The process of acquiring goods and services is called procurement. The process of procurement is long even if it sounds simple. This process is so important that failure to do it correctly may lead to enormous losses and in some cases collapse of businesses. The process begins when the company gets the need for a commodity. The process may extend to the time final audit is done.
The difference in performance of one business with its competitors may be through good procurement processes. If a procurement department is performing, the mother firm enjoys many advantages. Some of the gains of properly done procurement process are stated below.
Number one, good value for the company’s money is made. By comparing the cost of procurement and the profits made, this can be calculated. If profits surpass the cost of procurement, this is a proof that good procurement was done.
Understanding the working of the procurement department may be key in gauging its performance. The process involves eight or nine steps. What goods or services are needed in the business is the first thing done. This is based on the company’s area of specialty. This stage ends with making plans for acquiring the goods.
The next step is to agree on the quality of goods needed. The amount of money to be used can be determined 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. Tendering is done during this step.
Following research of the suppliers, the company then analyses values. The quoted costs of applications on tenders or research data is compared. Selection of the tenderer with the best deal is then made.
If this next step does not succeed, the whole process may close. It is the stage where finances are sought. Proposals and budgets are forwarded to the finance department. Once approved the procurement department gets the funding.
With cash at hand, the procuring department may go directly to purchase the goods or order services. In other times, there may be some negotiations with the supplier. Discounts are one good thing that results from the negotiations.
Release is the final stage of the process. 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.