Procurement is the process of finding and agreeing to terms, and acquiring goods, services, often via a tendering or competitive bidding process. It generally involves making buying decisions under conditions of scarcity. During procurement, we use sound data and best practice and that of economic analysis methods such as cost-benefit analysis or cost-utility analysis.
Recognize a Need
The business must know it needs a new product, whether from internal or external sources. The product may be one that needs to be reordered, or it may be a new item for the company.
The right product is critical for the company. Some industries have standards to help determine specifications. Part numbers help identify these for some businesses. Other industries have no point of reference. The company may have ordered the product in the past. If not, then the business must specify the necessary product by using identifiers such as color or weight.
The business needs to determine where to obtain the product. The company might have an approved vendor list. 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. The company will qualify the suppliers to determine the best product for the business.
Price and Terms
The business will investigate all relevant information to determine the best price and terms for the product. This will depend on if the company needs commodities (readily available products) or specialized materials. Usually the business will look into three suppliers before it makes a final decision.
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.
The purchase order must be delivered, usually by fax, mail, personally, email or other electronic means. Sometimes the specific delivery method is specified in the purchasing documents. The recipient then acknowledges receipt of the purchase order. Both parties keep a copy on file.