Demystifying Procurement

Businesses stand to gain significantly by bringing in improvements, adopting cost-saving measures, and optimizing their business processes and functions. Procurement has been and will continue to be an integral part of the business. It is, therefore, essential to understand the procurement processes inside out to identify inefficiencies and work towards a robust and agile procurement function for long term sustainability.

What is Procurement?

Procurement involves dealing with sourcing, followed by negotiation and selection of goods and services for the organization or its clients and business partners. It is quite  different from the activity of purchasing.  Purchasing, simply put, is the process of ordering goods and services. Many people use the terms procurement and purchasing interchangeably, so it's important to highlight the difference betweeen the two at the very outset.

Steps involved in the process of Procurement:

The way an organization designs its internal procurement process is dependent upon a variety of factors such as the size of the company, organizational structure, industry and availability of resources. Listed below are some of the commonly followed steps in the process of procurement.  

a) Identification of goods and services needed by the business
b) Submission of the purchase request
c) Evaluation and selection of vendors
d) Process of negotiation for pricing and terms of engagement
e) Creation of purchase order
f) Inspection of goods received
g) Approval of invoice and initiation of payment
h) Maintenance of records.

Steps involved in the Purchasing process :

The purchasing process is more or less a subset of the process of procurement. It should not be tweaked or customized according to the size of the business. A standard approach works better.Let's have a look at the steps involved in the purchasing process:
a) Acknowledgement of the purchase order
b) Sending of Advance Shipment Notice
c) Receipt of Goods/Services
d) Recording of invoices
e) 3 way matching process
f) Supplier payment

Businesses should make a conscious effort to revamp their procurement functions at regular intervals.Continuous process improvement initiatives can make internal procurement processes efficient and help businesses in future-proofing their models against uncertainty in short as well as long term.