Boosted by digital transformation, procurement has changed considerably in recent years. Its processes have become faster and more reliable, and it now enjoys a much more prominent position in company strategy.
That said, the basics of the procurement process have not changed. Adding as much value as possible to a purchase request remains a procurement team's top priority. The procurement process now relies more on digital resources and skills, but its key steps are still crucial.
The six steps in the procurement process can be divided into two main stages (with three steps per stage):
- Sourcing, the initial stage to identify the best solution
- Listing, the final stage to make this solution part of a sustainable operational approach
Qualifying the internal customer's requirement
In terms of supplies that have not yet been listed, the first step in the procurement process is to help the requester clarify what they need. The quality of a procurement department's response relies first and foremost on considering all the ways in which the requested supplies will be used.
Specifications could include:
- Identification of the supplies: description, purpose etc.
- Quantification of the requirement: volume, delivery date, shelf life, where supplies will be used etc.
- Quality criteria: market positioning, reference equivalent, certification etc.
- Usage conditions: link to any other supplies, specific usage context, limitations etc.
- Service requirements: packaging, availability in an emergency etc.
Discussions with requesters will help to establish exactly what they need. In some cases, these discussions can also result in an alternative and innovative approach to respond to the initial request. The procurement team's ability to listen to the request and pick up on all the potential challenges is crucial here.
Identifying potential partners
Using the specifications and information available as a starting point, the second step in the procurement process is to establish a supplier base. This supplier base is made up of people who should, in theory, be able to deliver supplies that meet the required specifications.
Each supplier in the group will be assessed in line with the requirements of the company's procurement strategy:
- Adherence to ethical and CSR regulations
- Economic sustainability
- Logistical capacity
- Reputation, ratings and approvals
- Compatibility with the company's digital e-procurement setup
A—potentially streamlined—group then forms the basis for the consultation step.
Starting the consultation
The procurement team invites each of the suppliers selected from the group to participate in the consultation. The provisions of this third step in the procurement process are set out in a series of documents:
- Rules of the consultation
- Contractual conditions
Alongside the launch of the consultation process, the procurement team should draw up a scoring system that uses relevant criteria to help decide between the competitors.
Consultations usually involve two rounds:
- An assessment of the files received, at the end of which the least relevant files are discarded
- One or more interviews for the best files, to allow an oral presentation with questions and answers and maybe even a demonstration
Choosing the best partner
The most promising partner is chosen at the end of the selection process.
This fourth step in the procurement process is based on an objective analysis of the value proposition of each finalist. At this stage, the focus is more on the fluidity of the partnership than on the technical ability to meet the request, which has already been demonstrated by adding the supplier to the supplier base.
The proposed price, timeframes and logistical conditions obviously carry a lot of weight when making the decision.
The intuition and professionalism of the procurement team are vital when it comes to considering a collaboration that may last for many years.
Negotiating the most advantageous terms
The fifth stage of the procurement process focuses on turning promises into firm commitments, which can be measured over time. The idea is to agree upon a win/win solution with the future partner that results in maximum satisfaction for the company without having an adverse effect on the partner's ability to fulfil its obligations over time.
This step is a negotiation step that requires maximum preparation from the procurement team beforehand. Specifically, you will need to anticipate the strategic points to focus on and, of course, hone your arguments.
Whether or not your first choice of partner following the consultation is already listed as a supplier and already has an established relationship with the company is crucial in terms of how to approach the negotiation.
Setting the terms of the partnership
The final step in the procurement process is vital to ensuring a long-term collaboration.
In particular, the contract must provide as much detail as possible about the following:
- The conditions for assessing compliance with commitments, in terms of quality, logistics and general service
- The conditions for breach of contract, in the event of a deviation from the initial promises that cannot be resolved
In conclusion, the procurement process is based on six steps, each of which builds on the success of the previous one to create a mutually beneficial relationship.
Approaching each of these steps with skill and professionalism determines the strength of the cooperation between the two partners. Whether this cooperation will last is vital in an economy that is partly driven by the power of ecosystems built around "leading" businesses.
Moreover, the strategic importance of procurement is becoming clearer day by day. To find out more, take a look at the article by Julie Dang Tran, Managing Director of Manutan France: Seven priorities for procurement success in 2020