What is the Procurement Process Flow?
Procurement Process Flow
Procurement Process Flow is the process in which a company's suppliers are selected based on their ability to provide goods and services at competitive prices. The Procurement Process, typically focused on getting to Contract Signature from the Supplier, is part of the overall Procurement Cycle.Â
This procurement process flow helps manage the entire procurement life cycle for purchasing materials, equipment, technology and services. It also allows companies to organise information about suppliers and create standardised buying processes across all locations that require it.
How does the Procurement Process Flow work?Â
The procurement process flow is a visual representation of the procurement process.
As you know, a process flow is a diagram that shows the sequence of steps in a process and helps you visualise the process.Â
 It helps to identify and remove any bottlenecks in the procurement process and streamline and standardise it.
Anyone who has worked in Procurement for long enough will be used to seeing Procurement Process Maps that indicate each phase of the Procurement Process. You'll typically have several Procurement Processes that align with the Procurement Cycle.Â
Benefits of having a Procurement Process Flow
Procurement Process Flow reduces the:
Time it takes to complete Procurement Activities throughout the Procurement Lifecycle.
Risk of missing deadlines for renewals, sourcing activities, and contract negotiations.
Cost of Procurement (time is better spent with an optimised Procurement Process).
Standardised Procurement through a Procurement Process Flow
Procurement process flow helps to standardise the procurement process. This allows for increased efficiency and reduced errors in the procurement process. It also improves productivity by creating an actionable plan that can be followed by everyone involved in the procurement process, including stakeholders, buyers, suppliers and staff members.
6 Examples of Procurement Processes
Sourcing
Sourcing is the first step in your Procurement Process. Sourcing involves finding, attracting and selecting suppliers to provide goods and services. This will cover market insights, Make vs Buy decisions, and planning the RFX.
The next step in the procurement cycle is evaluating how well your source meets your needs. Evaluating suppliers can involve several different techniques, such as:
Requesting quotes from various vendors
Conducting supplier site visits
Interviews with key personnel of the Supplier
Negotiation
Negotiation is a process of communication between two or more parties to reach an agreement. It is often thought of as the process that occurs around negotiating a contract's terms. But Procurement Pros will usually negotiate before a contract is issued between the two parties. The results of said negotiation will then be documented in the agreement.Â
Purchase
The buyer and seller agree on the terms and conditions of their purchase. The buyer issues a purchase order, which is received by the seller. The seller delivers the goods to the buyer, who checks them and pays for them. Including purchasing here is crucial, as many Procurement Teams focus on basic purchasing. This is transactional and heavily reliant on POs with basic contract terms being exchanged.Â
Supplier Selection
Supplier selection is the process of selecting a supplier from several potential suppliers. Supplier selection can be made through different methods like open tender, an invitation for bid, pre-qualification, RFX and shortlisting.
Contract Administration
Contract administration is the process of managing and monitoring your supply contracts. This includes tracking supplier performance, managing contract amendments, and ensuring that all terms in an agreement are being fulfilled.
Contracts are legal documents that define the relationship between a customer and a supplier. They contain everything from detailed descriptions of products or services to warranties on those products or services.Â
Contracts also outline who is responsible for what throughout the life cycle of each project, including how much each party owes each other at different points along the way (e.g., when payment is due).Â
Contracts can be written (contracts with signatures) or verbal (contracts without signatures). Written contracts typically have more detail than verbal ones: for example, if someone promises to do something like "fix my computer," there's not much room for interpretation as long as both sides agree on what needs fixing in advance; but if someone says "I'll build you an app," there's more grey area between what they're promising versus what they might think they can deliver later down the line when things get more complicated (for example).
Please ensure you only enter into written contracts.Â
Dispute Management
Dispute Management is the process of handling disputes between suppliers and buyers. There are a variety of methods that can be used to resolve these disputes, including:
Informal dispute resolution methods – such as negotiation, mediation or other forms of non-binding dispute resolution
Formal dispute resolution processes – such as arbitration and litigation
Example Procurement Process: Sourcing
Here is a draft process flow for an efficient sourcing process by a procurement team. Keep in mind that this is a general process and may need to be customized to fit the specific needs and requirements of your company.
Identify procurement need: The procurement team receives a request for goods or services from a business unit or department.
Determine procurement strategy: The procurement team evaluates the request and determines the appropriate procurement strategy, such as competitive bidding or negotiation with a single vendor.
Develop procurement plan: The procurement team develops a plan that outlines the steps, timelines, and resources needed to complete the procurement process.
Identify potential vendors: The procurement team identifies and evaluates potential vendors based on factors such as price, quality, and reputation.
Request proposals: The procurement team issues a request for proposals (RFP) to the selected vendors and provides them with the necessary information and requirements.
Evaluate proposals: The procurement team reviews and evaluates the proposals received from vendors, taking into account factors such as price, delivery time, and technical specifications.
Select vendor: The procurement team selects the vendor that offers the best value for the company based on the evaluation of the proposals.
Negotiate contract: The procurement team negotiates the terms and conditions of the contract with the selected vendor.
Finalize contract: The procurement team finalizes the contract with the vendor and obtains necessary approvals from relevant stakeholders.
Manage delivery: The procurement team monitors the delivery of the goods or services and ensures that they meet the requirements and specifications outlined in the contract.
Turn this into a Kanban Workflow
In a Kanban process, each step of the process is represented by a card on a Kanban board. The cards are moved from left to right on the board as the process progresses, and different team members may be responsible for moving the cards and completing the tasks at each step.
For example, the procurement need may be identified by a business unit or department and represented by a card on the Kanban board. The card is then moved to the "Determine procurement strategy" column, where the procurement team evaluates the request and determines the appropriate procurement strategy. The card is then moved to the "Develop procurement plan" column, where the procurement team develops a plan for the procurement process. This continues until the final step, "Manage delivery," where the procurement team monitors the delivery of the goods or services and ensures that they meet the requirements and specifications outlined in the contract.
The Procurement Process Flow in Summary
The procurement process flow helps to standardise the system and make it easier for the team members to follow a set of steps to complete their tasks. It will also help them get an overview of the entire process, so they can act more efficiently within the Procurement Team.
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