5 Critical Procurement Stages in 2024

There are various stages in procurement. Their goal is painting a clearer picture of your entire supply chain process, covering everything from goods sourcing and compliance management to budget forecasting. There have been plenty of procurement management guides and case studies out there, including our own, but it’s important to focus on the fundamentals and not forget any critical steps.

To most of you, of course, this isn’t news. Cutting costs without cutting standards is essential to all businesses. However, the definition of a process in procurement is completely different than straightforward purchase processes – there are several extra, critical steps to factor in along the way. By respecting every single one of them and not neglecting your data and software’s ability to inform any decision-making, your business will be better for it. This is apparent in potential benefits such as a real end-to-end viewpoint, more accurate accounting figures, optimized supply chain management, and more.

What is a Procurement Cycle?

A procurement cycle, also known as the process in procurement or procurement lifecycle, represents the systematic series of steps that organizations follow to acquire goods, services, or works from external suppliers. This structured approach is designed to ensure efficiency, transparency, and adherence to organizational policies throughout the procurement journey.

The procurement cycle typically consists of several key stages, starting with the identification of a need for goods or services within the organization. This initial phase involves conducting a thorough needs assessment to determine specific requirements, quantities, and any relevant specifications.

Following the identification of needs, the organization moves into the strategic sourcing phase. Here, potential suppliers are evaluated and selected based on criteria such as quality, cost, reliability, and alignment with organizational goals. Negotiations and contract agreements take place during this stage to establish the terms and conditions of the procurement.

Once suppliers are selected, the procurement cycle progresses to the purchasing phase. Purchase orders are created, goods or services are received, and payments are processed according to the terms negotiated during sourcing. This transactional aspect of procurement involves meticulous attention to detail to ensure accuracy and compliance with established agreements.

Post-purchase, the cycle enters the supplier relationship management (SRM) phase. This stage involves ongoing collaboration with suppliers to monitor performance, address issues, and build long-term, mutually beneficial relationships. Effective SRM contributes to continuous improvement in processes in procurement and supplier performance.

Throughout the entire procurement cycle, organizations must remain vigilant about compliance with legal and ethical standards. This includes adherence to procurement regulations, industry standards, and internal policies. Regular audits and evaluations may be conducted to ensure that the process in procurement aligns with these standards.

A well-managed procurement cycle contributes to operational efficiency, cost savings, and the establishment of reliable supplier relationships. It serves as a strategic framework that allows organizations to navigate the complexities of procurement, from identifying needs to maintaining fruitful supplier collaborations. Understanding and optimizing the procurement cycle is crucial for organizations seeking to enhance their overall procurement effectiveness and contribute to the achievement of broader business objectives.

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Below are 5 of the most critical phases of procurement, ideal for whether you want to brush up on the essentials or need to confirm that you’re taking an optimal approach:

Stage 1: Identifying Needs

First off, just what does your team want, and what does it need? Also, considering current events such as the COVID-19 pandemic, what’s actually sensible, anyway? Every procurement management guide highlights that knowledge is power, now more than ever, and it’s the absolute truth.

Take the time to discuss and map out future strategies by conducting feasibility studies and meeting with involved departments. This will help you collectively determine what the best course of action is. A great example is in the product design sphere; does it make more sense to invest in bespoke manufacturing at a higher price or mass-produce to lower costs and pass them onto the consumer? These are decisions that one executive can’t make on their own; harnessing the power of raw data and analyzing outlined needs is critical to a worthwhile process in procurement.

Stage 2: Purchase Requisitioning and Approvals

Next up, once you’ve consulted available internal data and other knowledgeable team members, it’s time to requisition what you need. Doing so electronically, especially with user-friendly software that ensures continued end-to-end transparency and accurate data analysis, is the ideal approach as it minimizes errors. Maintaining communications and data accuracy through the purchasing department can further reduce complications once reviewed by procurement specialists. After all, rejections are never a good thing – though they can also serve as a lesson for improvement to benefit the next attempt. Either way, maximizing requisitioning compliance and accuracy informs the review process, so don’t overlook either phase.

Stage 3: Finalizing Budgets and Handling Quote Requests

Now we enter the world of quote requests, financial forecasting, and narrowing down the options to find the most suitable vendor candidate for your needs and budget. This is where the need for a centralized data budgeting solution becomes apparent, especially nowadays with so many moving pieces to monitor. Tracking spend by department, ensuring maximum cost control, and keeping everyone on the same page is key to selecting the vendor quote that will actually benefit you the most. Proper software solutions such as Tradogram are simple to set up, flexible to use, and affordable to maintain, so you don’t have to pony up for extra training or wasting critical time. Again, using the product example from earlier, this can mean getting to market before that competitor down the street.

Stage 4: Establishing Vendor Agreements

Now, the need arises for negotiating the best rates with the best vendors for the job at hand. This is one of the most important  procurement stages as it will directly influence your spend and profit margins, and whether there is an imbalance in the figures. It also ensures maximum compliance on both ends, if handled with care, to ensure fair negotiations in the future and agreements that aren’t overly one-sided. Remember, maintaining a beneficial vendor agreement is a relationship – you can’t neglect one another and expect everything in the garden to be rosy!

Stage 5: Invoice Reconciliation and Quality Assurance

What is procurement without keeping an eye on the bills? Three-way matching can save you from confusion over the books – think of it as a way to triple-check that every zero and the decimal point is in all the right places and nowhere else. This is also why the most successful procurement management processes focus on clean-cut, no-nonsense bookkeeping that leaves nothing to chance, providing a complete spectrum of spending that can be consulted against by any permitted employee, vendor, or otherwise. Cost analysis and spend monitoring also factor in here, utilizing the same verified-as-accurate data points to keep you informed on whether the process in procurement is working in these specific instances. If not, it’s time for renegotiations and careful road-mapping, which is also where the right procurement software can literally save the day.

The Ultimate Procurement Management Guide? User-Friendly Software

Seeing is believing when it comes to today’s modern purchasing and procurement software solutions. Those such as Tradogram are optimized from the ground up for hassle-free cloud integration, streamlined data permissions management and file sharing, and data optimization that leads to more informed decision-making. Whether you’re refining existing agreements, seeking to meet compliance standards for new ventures or otherwise, it’s a great way to get the most out of your real-time data, consolidated into a singular, centralized framework in a manner that benefits your entire team. In fact, we’ve seen Tradogram customers make substantial improvements across the board in everything from policy tweaks to drastically stronger spend analysis.

Need Better Purchasing and Procurement Management Processes? We Can Help!

The future of spend management is all about data; harnessing it, optimizing it, analyzing it, and deepening your breadth of available information. With these critical procurement stages in mind, there’s never been a better time to get more out of what you already have. Empower your planning today for a tomorrow with fewer unwanted surprises. Contact Tradogram easily using our online contact form.