Procurement procedures

Procurement procedures describe procurement process as an activity involving the acquisition of input material and transforming them into results obtained on entry. Thus, the purchasing process is the whole area of ​​business activity related to buying production and non-production materials, goods, services, capital goods and R&D services. It is often broadly described as a procurement management on operational level, strategic procurement on strategic level (strategic sourcing).

Procurement procedure - main stages

Procurement process can be divided into four stages, regardless of industry, company size, form of ownership or organizational structure:

• Collecting information about potential suppliers,
• The choice of supplier and negotiating terms of cooperation
• Evaluation of suppliers and improvement of cooperation
• Termination of cooperation.

Procurement procedure information requirements

Information about potential suppliers is collected, primarily when:

• suppliers of production materials or services for new products are sought,
• there is a problem of profitability,
• there are conflicts in the interaction with suppliers,
• competitive suppliers submit their offers.

Decision making during procurement procedure

To take optimum decisions in handling tenders, this stage makes it easier to precisely prepare request for proposal with strict requirements. Suppliers apply different strategies in the preparation of tenders. Some are preparing offers with high overhead, hoping for a poor understanding of the market, and if necessary they are ready for its significant reduction. Other first try by using low price, to obtain the customer's order, and after a period of cooperation in a variety of ways they tend to raise prices.

Supplier selection criteria in procurement procedures

Supplier selection criteria eases decision making process which involve choosing of the most suitable supplier, to whom company may effectively entrust its plans associated with trading, production or services.

Basic selection criteria of supplier are:

• Quality - often refers to specific requirements that the user has in relation to the product, provided by the supplier,
• Timeliness - are deliveries made at agreed date,
• Price - the company checks the level of prices and the stability of costs of delivery and transport, the discounts, the ability to negotiate price.
• Service - quality of service meets the minimum expectations of the customer,
• Reliability - whether orders always are fulfilled without problems,
• Potential - indicates the ability of the supplier to provide the required quality and quantities of materials in a timely manner,
• The financial condition - in case the supplier of the precarious financial situation there is a danger of interference in provided by him regular long-term use,
• Location - it gives the opportunity to address urgent orders, adherence to agreed deadlines and the possibility of closer cooperation between supplier and buyer. However, suppliers located further from the buyer may offer lower prices, greater technical skill, reliability of supply and higher quality products.

Procurement procedures — recommended articles

Supplier — Criteria for selecting suppliers — Purchase strategy — Make-Or-Buy Decision — Vertical integration — Outsourcing - Supply analysis — Outsourcing — Differentiation strategy — Sales analysis

References

• Novack, R.A.; Simco, S. W. (1991) The Industrial Procurement Process: A Supply Chain Perspective, Journal of Business Logistics, 12.1
• Razmi, J., Rafiei, H., & Hashemi, M. (2009). Designing a decision support system to evaluate and select suppliers using fuzzy analytic network process. Computers & Industrial Engineering, 57(4), 1282-1290.