Procurement Process: What it is and Why It is Important

The process of procuring products and services is known as procurement. Procurement processes vary depending on whether you are a business-to-business (B2B) or business-to-consumer (B2C) organization. 

For B2C organizations, the procurement process starts with understanding the market, selecting a supplier, and then negotiating a contract. For B2B organizations, the process starts with understanding the market and finding a supplier. Once the procurement process is completed, the organization must be prepared to negotiate terms with the vendor. 

Procurement management systems, such as SAP BusinessObjects Supply Chain Management (SAP SCM), help business executives ensure that their supply chain activities deliver the right products to the right customers at the right time. They help improve efficiency and reduce costs. The basic structure of a procurement process consists of three main phases: planning, execution, and closing. 

Planning: This is the first stage of the procurement process. In the planning phase, the procurement manager must plan how to allocate the required supplies. Planning includes selecting a strategy for the procurement process and deciding on the products and services to purchase. Planning also includes choosing the best methods of procurement. 

The procurement manager may choose to do some or all of the following: 

• Use a fixed price contract. 
• Negotiate the price with the supplier. 
• Bid a request for proposal (RFP) to vendors. 
• Bid a request for quotation (RFQ) to vendors. 
• Set an award. 

• Use a negotiated contract. 
• Use a time and material contract. 
• Request a task order. 
• Request a change order. 
• Require performance of work. 

• Conduct a performance audit. 

Execution: Execution means the ability to manage and control the flow of the process to reach the expected outcomes. It is often described as the art of getting it done. In Procurement, Execution is often described as the art of getting it done. 

It’s the part of procurement that requires creativity, ingenuity and the ability to get things done despite obstacles and change. Procurement professionals need to think outside the box and to be able to quickly adjust to changing conditions. 

Closing: A procurement closing is the final step of the contracting process. At this stage, the company and supplier agree on all terms and conditions of the contract. The process is initiated after a buyer sends an RFQ (request for quotation) for a product or service to an outside vendor. 

The vendor responds with a bid that contains a price. If the vendor’s price is too low or its product or services meet the buyer’s needs better than competitors’, the vendor is awarded the contract. In other words, the buyer selects a vendor. The vendor provides the services specified in the contract. 

The Roles of Buyers, Suppliers, and Other Stakeholders

The roles of buyers, suppliers, and other stakeholders in any supply chain include the following: Buyers provide money for goods or services. Suppliers provide the goods or services for sale. 

Others may also provide goods or services for use in the supply chain such as marketing, logistics, or customer service. These roles are often fluid and dynamic, and depend heavily on context. Sometimes a single entity holds multiple roles within the supply chain. 

Buyers need suppliers. Suppliers need buyers. Customers need customers. Suppliers need to find customers. Buyers need to find suppliers. It’s a cycle of need. In order to break this cycle, it’s important for buyers and suppliers to collaborate, coordinate, and communicate. 

Suppliers need to make sure that their products and services match buyers’ needs and that buyers are happy. Buyers need to make sure that they are paying reasonable prices. 

But for suppliers and buyers to work together, there has to be a shared understanding and common vision for the end result.

Procurement Models: The Three Models of Procurement

There are three main models for procurement. 

• The first is a buyer/seller model. This model is best suited for those transactions in which there is a single party that requires goods or services. An example would be when an organization purchases from a business. 
• The second model is called a buyer-led model. This model is best suited for organizations that have several suppliers that compete on price. Examples include online auctions or purchasing from many small businesses. 

• The third model is called a supplier-led model. This model is best suited for businesses that have no competition on price. Examples include purchasing large-ticket items from a manufacturer. 

Why Procurement Matters?

Procurement is a critical component of the supply chain. Whether your procurement function is handling direct-to-consumer products or multi-channel fulfillment solutions, or if you’re a manufacturer who needs to source parts from various vendors, procurement is critical to making sure all of your logistics are working smoothly and to ensuring you meet your customer’s demands. 

A recent survey from the Institute of Supply Management found that 86% of respondents said procuring technology has had a positive impact on their business and 83% said it has had a positive impact on their suppliers’ businesses. 

Procurement in Public Sector: Pros and Cons

Some public sector procurement officers are still learning about the advantages of online procurement. They’re finding that the ease of access, cost-savings, and ability to share and collaborate with others are major benefits. 

However, there’s still much to learn about managing projects online, such as the impact of timelines and budgets. To take advantage of the many benefits of online procurement, public sector procurement professionals need to gain experience managing projects online and using e-services like e-procurement. 

Procurement leaders are responsible for building a solid foundation for future success and driving organizational change. While challenges persist, procurement leaders must continue to set the right priorities and build their skills to adapt to emerging trends and new market opportunities. 

This paper outlines the key considerations and challenges facing public sector procurement leaders, including the importance of a strategic focus, engaging with suppliers, improving service to end users, implementing open government initiatives, and leveraging digital technologies.