Procurement and supply processes are the backbone of successful production and manufacturing business or company. To understand what procurement is, first, one must learn the different processes involved in identifying and supplying raw materials to a specific company. Procurement processes are everything related to obtaining or even recognizing the sources of various raw materials and goods for a business or an industry. The procurements process can either be sourcing the raw materials or obtaining them and bringing them to the production line to be converted into finished goods.
In a procurement process, there are two parties, the buyer and the seller. Since buying happens on a large scale, procurement is considered a separate and versatile stage in the manufacturing process.
The process is vital to the business’s success as it requires obtaining the best quality goods and services that have the highest effectiveness. Although it sounds like a simple price, several steps lead to the entire process of procurement.
- Selecting a vendor or a seller that can sell the necessary goods or equipment.
- Negotiating a payment that is fair and well within the company to pay.
- A vetting process that strategically manages the efficiency of the whole process.
- Selecting and finalizing the products or services and agreeing on the price.
- Fabricating a contract and signing a deal ensuring the delivery and payments.
- The final purchase of the raw materials; so that they can be brought over to the production lines for the manufacture
Different Types of Procurement:
- Direct Procurement: One of the most common procurement types in manufacturing companies. Direct procurement is where goods and services are procured directly from the vendor. They are usually long-term deals and contracts signed by the buyers and sellers. Raw materials, machine equipment come under this category.
- Indirect Procurement: This is where goods and services are procured for different manufacturing processes’ internal uses. They are short-term contracts, most of the time sold by the vendors. It involves the management of utility and other facilities that ensure regular daily schedules and activities.
- Service Procurement: It procures and manages workforce and different services for consultancy. Most of the service procurement revolves around IT and software that fills the gap between various processes and people.
The Procurement Process Flow:
Every business has a unique set of steps that differentiates its procurement flow from the rest of the companies. However, these are the significant steps involved in a procurement flow that every company usually follows:
- A requirement is obtained, which is identified by the team of shareholders or leaders of the group. It could be the need for a new order, service, or equipment.
- After the need is identified, the next step is to go through the detailed specifics. These will be the technical details, numbers, and dimensions, or parameters that various departments will put forward.
- When the details are confirmed and the specifics are fixed, the next step is to identify a vendor that will sell that particular service or equipment. New suppliers are always checked thoroughly before entering into a contract.
- After a source is found, the team must then negotiate a price for the procurement. Many factors go into this decision, speed of delivery, overall costs, and effectiveness being some of them. It is at this point that an agreement will be fabricated to authorize the deal.
- An order will be placed for the procurement, which will be looked through and confirmed by the authorized personnel before moving forward.
- The purchase order is then sent to the buyer through mail or shipment as per the specifications indicated in the contract.
- After this, a timeline schedule is made to make the buyer and seller aware of the specific period required for each process to take place.
- Once everything is ready, the final product is sold to the buyer as per the schedule. The product is thoroughly inspected and checked if the contract terms have been agreed upon by all the parties.
- Once everything is checked and good to go, the buyers will make the payment to the seller.
- The entire process is always written down and stored in records for future review or legal purposes.
In a company, the entire procurement process starts with the identification of a need. Once that need is identified, the different methods of finding out the vendors or suppliers come next. With the constant technological change, traditional procurements processes have given way to e-procurement that allows many companies to have a vast network of sellers and vendors. With the importance of the procurement processes known to the companies, there is no doubt that procurement is one of the most critical stages in a successful business.