On face value procurement seems a lot like buying things, however whilst procurement captures purchasing it involves so much more to ensure value for the organisation. The key steps of procurement are:
Needs Analysis
Procurement is designed to meet a need. Generally the acquisition of a good or service to meet a requirement, solve a need or create an opportunity. With this in mind the first step is to understand what the needs are.
Whilst often expressed in a linear or once off task, identification of business needs is most likely an iterative process; getting a high-level idea, getting stakeholders involved, adding more detail and going back and forth with technical staff, end users and business managers to truly understand their needs.
The output of this stage is generally a Business Case – which should be approved by someone with sufficient delegations (authority) within the organisation.
Analysing the Market
Within the needs analysis we considered our demand – what do we want. Here we are considering the supply side of the equation – what can the market offer?
It’s important to consider aspects such as the market size, competition, maturity as well as any contracts or purchasing agreements your business may have in place.
Planning
This is where the magic happens. In this stage a pan to meet the business demand with what the market can offer. It’s important to consider any barriers such as location, lead times from the supply side and assess from a business perspective, when is the item required, specifications, approval processes and other requirements.
The planning stage generally culminates in a procurement plan.
Approaching the market
This puts the procurement plan into practice. It’s important that prior to implementing procurement that you have gained the necessary approvals. This stage is often titled the request stage as a request document is drafted – stating the requirements and made available for the market to make offers.
This stage can be seen in two parts:
- Developing the Request
- Advertising the Request
Receiving and Evaluating bids
Your request is in the market and hopefully you will get some responses which will deliver value. Based on the process you are using you will probably have identified the criteria by which you will score the bids (offers). This stage looks at assessing each response to the request in an aim to determine which is the most suitable for the need.
Negotiation
This stage looks to transition from the execution of procurement to the formation of a contract. It is not always required and some businesses and government processes have strict conditions surrounding negotiations. This is mainly to ensure that the whole process remains fair.
Contract Award
Awarding a contract should not be approached lightly. This is often realised at the outcome of the procurement process and human nature seems to accelerate its attainment and remedy the issues after the contract has been awarded – this is bad. Once a contract is made; making changes is going to be difficult, costly and in some cases not possible. Your business should be happy with the bargain prior to accepting the offer and entering into a contract.
Contract Management
A contract is an agreement for all parties to deliver upon their promises. However not all goes according to plan, sometimes it’s the fault of the contact- being ambiguous or not fit for the context, or the parties failing to make good on their expectations.
Either way contracts need to be managed to ensure promises are exacted upon. The contract management stage also includes administering the contract – keeping records, monitoring indicators etc.
Contract Close
A contract is designed to have a lifespan; even death do us part. The aim is for the contract to be discharged through performance – basically all the parties have fulfilled their obligations. However a contract can be closed through other avenues such as non-performance (breach of contract).
Review
This is a very important stage and in many cases dismissed as the contract is over and it’s time to go through the process again. What people tend to find when this step is left out (or rushed) is that they continually experience the same issues. This highlights poor procurement.
The review stage should feed into the start of each new procurement.
