Procurement is the process of acquiring goods and services. As simple as it may sound, procurement is a long process. Apart from making big losses, the business may also collapse if the process of procurement is not done correctly. 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.
When done properly, procurement can give one company a competitive edge over others. Numerous advantages are enjoyed by a business doing good procurement. Below is a list of some advantages of having a good procurement system.
Firstly, The company gets good value for its money. To determine this, the cost of procurement is compared to the profits made. Evidence of properly done procurement can be derived by comparing the gains with the expenses incurred during a procurement process.
Understanding the working of the procurement department may be key in gauging its performance. Procurement involves eight or nine steps. The initial step involves agreeing on what the business needs -be it goods or services. The main area of specialty of the firm is what gives this information. After determining its needs, plans for the purchase are made.
Next, decide on what standards should be looked for in goods being bought. The amount of money to be used can be determined here. Repairs and replacement costs are hidden costs that make low quality goods expensive in the long run although they may be cheap at purchase.
Researching on the best suppliers comes in next. We call this step market research analysis. This can be done by visiting the suppliers or going through their previous work. This is the step where tendering comes in.
Following research of the suppliers, the company then analyses values. Tender applications are compared with their costs. A company then goes for the supplier plan with the best cost deal to the firm.
All the above steps can come to a halt if this next step fails. The stage involves looking for funding. Here budgetary plans are forwarded to the finance desk. Money is availed to the department once the proposals go through.
Services or goods are ordered from the supplier once money is received. The supplier can be engaged in a short negotiation at this stage. Discounts are one good thing that results from the negotiations.
The final stage is the release stage. Materials delivered by the supplier are deposited to the company’s warehouses. It is important to note that how goods flow from the warehouse to the other departments is the role of the procurement department. It is important that the procurement department controls the release of goods to ease the keeping of inventory on all purchases. In this way, audit is made a lot easier.