Example Purchasing Process
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A business process is something that takes a set of inputs, carries out a transformation or processing of those inputs and in turn produces an output.
The purchasing process is no different – it consists of a series of activities, linked by information that drives the acquisition of materials or services.
This process is defined by a number of key stages
Define Requirement / Requisition process
This stage endeavours to answer the question of what do we need to procure. The process will vary depending on the organization and can consist of a number of methods from completing a paper requisition form (I want an new office chair), through to an email to the buying team or in many cases an electronic signal from the ERP system that the minimum stock holding has been reached.
This stage of the process endeavours to find out –
- What do we need
- How much do we need
- Why do we need it
- Which cost centre will pay for it
This stage almost always requires some form of approval in order to proceed to the next stage.
Sourcing / Request for Quotations / pricing
Once a need has been identified the purchasing team need to identify where to buy it from. This may be from an established supplier with an existing agreed price or from a brand new supplier from whom they need to agree price and lead time. This stage may be carried out via a competition with multiple suppliers to drive the required result (best price/terms)
Negotiation
Once an initial price / lead time has been received – the procurement team may choose to negotiate with the supplier(s). This may target
- Price reduction
- Lead time improvement
- Acceptable commercial terms
Order Placement
Once negotiations have taken place and an acceptable position has been reached a Purchase Order is usually raised – this represents agreement with the supplier for the provision of goods in exchange for suitable recompense (the price). The order will usually state
• the part being purchased
• The quantity being purchased
• The agreed price
• Terms and conditions
• Delivery address
Receipt of Goods
The goods receipt process will usually process the delivery of the materials purchased. The receipts process usually checks as a minimum that:
The goods are in a satisfactory condition
That are what was ordered.
Pay Supplier
Once the terms of the order has been met the supplier is paid. This will typically be as a result of the Supplier sending a purchase invoice to the buying organization. At this stage the bought ledger team will carry out a three way match between the invoice the order and the goods receipt – this process checks that:
• The invoice relates to the purchase order
• That goods have been receipted
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