What is the procurement cycle?

A procurement cycle is the transition of tasks and processes that need to be performed throughout the procurement process. A successful and well thought out procurement and supply cycle can be the difference between success and failure. Management teams responsible for procurement in business need to implement company rules and procedures to ensure tasks and processes are performed successfully throughout the procurement process.

The procurement cycle steps and procedures in place may vary depending on your business requirements and objectives. Typical procurement cycle steps include:

• Identifying need

The procurement cycle starts with the business identifying a need for a product or service. The process of identifying a need may be an existing product that simply needs to be reordered or the introduction of a new product or service. Depending on the type of need, multiple departments and management teams could be involved. Cross departmental discussions may be needed to assess business necessity, research market requirements and to compile an audit of competitors.

• Outline a procurement plan

The next step within the procurement cycle is to develop an overall strategy to bring the product or service to market. There are several considerations that can be included within your procurement plan; each of them will be outlined from company policies and structures, and will vary from business to business.

Within the procurement strategy it’s worth considering the type of supplier that you will use to fulfil the delivery of the product or service you require. Depending on your position within the market and the type of products or service you may want to explore local suppliers or large international suppliers that can provide the most cost effective and efficient service.

Once the type of supplier has been decided you may want to consider the tendering process. You can choose whether to entertain an auction tender, where suppliers will bid for your business, or, alternatively, enter direct negotiations with a selection of potential partners.

Additional considerations could include testing the market to help identify buying cycles, trends and market requirements. Additionally, time should also be spent creating the relevant documentation that will be sent for tender. For example, the documentation could include terms and conditions, product specifications, volumes and service agreements. Documenting specifications will help your suppliers quote accordingly to fulfil your requirements.

• Selecting suppliers and issuing RFQs

Once your procurement management plan has been set out, the next stage is to identify relevant suppliers. Requesting for Information (RFI) provides you with the opportunity to gain relevant information from suppliers including size, financials and resources. Including an RFI within the procurement procedure and cross referencing the information received against your preferred supplier requirements will help you to determine whether a supplier meets the criteria to be included in the tender process.

Once the RFI stage is complete the next step is to issue a Request for Quotation (RFQ). An RFQ is sent out to preferred suppliers and includes details on the product or service required, volume and timescales. The RFQ stage can be initiated through a head to head auction or direct negotiation.

• Tender evaluation process

A tender evaluation process starts when a supplier has submitted its tender bid. The tender evaluation includes assessing the supplier’s quality of products / service, fulfilment capabilities, timescales and financial details. Additional considerations can include the overall costs and any terms and conditions that may have been included.

1. Typically, a tender evaluation process includes:
2. Price comparison
3. Fulfilment capabilities
4. Quality of product / service
5. Reference checking
6. Credit and financial checks
7. Supplier audit
8. Product / service sample or trial
9. Cost evaluation

• Contract Award and supply chain management

After the tender evaluation stage, and a preferred supplier has been selected, a procurement contract will need to be arranged. The procurement contract will specify terms and conditions including agreed timescales, costs and required stock levels to minimise risk.

The terms and conditions agreed within the procurement contract can be used as a marker against KPIs which will enable you to manage supplier relationships and resolve any potential issues that may arise during the procurement process. Maintaining a healthy relationship with your key suppliers can play an important role with future procurement needs. Maintaining key relationships can ensure continuity with your preferred products and services. It can also help with being first to market with a new product or service to get ahead of the competition.

• Contract Management

Depending on the size of your company, you can have dozens of different suppliers. This means going through a new procurement cycle with each one of them.

Instead of repeating the same processes, you can create a contract management system. This should include standard templates to improve productivity.

Using standard templates will reduce the risk of errors. It will also ensure you don’t forget to mention anything when dealing with new suppliers.

These documents will help you keep on top of your paperwork while also helping you meet your company standards.