The Procurement Cycle

Procurement is about finding companies who can supply the products or services you need, at the right price and on schedule. Your aim is to choose the supplier who offers the best value for money.

Potential suppliers are invited to make an offer to provide products and services via a tender document, known as an ITT (Invitation to Tender) or a Request for Quotation (RFQ).

The tender usually includes the product or service specification, delivery and service requirements, and legal and financial terms and conditions. It may also list the criteria you will use to choose a winner (price, quality, delivery schedule, etc). Once tenders have been evaluated, the tender committee recommends the best partner. Following this recommendation, you sign a contract with your choice of supplier, setting out what is going to be supplied in the terms. The more information contained in the tender, the greater the chances of finding a good supplier to work with as partners. Then you sign a contract with your choice of supplier, setting out what is going to be supplied and the terms.

Organisations use a number of different approaches to procurement. The CIPS Procurement Cycle identifies 13 stages, from identifying what you need to managing the assets you have acquired. This outlined in the diagram below:

Within this Procurement Cycle there are 13 stages of which five stages are the Sourcing Process numbered 5 to 9. These will help you select the best product or service for your organisation:

5. Develop Documentation and Detailed Specification: Find out what products and services you need. Think about what you need now but also in the longer-term, maybe over the next month or even one year. Ask those who will use or manage the product, including warehousing and distribution. Understand the stakeholders in your organisation who might be directly affected by a change in supplier or the introduction of new products or services, and ask their advice. This will make it easier to promote the benefits of any changes.

6. Select Suppliers to Take Part in The Tender: Once you know what you want, investigate the supply market. Introduce yourself to potential suppliers and discuss what you are looking for. You can invite some to visit your organisation to develop a better understanding of your needs. You might also visit suppliers to view their premises and evaluate how well managed they are. Look for suppliers with the capacity to meet your requirements. This is part of the appraisal and selection process.
   
   It is important to have a formal process with checks to make sure potential suppliers have the capacity and financial support to meet your requirements. When completed, the supplier may be added to an Approved Supplier List and this will generate a greater degree of competition for your goods and services and this is likely to result in better prices and delivery terms.

7. Issue Tender Documents: When you are ready to tell suppliers that you are looking to buy particular goods or services, you can send an ITT or an RFQ depending on the product or service you are looking to buy, to potential or approved suppliers. Set a deadline so suppliers know how long they have to prepare their proposals and submit their proposals.

8. Bid and Tender Evaluation and Validation: Once the deadline has passed you can begin to evaluate the proposals to select the best supplier, using the criteria you set in the tender. You can ask for more information if it will help you to decide. Draw up a shortlist of the bids which meet all the criteria.

9. Contract Award and Implementation: There are likely to be negotiations, which should be managed in accordance with procedures established in the tender. Once you have chosen the preferred supplier, you should send a formal notification and the contract for them to sign. When this has taken place, you can work together to make the necessary arrangements for deliveries to begin according to the agreed schedule.

You must be sure to choose a supplier you can depend on. If the supplier fails to deliver on time and at the agreed price, you may not be able to deliver to your own customers. You might lose orders or have to pay more than you expected to meet your commitments.

Many businesses do not like to change their suppliers because of the costs and resources involved and the risk of disruption. But this could be costing them money and orders in the long-run. It is important to always be looking for ways to become more efficient and to improve your business performance.

Remember that your aim should be achieving good value for money over the lifetime of the contract. It should not just be about getting the cheapest price. If a supplier is not meeting performance expectations, it could cost your organisation a lot of money to put things right.

Successful organisations invest in the sourcing process, always challenging themselves to be better. They apply the same principles to their broader approach to procurement and supply. This means having a set of rules that everybody knows they must follow when they need to buy products or services.