Friday 21 November 2014

5 Most Powerful Techniques of Procurement Cycle

Authored by  Junaid Khan 

Management in any company must understand the art of purchasing products and services. The planning, purchasing and marketing are the key stages of good procurement exercise. The procurement cycle follows specific steps for identifying a requirement or need of the company through the final step of the award of the product or contract. For every procurement project, a formal and professional procurement process will save time, save money and reduce risk. Responsible management of public and corporate funds is vital when handling this necessary process, whether in strong or weak economic markets. 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. Following are ten proven step by step techniques through which an organization can successfully achieve their goals.

Requirement Recognition
Procurement activities in an organization start right since the stage a need is felt for any material or service and organization must know it needs a new product, whether from internal or external sources.  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.

Specific Need
Requirements for goods and services originate from different users. In emergencies, the response teams in various sectors request for basic supplies to meet the needs of those affected. The needs range from blankets, mosquito nets, tents to food supplies, household items, etc. The needs are communicated to procurement in the form of a “request”. These requests may be electronic, hard copy or verbal, and may be very specific where the users know exactly what they need in terms of specification, quantities, and delivery details. Or they may be less specific where the users are not able to provide exact information.

Items Source Options
The organizations always needs to identify that where to obtain the product. Many organizations have their own Pre – Qualified vendors data base if not the business will need to search for a supplier using purchase orders or research a variety of other sources such as magazines, the Internet or sales representatives.

Pricing and Terms
Purchasing departments continue to offer a range of prequalified vendors a request for quotation (RFQ) for items or services that it wishes to purchase. The competitive bid process can produce a range of bids and conditions that the purchasing department will evaluate and then award the business. This may or may not involve some form of negotiation. Most negotiated business will involve items or services that are not necessarily definable by an RFQ. The purchasing department and the vendor will negotiate more than a price. The negotiation will usually cover what is to be manufactured or what is the extent of the service to be provided, the warranty, the transportation services, technical assistance, packaging alternative, payment plans, etc. Purchasing items or services of significant cost will require extended negotiations to arrive at a final contract.

Purchase Order
The purchase order is used to buy materials between a buyer and seller. It specifically defines the price, specifications and terms and conditions of the product or service and any additional obligations.