The Procurement Cycle and Why you Need to Know it

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Understand the Procurement Cycle

Understanding the procurement lifecycle is a great place to start if you're looking to advance your career. Understanding this critical aspect of business will help you understand how companies work, which can be incredibly valuable when making decisions. So let's get down to the nitty-gritty details of what makes up the procurement cycle.

Identify the Procurement need

The first step in the procurement cycle is to identify the need. This can be a product, service or solution you need to acquire from an external supplier. It can also be a service you want to provide internally.

Write up a Procurement Requirement

• Write up a requirement document. A requirement document is your first step in defining what the project is going to be and how you want it done. It's essential to state all the critical information about the project in one place. This includes what you expect from your vendor (i.e., quality, performance, schedule, cost), so everyone can access it at all times.

• Review and revise as needed. As soon as possible, after writing down each part of this document—and especially before any contracts are signed—you should review them with other people who will be involved in or have knowledge of these areas during the procurement process. This can help ensure that everyone is on board with everything they've written down thus far while allowing them to suggest changes or additions based on their own personal experience with similar projects in the past (if applicable).

Creating a Procurement Plan

The planning phase of the procurement cycle is where you take all your project data and begin reviewing it. You will be tasked with asking questions like: 

• What do we need? 

• How much will it cost? 

• How long will it take to get there?

• What are our options if things don't go as planned? 

There are many moving parts in this phase that you need to ensure you have accounted for before moving on to the next phase.

Planning is also about identifying the resources needed. When we say resources, we mean money, people, time and materials used to complete your goal or objective. It's important because you want everything from this process done well and because planning prevents mistakes from happening later down the line. 

Prequalify Suppliers

You'll need to establish a process for prequalifying suppliers. This is a crucial step in procurement because it helps you quickly screen out bad Suppliers and focus on the genuinely qualified ones.

Here's an overview of what you need to do.

Create a prequalified supplier list (PSL): 

You can't just call anyone interested in selling or providing your company with goods or services. Some suppliers are way more appropriate than others. That's why you should create a PSL that includes only companies with specific certifications and meet other criteria required by your organisation.

Include all relevant information: 

Along with identifying which companies should be included in your PSL, don't forget to include essential details. Details such as contact information, product specifications and quantities needed per order (if applicable), etc., so there will be no confusion when orders come in later down the line. Also, ensure adequate time is allotted before each deadline, so nothing gets missed.

Encourage competition

Competition is the process by which an organisation or individual acquires goods and services. The aim of this process is to secure the best possible price for a product that meets your needs while at the same time ensuring any contractual obligations are fulfilled.

In order for competition to be effective, it must be encouraged by all parties involved in a procurement cycle—this includes internal stakeholders such as employees, managers and executives; external stakeholders such as vendors and suppliers; as well as other interested parties such as customers (if applicable). 

By encouraging competition between potential providers in a variety of ways throughout your procurement cycle, you can ensure that you will receive competitive pricing from vendors who offer quality products or services at competitive rates.

Select suppliers

The process of selecting suppliers is vital to the success of your business. You want to select suppliers that can meet your requirements, budget and schedule, but also quality standards.

If you choose a supplier with low cost or poor service, it can cause delays in production and even lead to recalls. This represents a great risk for businesses and their customers alike. Your quality control team may be able to catch these issues before they become an issue, but if not, then it will have an effect on both customer satisfaction levels and reputation, as well as reduce profitability in the long run due to increased costs related directly back into production processes (such as overtime/staffing).

Negotiate contracts

The procurement process is the time when you arrive at an agreement with a vendor. The most important part of this step is to get the best deal, which means negotiating and closing. Here are some tips for how to negotiate contracts:

• Negotiate all terms and conditions in the contract that are pertinent to your organisation. You'll know what these are if you utilise a Contract Playbook.

• This includes service-level agreements, warranties, payment terms and anything else that might be relevant to your business. The more thorough your negotiations on these matters before signing on the dotted line, the better off you'll be when something goes wrong later down the line - or even if something goes right.

• Barter goods or services instead of paying cash upfront as part of your deal with Suppliers; this can result in lower costs due to tax advantages from bartering rather than buying outright – though there may be other downsides depending on what type of business you're running.

Execute contract

Now that you have a contract, your next step is to execute it. This involves understanding the contract terms and making sure that you understand them. If there's anything about the contract that's unclear, ask questions for clarification.

Make sure you close this process off and get that digital signature on the contract document. 

Evaluate the performance of the Supplier and contract

The Supplier Performance Evaluation is an ongoing process that seeks to ensure that all suppliers are meeting their obligations under the contract.

You'll want to measure the Supplier's performance against their contractual obligations. A common example is the uptime of software in a SaaS agreement. 

Renew or exit the contract

If a contract is expiring, it's time for you to make a decision about whether to renew the contract or exit. While this may seem simple enough, there are many different factors that come into play when making such an important decision.

Should I Renew? Deciding whether or not to renew a contract depends on what your business needs and what value it offers. If the benefits of continuing with the service outweigh the costs, then you should try to extend your agreement with them. 

On the other hand, if there are other options available that can provide similar services at lower prices, then it makes sense for you to go elsewhere instead.

You will be more successful in your career if you understand the procurement lifecycle.

The procurement lifecycle is a process that must be followed in order to ensure that the right goods and services are procured for the right price at the right time. Understanding this process will help you be more successful in your career as a procurement professional.

Keep the Procurement Cycle top of mind

The procurement lifecycle is not a simple task to complete, and there are many steps involved. However, if you understand the process and how each step fits into the whole picture, then you will be better able to manage your time and resources effectively. If you do not know how long each step in the cycle takes, then how can you expect to complete them on time? In addition, knowing what needs are being fulfilled by certain contracts will help ensure that they are renewed when necessary or terminated if they're not performing as expected.

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