The process of acquiring goods and services is called procurement. The process of procurement is long even if it sounds simple. 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. Sometimes, it may extend to the final audit done on the performance of the business.
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. Below is a list of some advantages of having a good procurement system.
Firstly, The company gets good value for its money. 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. Procurement involves eight or nine steps. First the business has to determine need for a commodity or service. This is based on the company’s area of specialty. When plans for acquirement of the commodities are made, this step ends.
Next the standards of commodities required are established. The amount of money to be used can be determined here. Substandard goods, though cheap, initially have extra costs like repairs and replacements.
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. Tenders are invited at this stage.
Following research of the suppliers, the company then analyses values. The quoted costs of applications on tenders or research data is compared. The most feasible tender application is then selected for the supply.
The whole procedure may come to an end at this stage if the following step fails. In this step, the main thing is to find finances. The made plans with quoted prices are taken to the finance department. Once approved the procurement department gets the funding.
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. From the supplier, goods find their way to the company’s stores. The flow of goods from the warehouse to the different departments is also the work of this 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.