Procurement and supply cycle

Procurement and supply cycle

Procurement is all activities required in order to get the product from the supplier to its final destination.

It encompasses the purchasing function, incoming inspection, and quality control and assurance, allowing companies to make supplier selection decisions based on total cost of ownership, rather than price. Van Weele (2009)

The process is often cyclical. Procurement and supply cycle takes this shape

#1 Understand your business needs

The first stage of the procurement process is to know exactly what the business needs since this will help you to come up with the procurement specifications.

Remember this is not something you just pull off the back of your head

You need to ensure that you have engaged the relevant stakeholders at this point. Remember stakeholders are people who can affect or be affected by the business

#2 Develop strategy and a plan

At this point of the Procurement and supply cycle the assumption is that you already have the specification as well as an outline of what your business requires and have also gone ahead and assessed the marketplace.

When developing your plan or strategy ensure that you consider the impact the external environment has. These include thinks like competitors, economic systems, social aspects, monetary, political or even legal system.

#3 Pre procurement / market test and market engagement

Before going straight to the market you need to test it. Look for things like whether or not it’s the right time to procure, what are your competitors doing? What about suppliers, are their new legislation? etc.

#4 Development of documentation

So now that you know what the market looks like you will have to spend time working on your tender documents.

You have to see to it that things like, Service level agreement, terms and conditions along with specification are consistent

Make sure that pricing, product quality, operational functionality and that products are fit for purpose in order to reduce the financial impact of the wrong specification further down the line.

#5 Select suppliers you are interested in

Conducting a Request for Information (RFI) at this stage in the procurement cycle will help to gain insights into suppliers, size, capabilities, financials, strengths and weaknesses before assessing whether they should be included in the tender process.

#6 Issue Invitation to Tender (ITT) /RFQ

Once you have selected the companies to participate a formal Invitation to Tender (ITT) and Request for quotation (RFQ) is sent out to participants, items to be included are specification and documentation developed around the business requirements along with clear timescales to respond.

#7 Bid/Tender Evaluation and validation

After your potential suppliers have submitted their tenders, they have to be evaluated and validated in so as to pick the right supplier(s)

Most evaluations explore price comparisons alongside technical capability, capacity, quality of service and financial health.

#8 Contract award and implementation

Now that you have your supplier(s), the next thing is to develop a contract. This will show that both parties are fully aware and understand their obligations.

#9 Warehouse logistics and receipt

Next is to have your warehouse operations in order. Things like product coding and classification, space, layout and racking, frequency of deliveries, order processing and booking in procedures to ensure an efficient process, along with any other business requirements.

#10 Contract performance review and continuous improvement

Keep on assessing if the suppliers are meeting the KPIs….Remember this is a continuous process

#11 Depending on the nature of procurement the final stage will be ASSET MANAGEMENT / END OF LIFE AND LESSONS LEARNT

Over time assessments will be carried out on whether the business requirements have changed, whether the agreement is still required and fit for purpose, what can be learnt from the process and how this can be incorporated to improve the process next time.

Depending on what we find out here…This cycle then begins again.