can’t do it at the time of the order. However, it’ll depend on what you’ve agreed between you and your supplier and the strength of the relationship between both parties.
We recommend that you pay your invoices when you receive them. This saves any potential problems in forgetting and maybe incurring extra costs for being late. Plus, your supplier will appreciate the fact that you pay on time, every time. This will stand you in good stead and will establish a top rapport between both parties.
Having a great relationship with your supplier is massively beneficial when working within an embroidery company. From time to time they may include extra materials at little or no cost due to your loyalty. Or, should anything, unfortunately, go wrong and you can’t make your payment, they’ll look favourably on you if you have a good track record.
6. Delivery and Audit of the Order
Again, depending on what terms you’ve agreed in your contract your delivery will arrive soon after your purchase order has been sent in. You should always keep a record of when the order is delivered in relation to when you ordered it. That way, you can keep track of whether your supplier is sticking to their agreed delivery times.
If they’re not, then you have a proven record of them not holding up to their side of the bargain. And if it shows that they are, then happy days!
You should always double-check the order upon arrival too. The last thing you want is for you to come to carry out a job and the product that you thought was there turns out it hasn’t been delivered. could lead to you letting your customer base down for something that wasn’t your mistake.
So, when your order arrives, take your invoice and inspect the delivery. If you notice that something is missing, then contact your supplier as quickly as possible to rectify the problem and reduce potential downtime.
7. Maintain Accurate Record of Invoices
Be sure to keep a record of all your invoices and payment records. In case of any audits carried out, you then know exactly how much you’ve spent throughout the allotted time and can categorise them to analyse your spending even further. Keeping all your invoices is key to working out whether you’re overspending or sticking to your budget.
So now you’ve established that a solid procurement process can seriously help you cut business costs. Which is something that every business can benefit from, right? Well, one of the best ways to cut costs is to invest in the right equipment and tools for the job.
As the saying goes, “buy cheap, buy twice” and it’s no different in the embroidery business either. Your embroidery machine is your most valuable asset and is something that you definitely shouldn’t try and cut corners on trying to get it cheaper.
But which one is right for your business?