What Are The Steps Of Procurement Cycle And Why Is It Important?
Are you curious about the procurement cycle and what it entails? Have you ever wondered why organizations put so much emphasis on this process? You are in luck because we’ve got all the answers for you! The procurement cycle is a crucial component of any organization’s success, and understanding its steps can help streamline operations, reduce costs, and improve efficiency. So, buckle up as we take a deep dive into the world of procurement to explore the essential steps involved in this critical process. Get ready to learn how effective procurement management can lead to better business outcomes!
The Purpose of a Procurement Cycle
The procurement cycle is a process that helps organizations procure the best product or service for their needs. It can be broken down into five steps: researching, understanding, analyzing, selecting, and contracting. The purpose of each step is to achieve a specific outcome. Here’s a breakdown of each step:
1. Researching: This involves gathering information about the product or service being procured. This can include researching online, talking to other professionals, and visiting potential vendors.
2. Understanding: In this step, the organization understands the product or service being purchased and its benefits. They also understand what they need to do to get the best deal possible.
3. Analyzing: In this step, the organization evaluates the information gathered in Step 1 and 2 and decides whether or not to purchase the product or service. They may also decide if they need to modify their requirements in order to get a better deal.
4. Selecting: In this step, the organization selects a vendor/supplier that meets their needs and specifications. They may also choose to develop a custom solution with a vendor/supplier.
5. Contracting: In this final step, the organization executes the contract with their selected vendor/supplier and gets started on fulfilling their requirements!
Steps in a Procurement Cycle
Procurement cycle is a process that helps in acquiring goods and services for an organization. It starts with identifying the needs of the organization and ends with implementing a solution that meets those needs. There are six steps in the procurement cycle: planning, acquisition, development, management, evaluation, and disposal.
Planning phase
In the planning phase, the organization identifies its needs and goals. It also determines what type of procurement it will use—public or private. The planning stage includes creating a strategic plan and mapping out how to achieve the organization’s objectives.
Acquisition phase
In the acquisition phase, the organization selects a supplier or suppliers to meet its needs. It conducts market research to find a suitable supplier or suppliers. The acquisition phase includes awarding contracts and making payment arrangements with suppliers.
Development phase
In the development phase, suppliers deliver products or services that meet the requirements of the organization. The development stage includes designing specifications for products or services and evaluating them to see if they meet the required standards.
Management phase
The management stage involves monitoring and managing supplier performance to ensure quality delivery of products or services. The management stage also includes supervising budgeting and accounting procedures to ensure correct financial management
The Different Types of Procurement Processes
Procurement is a process that allows organizations to acquire the best possible goods and services at the most favorable prices. There are many different types of procurement processes, each with its own specific advantages and disadvantages. Here are three of the most common types:
1. Competitive bidding: This type of procurement process involves soliciting bids from various suppliers for a specific project or service. The supplier with the lowest bid is chosen to provide the goods or services.
Some disadvantages of competitive bidding include the possibility of overpaying for products or services and the risk that a bad supplier will be selected.
2. Non-competitive bidding: In this type of procurement process, no bid is solicited from suppliers. Instead, an organization selects a supplier based on factors such as price, quality, delivery time, and other factors.
The main advantage of non-competitive bidding is that it can save time and money because there is no need to solicit bids from multiple suppliers. However, this type of procurement process can also be disadvantageous because it can lead to higher prices and less quality control.
3. Sole source contracting: In sole source contracting, only one supplier is selected to provide a particular product or service. This type of procurement process is often used when an organization needs a special product or service that cannot be found in any other supplier’s inventory.
The Importance of a Proper Procurement Strategy
A proper procurement strategy is essential to successful business operations. The procurement cycle includes the identification of needs, development of a sourcing strategy, and the selection of the best supplier. This process can ensure that the right products are purchased at the right prices, in a timely manner, and with proper quality control.
A properly executed procurement strategy can help reduce costs associated with defective or low-quality products. It can also help avoid delays in project completion due to shortages of critical supplies. A comprehensive procurement process also helps businesses maintain compliance with government regulations and promotes transparency in their dealings with suppliers.
The steps of the procurement cycle are as follows:
1) Identification of needs: This step involves understanding what needs need to be fulfilled and identifying which products or services will meet those needs.
2) Development of a sourcing strategy: This involves exploring potential suppliers and choosing the best ones based on factors such as price, quality, delivery time, and compliance with specifications.
3) Selection of the best supplier: Once a supplier has been chosen, evaluation must be performed to determine if they Meet all necessary requirements. If not, another supplier may be considered until a suitable candidate is found.
4) Contracting: Once a supplier has been selected and evaluated, a contract must be negotiated between them and the business concerned. This document sets forth terms and conditions governing the supply of goods or services.
Conclusion
Procurement cycle is an important part of any business. It helps in managing the inventory, getting the right product to the right customer at the right time, and reducing wastage. The steps involved in procurement cycle are ordering, receiving goods, inspection, packaging and shipping.