So, you’ve setup a business, raised money and you’re ready to take over the world? Everything purchased from your business makes up “procurement”.
It is a simple formula. Identify product/service, place an order, receive order, get invoice, pay. The problem is, without a transparent way of doing this, it can all get quickly out of hand. When you grow, you have this process starting to happen across the company, in different locations, across different currencies – and when it goes wrong, it can be very expensive.
It’s why so many companies grow and create a procurement department. The answer to “what procurement is all about” then lies with them. But what happens before you get to the procurement department stage? What is procurement all about before you reach that stage of evolution?
Here are your main steps to procurement
As detailed by the Chartered Institute of Purchasing and Supply (CIPS) and businessdictionary.com:
1: Recognising the need – A business owner (or someone within a department) must recognize a product/service is needed. This product/service is either brand new, or one that is being re-ordered.
2: Specific Need – Depending on specific requirements, various products & services will need to go through specific buying steps.
3: Choose Suppliers – Where businesses get their goods is a key step of procurement. Some companies have an approved vendors list (this is a recommended practice) while others are still trying to determine who the best suppliers are. Once a supplier is chosen, companies should stick with that relationship and try to establish preferred pricing to control spend.
4: Price & Terms – Once a supplier is chosen, companies should try to lock in pricing and issue specific terms (like delivery terms, payments etc).
5: Purchase Order (PO) – The purchase order is the formal contract used to buy the product. The PO sets the price, product detail and the terms & conditions of the product or service and any other additional obligations. The PO is legally binding and is not to be mistaken for a plain order. Again, this helps you control spend.
6: PO delivery – Sending the PO via email, phone, mail or fax. Needless to say that email or direct access via a cloud platform are the best ways.
7: Deliveries – This is self explanatory, it deals with when a PO will be delivered. Knowing when your supplier’s delivery days are, minimises errors and is the first step towards three-way matching.
8: Receiving deliveries – Once delivered, the receiving company should inspect and accept/dispute the delivery. Disputes are almost always due to a damaged/missing product.
9: Invoice Approval & Payment – Here, we have three documents that must match when the seller wants payment. When the invoice comes in, the original PO and the delivery doc should all match. This is known as three-way matching. If there is a difference, it must be resolved between buyer and supplier before any payment is made.
10: Records –Tracking and having real time visibility on all relevant documents is key to business growth.
What about eProcurement?
eProcurement is essentially all of the above done online.
An eProcurement platform, portal, system is the main way of tracking & accessing live data. Live data flows in a digital environment. All information is sent electronically, through a digital platform, and so all data is accessible in real time. It enables a pro-active vs reactive stance when it comes to buying/paying for products/services.
The eProcurement platform will record each and every transaction. This means all your data is accessible and all spend is under control at every second. When you’re building a company this is essential. Transparency on spend is critical importance for financial forecasting. It will show you what you’re sitting on and how you can use your resources for further growth.
Best practice procurement processes, removing paperwork and repetitive, mind numbing tasks – this is what eProcurement does for you.