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What Are the Steps in the Procurement Process?

A buying agent that needs to acquire steel will send a request for quote (RFQ) notice to multiple steel mills.
A car plant's assembly line manager will issue a purchase requisition (PR) order for steel when more of the material is needed to make car bodies.
Procurement quotes must include applicable shipping charges.
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  • Written By: Jeri Sullivan
  • Edited By: C. Wilborn
  • Last Modified Date: 17 October 2014
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Procurement process is the term used by businesses to describe the buying process, and can refer to the purchase of supplies or services. Many businesses use automated tools such as an Enterprise Resource Planning (ERP) system and Electronic Data Interchange (EDI) to assist procurement specialists or buyer with the buying activities. Regardless of whether an automated system is used, the goal of the procurement process is to buy the exact product or service when needed for the most favorable price.

Identifying a need is the first step in the procurement process. If the business has an automated system, typically a purchase requisition (PR) will be sent to the buyer indicating what product or service is needed. For businesses without automated systems, a handwritten PR is often used, which requires the person or department that needs the product or service to submit a purchase requisition form to the buyer for action.

If the product or service has previously been purchased, the buyer will enter a purchase order in the ERP system or submit payment to the supplier based on the previously agreed to terms and conditions. If the product or service has not been procured before, the buyer must proceed with a request for quote (RFQ). An RFQ involves selecting a supplier, determining the price to be paid, and agreeing to the lead time and quantity for delivery.

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Selecting a supplier typically involves sending RFQs to multiple suppliers and comparing the bids to determine which supplier can best meet the needs of the business. The buyer will request a specific quantity and delivery date based on the requirements outlined on the purchase requisition. Depending upon the type of product or service required, there may also be the need for technical qualifications or special licensing. For example, if the product requested is a medical device, the supplier must be licensed by the FDA to manufacture the product and prototypes must be sent and approved by the business before purchase orders can be issued.

Determining the price paid usually includes comparing bids then negotiating the best price. The buyer should ensure all bids are an accurate reflection of the work to be performed or service provided and include all applicable taxes and shipping charges. This way, the total landed cost is known before the purchase order is placed.

It is also necessary to understand the lead time and expected quantity to be delivered. Based on the actual need date, any accepted quote should meet the required date. If the supplier cannot meet the date needed by the business, expedite premiums may be incurred.

The expected quantity should also be supported by the quote received. The buyer must make sure the quantity to be shipped is not less than requested because the shortage may result in loss revenue. The buyer must also make sure the quantity to be shipped is not more than needed because the excess may result in liability for the business if the product is never used. Ultimately, the buyer is responsible for ensuring the procurement process is executed to meet the needs of the business while maintaining the profits.

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anon358040
Post 14

I have a question. Is it obligatory to announce the bid winner to the rest of the bidders who have participated in a tender? Sometimes I feel guilt for not declaring the winner to anyone who gives their offer.

anon334513
Post 13

What are the functions of the materials manager? Also what are the essence of needs in purchasing?

anon304683
Post 9

Where does procurement start, exactly? Some say it starts from budget planning during proposal development and is then followed by procurement scheduling. Where does it really start?

hmsher63
Post 5

I would think you would want to give a name and contact. From the other end, I have registered as a vendor for several entities. It would have made things a lot easier to have a subject matter expert that I could pose questions to. Often I got the response, "I don't know; I did not handle that."

I think having the contact information gives confidence on both sides.

More and more suppliers and customers are working together as a team to get the win-win.

win199
Post 4

@abiane - I agree that these charts can be helpful. Sometimes they are referred to as a procurement process map, which is essentially the same thing. Many people prefer to be walked through the process in the beginning so they can really understand what's going on and how everything works.

This is not only a courtesy if you're an acting agent, but also a little bit of common sense mixed in. The procurement process isn't difficult, you just have to know which turns to make next.

abiane
Post 3

There are also several options when it comes to a procurement process flow chart. You can find many of them online and in many different styles as well. This can be useful if you're not really sure what to do or where to go next. You can also plug in information based on your own needs as a buyer in order to get customized results.

bbpuff
Post 2

@anon90513 - It can really depend on the preferences of the supplier. While some may or may not prefer to know the -actual- client name, most just don't care as long as they are making a profit. For other purposes, some suppliers prefer to know who the client is just in case something raw happens to the deal and the bill doesn't get paid.

It all depends on the company and while you might not want to ask a supplier if they need the -actual- name of your client, you just might have to. Just explain that you're the buyer's agent and it should be pretty painless.

anon90513
Post 1

I have one question. When I'm selecting suppliers, is it necessary to tell them the name of the buyer? I'm asking because I'm scared of going around as an agent. Thank you guys. Lukas

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