essay about purchasing cycle

What is Purchasing Cycle? Steps, Purchase Orders Agreements, Blanket Purchase Order

• Post last modified: 10 August 2023
• Reading time: 23 mins read
• Post category: Procurement Management

• What is Purchasing Cycle?

The purchasing cycle refers to the process that a company or individual goes through when making a purchase.

Purchasing is the formal process of buying products and services. The process of purchasing can vary from one organization to another. However, there are some common key steps that are followed by all organizations.

Table of Content

• 1 What is Purchasing Cycle?
• 2.1 Identifying the Need
• 2.2 Specifying the Need
• 2.3 Selecting a Source
• 2.4 Determining the Price
• 2.5 Placing a Purchase Order
• 2.6 Acknowledging the Order
• 2.7 Following up and expediting
• 2.8 Checking the Invoice and Approving the Payment
• 3 Purchase Agreement for Standard Purchase Orders
• 4.1 Framework Contracts
• 4.2 Framework Agreements
• 5.1 Features of Blanket Purchase Order
• 5.2 Release Orders and System-generated Purchase Orders
• 5.3 Open-end Orders

Purchasing Cycle Steps

To make purchasing effective, most organizations follow a purchasing cycle or process. A purchasing cycle is a step-by-step approach to an effective purchasing function.

Let us now discuss the purchasing cycle steps :

Identifying the Need

Specifying the need, selecting a source, determining the price, placing a purchase order, acknowledging the order, following up and expediting, checking the invoice and approving the payment.

It refers to the first step of the purchasing cycle in which the requirements of materials are determined by the user department. These requirements are determined by taking into consideration the purchase requisitions and BOMs, which were discussed in the previous chapter.

It involves determining the exact quantity of materials to be purchased for production. Different departments of an organization need to define their requirements in the purchase requisition form. The approved PR reaches the purchasing department for making the purchase.

If there is any error or unclear description in a requisition form, the purchasing department does not make any changes to it, rather the department sends the form back to the respective department for clarification.

It refers to one of the most important steps of the purchasing cycle. The quality of materials depends on the source from where they are procured. Therefore, the purchasing department is responsible for selecting the right source for procuring materials.

To do so, the department maintains a list of reputed suppliers. The purchase department also selects a supplier by inviting tenders through advertisements.

As discussed earlier, the purchasing department is responsible for procuring the optimum-quality materials at the lowest price. Therefore, it is important for the purchasing department to analyze its budget, perform market research and determine the best price for procuring materials.

The purchase department generally uses three ways for determining the best price of materials, which are:

• Vendor catalog : It is a list of different materials along with their prices and quantity, available from different vendors. The department only needs to check the current list to determine the best price of materials.
• Negotiation : It involves bargaining with the supplier to reach the best price for materials.
• Tendering : It refers to a method mostly used by government organizations in which the buyer sets a price for materials and the supplier needs to bid for receiving the purchase order from the buyer.

A purchase order is a legal contract that specifies the entire agreement between the purchasing department and the supplier. It defines the agreed price, terms and conditions, and specifications of materials to be purchased. The purchase order helps in preventing any misunderstanding between the two parties.

After the order placement, it has to be acknowledged by the supplier. Acknowledgement is all about getting confirmation from the supplier about the timely delivery of materials. Without acknowledgement, the order will remain only “an offer to purchase” with no legal standing.

Once the supplier issues acknowledgement, it becomes a purchase contract and the same needs to be noted in the purchasing system.

It ensures that the items are delivered by the supplier on time. No special expediting procedure is required in the following conditions:

• Good production planning
• Less engineering alterations
• Efficient inventory control
• Proper purchase order
• Appropriate supplier

This is the last step of the purchasing cycle wherein the invoice is verified by matching it with the purchase order and GRN. This is called three-way matching. If there is no mismatch between the materials ordered and received, payment is made to the supplier.

In certain cases, the invoice needs to be matched only with the purchase order. This is called 2-way matching, and it is applicable in cases where GRN is not raised. For example, in the case of blanket purchase orders, GRN is not raised.

As discussed, the purchasing cycle is applicable to any standard purchase order. However, all purchases do not go through such elaborated stages. Owing to the nature of repetitive purchases of the same materials, organizations have invented new methods that simplify the purchasing cycle and integrate it with the inventory management process.

In this chapter, you will study some important purchasing methods in detail.

Purchase Agreement for Standard Purchase Orders

The Chartered Institute of Procurement and Supply (CIPS) defines a purchase order (PO) as a document issued by a buyer to his/her supplier that defines what is needed, in what quantity, when performance is required, and on what terms, including price and payment terms.

The issue of a purchase order is a prerequisite in many payment systems for the payment of invoices. A sample format of the purchase order was shown in the previous chapter.

It is important to understand that manufacturing organizations producing the same set of finished products require similar sets of materials and components for each and every production schedule.

Given that the manufacturing plant and the nature of production methods do not change, the required raw materials and component parts for manufacturing any particular finished product would not vary with every production plan. Only the quantity of raw materials and components may change depending on the customer demand forecasts and production plans.

Similarly, procurement of standard inventory items that are required on a day-to-day basis usually involves the same set of suppliers who have already been approved (through a supplier selection process) by the organization for sourcing its inventory requirements from them.

Therefore, organizations are not required to identify a new supplier every time an inventory procurement requirement is raised, owing to the repetitive nature of the requirement.

To fulfill their standard, repetitive purchase requirements, organizations enter into long-term purchase agreements with suppliers. These purchase agreements envisage a long-term partnership with suppliers in terms of procurement commitment from the buyer organization.

Different types of organizations like manufacturing, service, software, etc. use different types of purchase agreements depending on the nature of their procurement needs.

Types of Purchase Agreements

CIPS classifies purchase agreements into the following two categories:

Framework Contracts

Framework agreements.

Framework contracts are legal contracts where the buyer commits upfront that it will purchase a specified quantity of items in a given period. For example, a manufacturing organization may enter into a framework contract with an electric utility for the off-take of a specified amount of electricity during a given period.

Similarly, a pharmaceutical company might forecast that it requires a particular amount of chemicals to be used as raw materials in its batch production processes at any given period. Though the company might be certain of its requirements, it may not need to purchase the entire quantity at once.

Instead, it can enter into a contract wherein it commits to purchase the entire quantity from the same supplier over a specified period. This helps fix both the price and the supplier at the best possible terms for the entire production period. Such a contract is called a framework contract.

A framework agreement is not a legal contract but only an agreement to buy an unspecified quantity over a particular period of time.

For example, an automobile major like General Motors knows that it would require sourcing anti-braking systems from a supplier like Robert Bosch, over a period of time. But General Motors does not want to enter into a framework contract that specifies that it will purchase a specific quantity from Robert Bosch during a particular period.

In that case, it can enter into a framework agreement with Robert Bosch wherein it only commits (or firms up its intention) to purchase anti-braking systems over a period at given terms and conditions including the price.

So, a framework agreement need not specify any quantity nor carry a legal commitment to purchase a fixed quantity. It may not even specify delivery dates or the shipment location. Most manufacturing organizations enter into framework agreements due to their flexible nature.

Standard purchase orders are similar to framework agreements as they do not have a legal contract but only an offer to purchase. A purchase order becomes a contract only after the supplier accepts it by acknowledging the same and committing to supply products/services as per the terms mentioned in the purchase order.

Blanket Purchase Order

The term ‘blanket purchase order’ is used differently in the context of different organizations and ERP modules. The APICS (Association for Purchasing and Inventory Control Specialists) dictionary defines a blanket purchase order as a long-term commitment to a supplier for material against which short-term releases will be generated to satisfy requirements.

The CIPS definition says blanket purchase orders are purchase orders placed on suppliers that cover a range of products or a time period that commits to a volume of one product.

In CIPS terminology, a blanket purchase order is a form of framework agreement. CIPS defines a blanket purchase order as an agreement between buyer and seller whereby certain goods will be purchased at prices established or agreed to by way of a formula over a period of time.

In other words, it is an agreement with the supplier where the buyer commits to purchase the items over a specified period. It may or may not specify an indicative quantity.

A blanket purchase order is generally meant for a particular item or a group of items required to be ordered repetitively from a single supplier. It is basically an open order effective for a specified period, say, for one year. It eliminates the need for issuing a separate purchase order whenever there is a need for materials.

The buyer will enter into a blanket purchase order through due negotiations after which ordering of any item covered by the blanket purchase order only requires a release order. Through this mechanism, the order and receipt of materials as per the production schedule become a routine matter between the buyer and the supplier.

Most purchases in the organization covering routine standard items happen only through blanket purchase orders. Standard purchase orders are used only for one-off purchases from new suppliers.

When a blanket purchase order for an item is negotiated, the buyer and the supplier evaluate the anticipated demand for the item over a period of time. The two parties then agree to the terms and conditions including price, quantity, discounts, specifications, quality, and delivery lead times.

For a purchase to be made by the blanket purchase order, individual purchase orders and GRNs are not raised. The blanket purchase order reduces transaction processing costs which can have a significant positive impact on the total acquisition costs of materials.

Features of Blanket Purchase Order

Release orders and system-generated purchase orders, open-end orders.

The salient features of a blanket purchase order are summarised below:

• A blanket purchase order is a type of long-term purchase order and is the most preferred and widely adopted method for all repetitive and standard purchases.
• A blanket purchase order covers a procurement commitment to a supplier for specific products at an agreed-upon price for a specified period.
• A blanket purchase order eliminates the need of issuing a purchase order every time there is a requirement for the material.
• To manage routine and standard inventory items, buyers enter into blanket agreements that enable the shipment of items through release orders obviating the need to go through an elaborate purchasing cycle.
• A blanket purchase order is based on negotiated terms and conditions including price, quantity, discounts, and projected demand over a period. It leaves the delivery date and the ship-to location open.
• Release orders are issued against blanket purchase orders as and when material requirements are identified in the MRP system.
• On shipment, the supplier raises the invoice for payment.
• No GRN is raised for shipments based on blanket purchase orders
• Two-way matching is done while making payment for shipments on the basis of blanket purchase orders.
• Total invoices raised against a blanket purchase order cannot go beyond the limit set for blanket purchase orders.

Release orders (also called material purchase releases) are authorizations issued to suppliers to make shipments as and when required as per the blanket purchase order agreement.

A copy of material purchase releases is also sent to purchasing, accounts payables, and store departments. Release orders specify the current quantity to be shipped, delivery date, and ship-to location. These orders are based on material requirements identified by the MRP system. These orders raised by the MRP system are based on the BOM associated with the finished product.

For example, for a desktop PC, there is a demand for 1,000 finished products, that is 1,000 PCs. To cater to this demand, release orders derived from BOM, for components or parts to be replenished will require the shipment of 1,000 monitors, 1000 keyboards, 1000 mouses, 1,000 hard disks, etc (assuming these are externally sourced from suppliers).

In an ERP system, automatic release orders for each of these components will be directly issued to the suppliers as per the respective blanket purchase order details. Such release orders are called system-generated purchase orders/release orders. In the real world, most purchases happen only through such automatic system-generated release orders.

In such release orders, in the first few weeks (or days depending on lead time), the material requirement indicated will be the actual shipments required as per the delivery date specified, while the requirement stated for the subsequent period will be the quantity forecast for the period.

It is also practiced by many supply chain-driven manufacturing organizations to share material requirement forecasts with their suppliers. This would help the supplier plan supply requirements in advance.

Open-end orders are similar to blanket purchase orders. However, they allow for the inclusion/deletion of additional items over a period of time. Such orders are useful for procuring MRO and production support items discussed in the previous chapter.

Usually, these items are of low cost, high volume, and large in number. The required items can also change and can be unpredictable. Open-end orders allow the convenience of modifying standard blanket purchase orders. The period of the order could be up to one year or till renewal.

• Baily, P., Farmer, D., Crocker, B., Jessop, D., & Jones, D. (2008). Procurement principles and management. Pearson Education.
• Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.
• Bower, D. (2010). Management of procurement (1st ed.). London: Thomas Telford.
• Blanket Orders | (2017). Materialsmanagement.info. Retrieved 1 March 2023, from https://www.materialsmanagement.info/procurement-management/blanket-orders.htm
• APICS – The Premier Association for Supply Chain Management. Apics.org. Retrieved 1 March 2023, from http://www.apics.org
• Blanket Order: Procurement and Payment Services – Northwestern University. Northwestern.edu. Retrieved 1 March 2023, from http://www.northwestern.edu/procurement/about/procurement-methods/blanket-order.html
• Supply Chain Management Publications | American Purchasing Society. American-purchasing.com. Retrieved 1 March 2023, from https://www.american-purchasing.com/propurch

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The Purchasing Cycle Explained

• Written by Lyle Del Vecchio
• 11 min read

How much your company spends to do business, and how often, plays an important role in your overall success. Transforming cash into goods and services, the purchasing cycle is at the core of procurement and can have a major impact on your productivity, competitiveness, and profitability.

Understanding your company’s purchasing cycle is the first step toward optimizing it. With the help of technology and process improvements, you can ensure your purchasing department is building value for your company while reducing costs due to wasted time, energy, and resources.

What is the Purchasing Cycle?

The purchasing cycle—also called the procurement cycle or procure-to-pay (P2P)—is the process by which you order, obtain, and pay for the goods and services your business needs.

For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. In between, they may generate a purchase order, pay for goods directly, or invite tenders (also known as bids) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need.

The Purchasing Cycle, Step By Step

For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. 

In between, they may generate a purchase order , pay for goods directly, or invite tenders (also known as bids ) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need. 

Most companies have a quirk or two, but in general the process follows a fairly straightforward series of events:

Needs Analysis

This stage of the purchase cycle is dedicated to identifying the need to be met, whether it’s a reorder, raw materials for a new product produced by the company, or office supplies.

Needs Clarification

Once the need’s been identified, the variety (e.g., brand), amount required, and delivery schedule need to be established.

Purchase Requisition and/or Purchase Order

With the details settled, the requesting party has a couple of options. Generally, those without the authority to approve direct purchase orders will first create and submit a purchase requisition , which is an internal document requesting that approved parties obtain goods and services. Upon approval, the purchase requisition is used to create a purchase order , which is the actual order sent to the supplier for the goods and services required.

Authorization

The purchase order (generated from a purchase requisition or not) must also be approved. The purchase order process benefits from automation and artificial intelligence (AI), usually through the use of purchase order software that’s part of a comprehensive procurement software package.

Not only does automation permit role assignments and automatic routing and tracking of all purchase orders and approvals/rejections/revisions, but it allows for real-time adjustments and transparent communication between all parties involved. In addition, automatic reminders can be created to ensure no PR or PO is left to languish.

Supplier Review

If you’ve already integrated an automated procurement solution into your workflow, chances are the list of approved and available suppliers will obviate this step in the process—especially for repeat orders. But if you’re adding new products, or new suppliers for existing products to the system, then each candidate must be reviewed for compliance, performance, and reliability.

Supplier Selection

At this stage, the purchaser chooses the supplier who’ll be filling the order, either from the pre-vetted list in their software catalog or through other means.

Price and Term Negotiations

This step is also made infinitely easier if your workflow is built around procurement software automation. Centralized contract and document management and information sharing means previously-negotiated contract terms and best price are already available for each vendor on the approved list. New vendors being added to the system will have this information added as your legal team completes and certifies your company’s agreement(s) with the vendor.

If your company doesn’t use automation, then your team will need to sit down with the vendor to negotiate payment terms and conditions.

Order Placement

At this point, the buyer officially places the order and creates a binding purchase agreement between your business and the vendor.

Receiving and Inspection

For material goods, arriving shipments are inspected for completeness and integrity, with any shortages and broken goods marked to be credited back to the buyer. The invoice is either included with the goods or sent separately by the vendor.

Inventory management is either manually updated or handled automatically by the procurement software, which links the shipping documentation to the original purchase order, invoice, related correspondence, and other documents for data analysis and auditing purposes.

The invoice is reviewed for accuracy against the purchase order, invoice, and other documentation. Depending on the terms established for the supplier and the approval of the reviewing party, payment is issued (usually within 30, 60, or 90 days).

Records Management

Businesses still using manual systems follow up by updating their inventory totals and purchasing ledger. Purchasing software automates this step, as documents are cross-connected and update automatically across all departments.

What About Tenders?

The purchasing process when using tenders is very similar to the standard purchasing cycle , with a few important changes:

• Needs Analysis is much more narrowly defined at inception, and often supported by a business case.
• The Approval Process requires more review and may be granted by departmental or even C-level management.
• The Tender Process is used instead of the PR/PO model, and involves:
• A very specific Request for Proposal (RFP), written to formally outline the goods and services needed and request approval.
• Tender invitations, which are posts made to the public (either online or in print) inviting vendors to bid for the right to fulfill the request.
• Pre-Qualification Questionnaires (PQQs) are sent to each of the most promising candidates to provide greater detail about their capacity, history, and operations.
• Tenders (i.e., bids) arrive from the pre-qualified candidates within the specified period.
• Each bid is reviewed, and the candidates interviewed to further qualify them for consideration.
• All valid tenders are carefully reviewed over the course of days or even weeks. The winning bidder is granted the contract, based on their credentials.
• Negotiation brings the winning supplier and the buyer together to hammer out the terms and conditions (in general, price is already locked in during the tender process). The legal contract is formally awarded to the bidder when negotiations conclude.
• Contract Management is handled by the company’s procurement, financial, and legal staff. During the management period, goods are received and reviewed, and fulfillment of the required terms and conditions verified.
• Review, Approval, and Payment all rely on complete, accurate, and on-time fulfillment of the contract. Any exceptions are noted and the buyer is compensated according to the terms negotiated. Once the contract terms are confirmed, payment is made and the relationship either ends, or the supplier is added to the company’s vendor management system as a pre-approved candidate for future tenders.
• Records Management is identical to the standard procurement cycle.

Take Control of Your Purchasing Cycle

Having mastered the purchase cycle, you’re ready to squeeze maximum value from it. 

Combined with machine-learning-enabled software and automation, formalizing your purchasing cycle lets you fine-tune all the stages of the procurement process to reduce your workload, eliminate delays and errors, and simplify everything from inventory to materials management to financial forecasting.

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Steps To Purchasing Cycle - Standard & Tender Process

So what exactly is a purchasing cycle? Well it’s the steps taken to order and pay for products that a business requires. The purchasing cycle determines the frequency that products are purchased.

Below you will find the steps for a Standard procurement cycle, and then when it involves tendering.

I. 11 Steps in a Standard Procurement Cycle

• The Need You need to identify that there is a need to update the inventory or stock. You may also need a business service or ad hoc product.
• Specify Now you need to decide how much and when you want the products or services delivered.
• Requisition or Order This is when you write the purchase order or requisition order.
• Financial Authority Before the order can be placed, it usually requires some kind of authority for its purchase. With some purchase orders, this is reasonably automatic. With a large order that will be put out to tender it could be multi staged.
• Research Suppliers Repetitive orders usually have set suppliers, although it does no harm to review the options sometimes. Other orders will either need to go out to tender or there will be a choice of suppliers.
• Choose Supplier The supplier is now chosen.
• Establish Price and Terms In a large company, many suppliers will be contracted with a Master Agreement where prices and terms are set for a defined period. For other orders, now is the time to negotiate terms and prices.
• Place Order At this stage in the purchasing cycle, the order is placed and this becomes a contract between the business and the supplier.
• Order Received and Inspected The goods are delivered, checked in the warehouse and entered into the inventory . Shortages and breakages are reported to the supplier for the appropriate credits to be supplied.
• Approval And Payment Usually within 30 days, the invoices are received and paid.
• Update Of Records The purchasing ledger and stock records are updated. This is automatically done by many purchasing computer systems.

II. 14 Steps for Purchasing Cycle with Tenders

• The Need In this case, the need usually goes through a business case and is then tightly defined and specified.
• Financial Authority This usually happens at a higher level and includes the management of the department that requires the goods.
• RFP A Request For Proposal (RFP) is written, in which the need is highly specified.
• Invite Tenders This is always done formally, usually by posting the request in trade magazines and appropriate web sites. Government projects are posted on government web sites.
• PQQ A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in order to select a short list of appropriate potential suppliers.
• Tenders The tenders are sent in from the qualified suppliers.
• Qualifying A number of meetings are held to clarify any questions that suppliers may have.
• Evaluation This is the most exciting part of the purchasing cycle and can take many weeks for a big tender. All the tenders are evaluated and the requirement awarded to the winning bidder.
• Negotiation The fine print of the terms and conditions are negotiated with the chosen supplier. The price is fixed at the bid price.
• Contract Award In a very short time, the contract is awarded to the chosen bidder.
• Manage Contract This is the period in the purchasing cycle when the goods are delivered.
• Approval And Payment If the contract is carried out completely then full payment is made. If there are problems, there may be a damage request.
• Sign Off At the end of the contract work and deliveries, the contract is signed off and all relationships with the supplier are finished.

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Understanding The Purchase Cycle

Navigating the Purchase Cycle: Understand Customer Behavior and Boost Sales with Our Expert Insights.

The purchase cycle refers to the steps involved in processing a purchase order , from its initial creation to the final payment. This cycle encompasses the entire procurement process, also known as the procure-to-pay cycle.

The purchase cycle typically starts with identifying an organization's need for goods or services. This need is translated into a purchase requisition, which is then reviewed by the procurement team. They evaluate potential suppliers, considering quality, cost, delivery times, and supplier performance.

Once the procurement team selects a supplier, a purchase order is created. This document outlines the purchase details, including quantities, pricing, and delivery terms. The purchase order is then sent to the supplier, who acknowledges and accepts it.

After the supplier delivers the goods or services, the organization verifies the delivery and checks for discrepancies. If everything is in order, the purchase order moves to the next step, where the supplier's invoice matches the purchase order and payment terms.

The final step in the purchase cycle is the payment to the supplier. Key performance indicators (KPIs) are essential in measuring the purchase cycle's efficiency and effectiveness.

These KPIs may include procurement cycle time, supplier performance, purchase order accuracy, and cost savings achieved through the procurement process. By monitoring these indicators , organizations can identify areas for improvement and ensure a smooth and efficient purchase cycle.

Many organizations utilize a purchase order system to streamline and automate the purchase cycle . This software helps manage the entire process, from creating purchase orders to tracking deliveries and payments, improving efficiency, and reducing manual errors.

Overall, the purchase cycle is critical to the procurement process, ensuring organizations can efficiently and effectively obtain the goods and services they need.

The Stages Of The Purchase Cycle

The purchasing cycle consists of several stages organizations go through when procuring goods or services. It starts with the intent stage, where customer needs are identified. This stage involves understanding the organization's requirements and evaluating potential solutions to fulfill those needs.

Once the customer needs have been identified, the next stage is assessing the financial implications . This stage involves analyzing the cost and budget considerations associated with the purchase.

It is important to evaluate the financial impact of the procurement decision and ensure that it aligns with the organization's financial goals. Afterwards, seeking approval from key stakeholders is crucial.

This stage involves presenting the identified customer needs, potential solutions, and financial implications to decision-makers within the organization. Approval is sought to move forward with the procurement process.

Once approval is obtained, the next stage is drafting a request for proposal (RFP). The RFP outlines the organization's requirements and invites potential suppliers to submit proposals. It provides suppliers detailed information about the organization's needs and expectations, allowing them to prepare comprehensive proposals.

The final stage in the purchase cycle is supplier selection and negotiation . This involves evaluating the proposals received and selecting the most suitable supplier based on quality, cost, delivery times, and supplier performance. Negotiations may then take place to finalize the terms and conditions of the purchase agreement.

The Intent Stage

The intent stage is the initial phase of the purchasing cycle, where a customer recognizes a need or desire for a particular product or service. It is when a potential buyer becomes aware of their requirement and begins researching and exploring options.

During this stage, customers may conduct online searches , read reviews, seek recommendations, and gather information to evaluate different products or services available.

The intent stage plays a crucial role in shaping the customer's journey as it sets the foundation for the subsequent stages of the purchase cycle. By understanding the intent stage, businesses can tailor their marketing efforts to capture the attention of potential customers and guide them toward making informed purchasing decisions.

Identifying Customer Needs

In the purchase cycle, identifying the target audience's needs is a crucial step that sets the foundation for a successful purchase process. The need identification stage begins when someone submits a request to the purchasing department, communicating a need that can vary in complexity.

One key step in identifying customer needs is the submission of requests in writing. This ensures that the request is properly documented and can be tracked throughout the purchasing process.

It is important for these requests to be sufficiently detailed, providing clear information about the desired product or service, quantity, quality standards, and any other specifications.

By submitting a detailed request in writing, potential suppliers and the purchasing department can accurately assess the customer's needs and evaluate their options. This helps streamline the purchasing process, reducing the risk of misunderstandings or confusion.

Identifying customer needs in the purchase cycle begins with submitting a detailed request to the purchasing department. By providing clear and comprehensive information, customers facilitate the procurement team's ability to identify the most suitable solutions, ensuring that the subsequent stages of the purchase cycle can be executed smoothly and efficiently.

Exploring Potential Solutions

Customers can explore potential solutions to address their needs during the purchase cycle. This allows them to thoroughly evaluate different options before making a final purchase decision.

One option customers can consider is exploring different products available in the market. They can compare features , specifications, and pricing to find the best match for their requirements.

Customers can explore services offered by various providers, such as installation, maintenance, or customer support, which can significantly enhance their overall experience.

In addition to traditional products and services, customers can explore alternative methods to meet their needs. For example, they can explore renting or leasing a product instead of making a full purchase, which can be more cost-effective in certain situations.

They can also explore the option of seeking customized solutions or personalized experiences that cater to their unique requirements. Exploring potential solutions during the purchase cycle allows customers to make more informed decisions and choose the best option that aligns with their needs and preferences.

Assessing Financial Implications

Assessing the financial implications is crucial in the purchase cycle as it helps individuals and businesses make informed choices. Customers can evaluate their choices' financial feasibility and long-term implications by analyzing the potential costs, return on investment (ROI), and budget impact of a purchase decision.

When considering a purchase, it is important to understand its potential costs. This includes the initial purchase price and additional expenses such as maintenance, repairs, and upgrades.

By assessing these costs, customers can determine whether the product or service fits within their budget and if it provides value for money. Analyzing the ROI is equally essential.

Customers need to consider the potential return or benefit they will receive from the purchase. This could be in the form of increased productivity, cost savings, or revenue generation. Customers can prioritize their purchases and allocate resources by understanding the potential ROI.

Furthermore, assessing the budget impact helps individuals and businesses manage their finances effectively. It allows them to prioritize spending and ensure the purchase aligns with their financial goals and objectives. Careful budgeting prevents overspending and helps avoid unnecessary debt.

Assessing financial implications during the purchase cycle is crucial for making informed choices. It allows customers to evaluate potential costs, analyze ROI, and consider the budget impact. By doing so, individuals and businesses can make financially sound decisions and achieve their desired outcomes.

Seeking Approval from Key Stakeholders

Seeking approval from key stakeholders is a critical step in the purchase cycle. These stakeholders play a significant role in decision-making processes and have the power to approve or reject a purchase. To ensure a successful approval, it is crucial to identify and engage with these stakeholders effectively.

Firstly, it is important to identify the key stakeholders involved in the purchase decision. These stakeholders include managers, executives, department heads, and external parties such as suppliers or partners. Understanding their roles, responsibilities, and interests is essential in the approval process .

Once the stakeholders are identified, the next step is to engage with them. This involves creating a clear and concise proposal outlining the purchase's benefits and value. The proposal should address any potential concerns or objections and highlight how the purchase aligns with the organization's objectives.

Effective communication is key when engaging with stakeholders. It is important to tailor the message to each stakeholder, addressing their needs and priorities. Building relationships with stakeholders through regular communication, meetings, and updates is crucial in gaining their support and trust.

During the approval process, it is important to be responsive and address any questions or concerns raised by stakeholders promptly. This shows a commitment to transparency and highlights the effort to ensure a successful purchase.

Seeking approval from key stakeholders requires a strategic approach that involves identifying, engaging, and building relationships with these individuals. Effective communication throughout the process is crucial in gaining their approval and support.

Drafting a Request for Proposal (RFP)

Drafting a Request for Proposal (RFP) is an essential step in the procurement process. The purpose of an RFP is to outline the organization's procurement requirements and attract potential suppliers to submit comprehensive proposals.

A well-crafted RFP includes key elements such as the project scope, desired outcomes, and the period of time it will take. It should clearly articulate the organization's expectations , budget limitations, and any specific requirements.

Providing these details helps potential suppliers understand the project's parameters and enables them to tailor their proposals accordingly.

The organization can ensure potential suppliers address relevant aspects in their proposals by including specific project requirements . This could include details about the desired product or service specifications, delivery timelines, quality standards, and other critical considerations for the project's success.

Moreover, clearly defining the budget and expectations in the RFP helps potential suppliers understand the financial constraints and desired outcomes. This information enables them to evaluate their capabilities, resources, and suitability for the project before submitting proposals.

The RFP serves as a communication tool between the organization and potential suppliers . It allows for a fair and transparent evaluation process by establishing a clear framework that all suppliers can follow. An effective RFP helps the organization attract qualified suppliers and select the most suitable one for the project's success.

Supplier Selection Process

The supplier selection process is a critical component of the procurement cycle. It involves identifying, evaluating, and choosing suppliers who meet the organization's requirements for goods or services.

This process is crucial in ensuring the organization works with reliable and competent suppliers , contributing to its success. The supplier selection process involves various stages, including market analysis, request for proposal (RFP), vendor evaluation, and ultimately choosing the most suitable supplier.

It requires a comprehensive assessment of potential suppliers based on their performance, capacity, pricing, delivery times, and overall suitability for the organization's needs.

Organizations can establish strong relationships, optimize procurement processes, and achieve improved cost, quality, and customer satisfaction by carefully selecting suppliers.

Establishing Criteria for Supplier Selection

Establishing criteria for supplier selection is a crucial step in the procurement cycle. The procurement team initiates a thorough investigation to ensure the right suppliers are chosen. This involves carefully assessing the business requirements and seeking input from all stakeholders.

Firstly, the procurement team analyzes the organization's specific needs and identifies the essential criteria that any potential supplier must meet. This includes product quality, delivery times, pricing, and compliance with regulations. The team can objectively evaluate and compare each supplier by determining these criteria.

Next, the team seeks input from all relevant stakeholders , including end-users, finance, and operations. This helps to ensure that the selected supplier aligns with the organization's broader goals. Stakeholder input can provide valuable insights into specific requirements that may not be immediately apparent to the procurement team.

Establishing criteria for supplier selection requires a systematic approach. The procurement team conducts thorough investigations, compares business requirements with vendor proposals, and seeks stakeholder input.

Issuing an RFP to Potential Vendors/Suppliers

When an organization seeks to procure goods or services, one effective approach is issuing a Request for Proposal (RFP) to potential vendors or suppliers. An RFP is a document that outlines specific details of the procurement requirements and invites suppliers to submit their bids.

Like a job advertisement, the RFP includes the budget, expectations, and project requirements. It provides a clear framework for potential vendors to understand the organization's needs and determine if they have the necessary resources and capabilities to meet them.

Issuing an RFP is particularly useful when evaluating purchases at a high level, sourcing strategic suppliers, or procuring goods or services for a complex project. It allows organizations to gather comprehensive information from multiple vendors, enabling them to compare and evaluate proposals in a structured manner.

By issuing an RFP, organizations can attract a pool of potential vendors who are qualified and interested in providing their goods or services. This process facilitates transparency, fairness, and competition among suppliers, ultimately helping organizations make informed and beneficial procurement decisions.

Evaluating Responses and Shortlisting Vendors/Suppliers

Once the RFP responses are received, the procurement team begins evaluating and shortlisting vendors or suppliers. This step is crucial in ensuring the organization selects the most suitable partner for their project or procurement needs.

The procurement team starts by reviewing the RFP responses submitted by the vendors. They carefully assess each response, considering the vendor's qualifications , experience, capabilities, and proposed solutions. The team scores each response based on predefined criteria to create an objective evaluation process.

To ensure a thorough evaluation, the procurement team engages stakeholders from various departments or teams involved in the project. This allows for a comprehensive assessment of the vendor's fit within the organization's needs and goals. The input from stakeholders helps in making a well-rounded evaluation of each vendor's proposal.

Sometimes, the procurement team may require supplementary information from the shortlisted vendors. This could involve requesting additional details or clarification on certain aspects of their proposals. The purpose is to gather any missing information necessary for making an informed decision.

Performing Market Analysis and Due Diligence Checks on Selected Vendors/Suppliers

Performing market analysis and conducting due diligence checks on selected vendors/suppliers is crucial for making informed procurement decisions. This process involves gathering and evaluating relevant information to assess the suitability and reliability of potential vendors/suppliers.

Market analysis involves analyzing industry trends , competitor performance, and customer demands to understand the market landscape and identify potential vendors/suppliers. This analysis helps in determining the viability and competitiveness of vendors/suppliers in meeting specific procurement needs.

Due diligence checks involve evaluating vendors/suppliers based on their financial stability, reputation, legal compliance, and past performance. This includes conducting background checks , reviewing references, verifying certifications, and assessing financial statements.

The procurement team reviews and evaluates the data gathered from the Request for Proposal (RFP) process with the help of stakeholders. Stakeholders from various departments or teams are engaged to provide their expertise and perspectives.

They review the RFP responses, score each response based on predefined criteria, and provide insights into the vendor's fit within the organization's needs and goals. This collaborative approach ensures a comprehensive evaluation of the vendors/suppliers.

The procurement team may request additional information from the shortlisted vendors during the evaluation process. This could involve seeking clarification on certain aspects of the proposals or asking for supplementary details.

The purpose is to gather any missing information necessary for making an informed decision. This additional information aids in evaluating the vendor/supplier's capabilities , potential risks, and compatibility with the organization's requirements.

Negotiating Terms, Conditions, Prices & Delivery Times with Selected Vendors/Suppliers

After evaluating, the procurement team selects the most suitable vendors/suppliers to negotiate the contract. This crucial stage in the procurement cycle involves negotiating terms, conditions, prices, and delivery times with the selected vendors/suppliers.

Contract negotiation is essential as it allows both parties to reach a fair agreement that addresses their respective needs and interests. It helps establish clear expectations, minimize risks, and ensure a mutually beneficial relationship.

Effective negotiation can lead to cost savings, improved terms, and increased value for the organization and the vendor/supplier. During the negotiation process, key details are discussed and finalized. These include payment terms, contract length, delivery times, vendor performance expectations, and warranties provided.

Negotiating payment terms ensures both parties are comfortable with the agreed-upon payment schedule and methods. Contract length determines the partnership's duration and allows flexibility to adapt to changing business needs.

Delivery times are negotiated to meet the organization's requirements and optimize supply chain efficiency. Vendor performance expectations are defined to ensure quality, timely delivery, and adherence to agreed-upon standards. Lastly, warranties provided by the vendor/supplier are discussed to address any potential issues or defects.

Frequently Asked Questions

What is the purchase cycle.

The purchase cycle refers to a buyer's step-by-step process when purchasing, from identifying a need to evaluating suppliers, negotiating contracts, and placing the order.

What are the stages involved in the purchase cycle?

The purchase cycle typically consists of various stages, including identifying the need, conducting market research, vendor selection, negotiation and contracting, order placement, delivery, and supplier performance evaluation.

How long does the purchase cycle typically take?

The duration of the purchase cycle can vary depending on the complexity of the purchase, the number of suppliers involved, and the organization's internal processes. It can range from a few days for routine purchases to several months for more significant procurement initiatives.

What factors should I consider when selecting potential suppliers?

Factors such as supplier reliability, quality of products or services, price competitiveness, delivery capabilities, past performance, financial stability, and alignment with your organization's values and goals should be considered when selecting potential suppliers.

How important is contract negotiation in the purchase cycle?

Contract negotiation is crucial as it helps establish clear expectations, minimize risks, and ensure a mutually beneficial relationship with the selected vendor. It allows both parties to reach a fair agreement on payment terms, delivery times, performance expectations, and warranties provided.

How can I optimize the procurement process to reduce the purchase cycle time?

Streamlining the procurement process can be achieved through procurement software, effective communication with suppliers, automation of repetitive tasks, proper planning and organization, and continuous evaluation and improvement of the purchasing process.

What is the procurement department's role in the purchase cycle?

The procurement department plays a critical role in managing the purchase cycle. They are responsible for vendor selection, negotiation, and contracting, ensuring timely delivery, monitoring supplier performance, and optimizing the procurement process to meet the organization's needs.

How can I ensure a smooth delivery process during the purchase cycle?

To ensure a smooth delivery process, it is essential to communicate your requirements to the supplier and establish a realistic period of time for delivery. Monitor progress, promptly address any issues or delays, and maintain a good relationship with the supplier.

What should I consider when evaluating supplier performance in the purchase cycle?

Factors such as product or service quality, adherence to delivery schedules, responsiveness to inquiries or issues, communication effectiveness, and overall customer satisfaction should be considered when evaluating supplier performance.

How can I improve the purchase cycle to achieve better outcomes?

To improve the purchase cycle, organizations can focus on optimizing procurement processes, building strong relationships with vendors, leveraging technology, conducting regular market analysis, aligning procurement strategies with business goals, and continuously evaluating and improving supplier performance.

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Procurement and Purchasing

Procurement cycle guide: Stages & best practices explained

Colin Glazier

February 1, 2024

March 19, 2024

Managing business spend can be complicated, but it doesn’t have to be.

Modern businesses have evolved a tested-and-true method for ensuring goods and services are considered, sourced, acquired, and paid for in a transparent and measurable way.

This is the procurement cycle —an essential operation embodying the systematic approach to purchasing that businesses need to consider for an efficient and effective acquisition of goods and services.

In this guide , we’ll demonstrate the path towards a streamlined procurement process, emphasizing how standardization can ease what can otherwise be an overwhelming task.

By the end, you'll grasp the fundamental aspects of the procurement cycle, be able to distinguish between different types of procurement, and learn why this cycle is pivotal for every business, irrespective of scale.

By the end, you'll grasp the fundamental aspects of the procurement cycle, be able to distinguish between different types of procurement, and learn why this cycle is pivotal for every business, irrespective of scale.

You’ll also find out how solutions like Zip can revolutionize this vital process.

Let’s dive in!

What is a Procurement Cycle?

The procurement cycle—also referred to as ‘the procurement process’—encompasses the entirety of activities involved in the acquisition of goods and services—from initially identifying needs to the final payment, and subsequent record-keeping.

Tailored to align with an organization's unique needs and operational demands, this cycle ensures that resources are acquired in a timely, cost-effective, and compliant manner, setting the foundation for a business's operational efficiency and financial health.

Procurement Cycle guide: 7 steps explained

Each organization’s procurement process may differ, but there are common steps that provide a framework for efficient and effective procurement. 

Let’s explore these steps and their significance in the procurement cycle.

Step 1. Define needs

This is where the procurement cycle begins. 

Start by accurately identifying exactly which goods or services are required to move forward with your company’s business needs. Before making any purchase request, consider the price, quality, quantity, and cadence required.

This will all inform the later stages of the cycle—without a full understanding of the needs of your departments with a clear list of requirements, you may find yourself stuck in the later stages of this process. 

Know what you need, and why you need it. That’s the bottom line.

Step 2. Create a purchase requisition

Once needs are defined, you’ll want to ‘create purchase requisition’. This document serves as a formal request for the needed goods or services and typically includes specifications, quantity, and budget. 

The creation of a purchase requisition will help maintain an organized and controlled procurement processes, and ensure that purchases are pre-approved and aligned with the organization's broader needs and policies.

Step 3. Purchase requisition review and approval

The third step involves the review and approval of this purchase requisition. This acts as a checkpoint for budget compliance and need verification, preventing unnecessary or extravagant expenditures. 

Approvers will assess the requisition for its necessity, cost-effectiveness, and alignment with organizational goals, providing an additional layer of oversight.

Step 4. Vendor selection

The Vendor selection stage is a pivotal moment during the procurement cycle. Who are you going to work with?

This process involves evaluating and choosing potential suppliers for your needs, based on criteria you hopefully established during Needs Identification—things like the price you’re looking for, the quality you require, and other reliability and service metrics.

For more information about vendor selection and strategic sourcing, check out Zip’s Guide: ‘ Sourcing Strategies Beyond the RFP: Tactics to Drive Savings and Win Bids ’.

Step 5. Create and approve purchase order (PO)

After selecting a vendor, you’ll need to create and approve a purchase order. The PO formalizes the transaction, outlining the specifics of the order, including quantities, descriptions, prices, and contract terms. 

Remember, that the PO serves as a legally binding agreement between the buyer and the supplier, and its approval is essential in order to move forward with the procurement cycle.

Here’s a more detailed guide on accounts payable workflows and automations that can reduce bottlenecks and save your finance team valuable time.

Step 6. Order management

Order management involves overseeing the order's delivery and ensuring that it meets the agreed-upon contract terms. 

Maintaining the timeline, quality control, and compliance with the contract is an essential component of the procurement cycle. Effective order management helps in identifying and resolving discrepancies early, ensuring smooth operation and satisfaction on both ends.

Step 7. Invoice review and payment

Once all services items are rendered, the final step in the procurement cycle is the review and payment of the invoice. 

The purchasing process ensures that the goods or services received are in line with the order and that the payment terms agreed upon are honored. Timely and accurate payment fosters a good relationship with suppliers and may pay dividends in the future, when you one day perhaps work together again!

Follow up: store and update records

Finally, storing and updating records is an essential step for maintaining transparency and accountability in the procurement process. It involves keeping detailed records of all transactions, contracts, receipts, and communications. This practice not only aids in future audits and compliance checks but also provides valuable data for analyzing and improving the procurement process.

What's the difference Between Direct, Indirect, and Services Procurement?

Understanding the nuances between indirect, direct, and services procurement is important for businesses aiming to optimize their purchasing strategy. Each plays a unique role in the overall strategic procurement landscape, impacting everything from cost management to supplier relationships.

Direct procurement

This refers to the acquisition of goods and materials that are directly incorporated into the products being manufactured. For instance, a smartphone company purchasing microchips or a car manufacturer buying steel.

 Direct procurement is closely tied to the company's core business activities and has a direct impact on the production process and the end product's quality. Since these purchases are often large in scale and strategically important, they're typically planned and forecasted with precision, involving long-term supplier relationships.

Indirect procurement

In contrast, indirect procurement involves purchasing goods and services that support a company's operations but are not part of the final product. This can include office supplies, software licenses, or janitorial services. 

Although these purchases might seem less critical at first glance, they are essential for day-to-day business operations. Indirect procurement tends to be more unpredictable and varied, requiring a more flexible approach to manage diverse suppliers and spend categories.

Services procurement

This is a subset of indirect procurement but deserves a special mention due to its growing importance. It involves acquiring services rather than goods, such as consulting, legal services, or marketing. 

Services procurement poses unique challenges, such as evaluating the quality of service, managing service delivery, and ensuring value for money. It requires a nuanced approach, focusing on supplier capabilities, service level agreements, and ongoing relationship management.

Understanding these distinctions is key for Chief Procurement Officers and procurement teams. It allows for more targeted strategies, effective cost management, and better alignment with the company's overall goals. 

Why is the Procurement Cycle important?

The procurement cycle is the backbone of any business's operational and financial health, especially if trends in the market continue.

In 2023, the Hackett Group reported a 10.6% increase in procurement requirements globally , underscoring the need for a well-trained team that knows how to administer procurement processes for operations.

The procurement cycle, when optimized and adhered to, can do more than just help businesses secure the best quality goods and services at the most competitive prices. 

It can help build stronger partnerships with suppliers, which can be hugely beneficial for long-term success and supply-chain savings. It can also boost employee productivity by streamlining processes, allowing the team to spend less time on administrative tasks, and more on strategic activities that add measurable value to the business.

By understanding and optimizing the procurement cycle, businesses can position themselves for success in an increasingly competitive and complex business environment.

How do you improve your Procurement Cycle? Best practices and strategy

Improving your procurement cycle is not just about streamlining operations; it's about leveraging data and technology to make informed decisions that drive efficiency and cost savings. Here's how you can enhance your procurement management, supported by industry statistics and insights:

1. Digitize manual processes

In case you haven’t already— it’s time to digitize.

A study from The Hackett Group found that digital transformation can reduce procurement costs by up to 45% and increase efficiency by 30-50% ​​. 

Implementing electronic purchase orders and invoices are optimizations that can significantly speed up approvals and payments, streamlining the procurement workflow for all stakeholders involved.

2. Utilize automation

Automation plays a pivotal role in enhancing procurement processes. According to McKinsey , companies that automate their procurement processes can see up to a 3% savings on total spend annually.

Procurement software like Zip automatically generates purchase orders and software for vendor evaluations can free up your team’s time for more strategic decision-making.

3. Standardize your procurement cycle guide

A standardized procurement process ensures consistency and efficiency. Creating a clear guide that outlines each step, from requisition to payment, sets expectations and minimizes confusion.

4. Improve procurement data visibility

Visibility into procurement data is helpful not just for making better decisions, but also informing stakeholders about the status of orders, and if any action needs to be taken. 

A centralized AI-powered procurement platform like Zip can also identify spending patterns, evaluate supplier performance, and highlight areas for improvement and cost savings—with real-time insights and alerts.

5. Track actionable KPIs and insights

Identifying and tracking key performance indicators (KPIs) can provide actionable insights into the efficiency and effectiveness of your procurement process. 

Metrics such as cost savings, spend under management, and supplier performance can help in assessing the procurement cycle's health and pinpoint areas for improvement. Regularly review these KPIs to ensure that your procurement strategy remains aligned with your broader business goals.

6. Centralize procurement data and documents

A centralized repository for all procurement-related data and documents simplifies access and management, ensuring that all your contracts, purchase orders, supplier information, and performance metrics are all located within a single source of truth.

What are the Top Challenges for the Procurement Cycle?

The procurement cycle, even though it's designed to maximize efficiency in operations, is not without its challenges. Understanding the pain points is important for organizations looking to streamline their procurement processes and improve overall efficiency.

 Let’s explore the most common challenges encountered in the procurement cycle.

Manual or outdated processes

One of the primary challenges in procurement is the reliance on manual or outdated processes. Such practices often lead to increased errors, slow down procurement timelines, decrease productivity, and introduce confusion into the process. 

For instance, manual data entry is prone to human error, which can result in incorrect orders or financial discrepancies. This inefficiency is compounded by outdated systems that cannot keep pace with the dynamic nature of modern procurement demands. As mentioned earlier, it’s time to digitize .

Lack of procurement visibility

Another significant challenge is the lack of visibility in the procurement process. This can result in missed opportunities for cost savings and negatively impact the overall procurement strategy. 

Without a clear view of the entire procurement process, it becomes difficult to identify areas of overspending, negotiate better deals with suppliers, or optimize inventory levels. In addition, purchases can get caught up if key stakeholders aren’t notified that they need to approve or sign off on an activity. 

Fortunately, Zip has solved the problem of transparency in approval workflows , but it can still be an issue for companies that have yet to onboard with such an advanced platform. 

Poor vendor management

Vendor management is a critical component of the procurement cycle. Challenges arise when there is no centralized and standardized system in place, making it difficult to effectively collaborate with multiple vendors across different categories. 

This lack of coordination can lead to complicated communications, inconsistent service levels, and difficulty in managing vendor performance. 

Effective vendor management is essential for maintaining strong supplier relationships and ensuring the consistent quality and timely delivery of goods and services.

Maverick spending

Maverick spending refers to unauthorized or unmanaged purchases made outside of established procurement policies. 

This type of spend can break protocols, leading to higher costs, uncontrolled expenses, and potentially subpar quality of purchases. Maverick spending undermines the efforts of standardized procurement processes and can have a significant impact on a company’s budget and procurement strategy.

Risk mitigation

Finally, risk mitigation is a complex aspect of procurement that involves aligning procurement activities with an organization’s internal policies and legal requirements. 

An unoptimized procurement cycle can hinder the procurement team’s ability to manage compliance effectively and mitigate risks such as supply chain disruptions, regulatory non-compliance, or contractual disputes. Ensuring a robust risk mitigation strategy is essential for a smooth and compliant procurement process.

How can Zip improve your Procurement Cycle?

Addressing the core challenges of the procurement cycle requires innovative solutions that streamline and enhance the process. 

Zip offers advanced procurement capabilities designed to optimize the intake process, foster standardization, and elevate user experience—key factors in achieving procurement efficiency. 

With Zip's clean UX, organizations can unlock a new level of procurement process efficiency, significantly improving visibility from the point of intake onwards. 

This approach not only simplifies the procurement process for employees but also aligns with the strategic goals of cost savings, risk mitigation, and operational scalability.

For a deeper dive into how Zip can transform your procurement cycle, request a demo to see our platform in action. 

Don't miss out on the opportunity to lead your organization toward a more efficient, effective, and user-friendly procurement process.

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13 Stages of the Procurement Life cycle Explained

What is a procurement cycle.

Procurement cycle is the  sequence of steps involved in the procurement process  from the start till the end. It encompasses the steps required to manage procurement from your first interaction with the potential suppliers until the delivered goods are taken care of and are put to use by the appropriate department within the organization.

Understanding the procurement cycle  will give your organization an easy-to-follow blueprint for building out your procurement operations and running them efficiently and effectively.

In this article, we’ll explore the 13 steps of the procurement cycle, examine what tasks and responsibilities they cover, and their significance to your organization’s procurement operations.

1. Define the business needs

The first step of the procurement cycle is completely internal.

Here’s the stage where stakeholders within your organization define a need that should be filled.

Whether it’s a product or a service that needs to be acquired to support your internal operation, the aim at this stage is to identify the need, frame it, and define it in terms of what it should do for you within your organization.

Defining needs also involves developing specifications to determine exactly what the supplies in question should offer in terms of actual usage.

2. Conduct market analysis

Once you have a clear picture of what the supplies you’re looking to acquire look like, the next step is to conduct appropriate market research. This involves analyzing the options available from different vendors and determining what it’d cost to either produce the need in-house or acquire from a third party.

3. Develop a strategy

Strategy planning is the stage where you’ve defined your needs and agreed upon a supply tactic. Next up is to define how you intend to leverage the option you chose at the market analysis stage.

If, for example, you realize that your company makes up a significant portion of your potential suppliers’ turnover, this will provide you an opportunity to demand competitive prices or invite suppliers to bid for your business.

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4. perform market testing.

Market testing is simply testing out market sentiments to determine what needs to change in your procurement strategy .

You take a small fraction of your procurement budget and make moves in the market to acquire your desired supplies.

At this stage, you take note of determiners such as prices, legislation, and market dynamics to get a clear picture of what your supply circumstances look like. For example, if your desired supply is scarce over the holidays, your strategy might change to stockpiling them ahead of the holiday price hikes.

Market testing informs you on how your procurement strategy needs to change to adapt to prevalent market forces.

5. Develop documentation and detailed specification

The specification stage is where relevant stakeholders define the requirements you need for each supply item, including the product quality, quantity, and functionality specifications.

Your aim here is to develop detailed preferences to guide your procurement choices to ensure the supplies you’re buying will serve the intended purpose.

6. Supplier selection to participate in the tender process

Depending on your industry, it might be impossible to have all the possible suppliers bidding for your business.

The ideal tactic to utilize here is to create a list of desirable tactics and use that to shortlist suppliers who qualify to participate in the tendering process.

7. Issue tender documents

Tender documents, including Requests for Quotations, and Requests for Pricing are sent out to shortlisted vendors with a definite timeline for their reply.

8. Bidding, tender evaluation, and validation

After shortlisted suppliers have sent in their bids, the evaluation process involves making a thorough, transparent analysis of each supplier and their offerings to determine which bid offers the most benefit to your organization.

As the penultimate stage before  procurement contracts  are awarded, you conduct in-depth reviews of each supplier’s capacity to deliver on their bids, including analysis of previous projects undertaken, and sampling products and services, if available.

9. Contract award and implementation

Once you’ve agreed on a preferred vendor, the contract award stage is where a contract spelling out the terms of the customer-vendor relationship is drafted and once both parties have an agreement on contract performance KPIs, supply dynamics, logistics, invoicing, and contract management terms, the contract is signed and work on the items agreed upon commences.

10. Warehouse logistics and receipts

With the supply contract binding, the vendor is responsible for delivering supplies at the customer’s request matching the specifications agreed upon during the contract award stage. When optimizing warehouse operations during the warehouse logistics and receipts stage, considering the benefits of a warehouse mezzanine can greatly enhance storage capabilities without expanding its footprint. Implementing such structural additions aligns with ensuring efficient use of vertical space, enabling more effective inventory management and logistics planning.

Logistics and warehousing agreements that were made earlier on apply here to ensure smooth, efficient management of the supply deliveries. This includes product coding and classification, spacing, layout, racking, and frequency of delivery agreed upon.

11. Contract performance and improvement

From time to time, as stipulated in the terms of the contract, both parties, i.e. the vendor and you, the supplier should conduct periodic reviews to determine how efficiently the customer-vendor relationship has been operating, identify any lapses in the customer-vendor relationship, and chart a way forward to support improved performance.

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12. supplier relationship management.

Supplier relationship management  is the ongoing process required to manage your relationship with your vendors, analyzing each supplier to gauge the right level of input required to maintain your relationship to realize your strategic goals. 

13. Asset management

Over time, your organization’s needs might change due to a variety of factors, from changing your focus to new niches in your industry, expanding or adjusting your product line.

As a result, from time to time, it’s important to evaluate your procurement needs to determine if there’s been any change and how you can adapt your procurement to the changes you’ve discovered.

Asset management is the process of staying on top of your procurement needs to ensure your procurement process can still support your business operations.

Kissflow streamlines the procurement lifecycle

A  procurement management software like Kissflow empowers organizations of all sizes to run the procurement cycle efficiently and effectively, freeing you up from manual tasks with intelligent tools. With Kissflow, you can

• Communicate effectively with stakeholders using tools like chat, comments, and @mentions
• Automate manual tasks with workflows and processes
• Assign tasks to team members and stakeholders
• Manage and share files efficiently
• Match invoices, purchase orders, and receipt notes with  three-way matching
• Support multiple payment options, and
• Manage vendors proactively

Kissflow serves as the final link you need to complete the procurement cycle and empower your procurement for speed and efficiency.

Learn  how  Kissflow Procurement Cloud  can transform your procurement here.

Simplify Your Procurement Process Today!

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The Purchasing Cycle - Essay Example

• Subject: Professional
• Type: Essay
• Level: Masters
• Pages: 5 (1250 words)
• Downloads: 2
• Author: joshuahickle

Extract of sample "The Purchasing Cycle"

For a purchasing process to be effective, the department must ensure it understands the company’s goals and plans. The most successful industries that may have managed to provide a very efficient purchasing process in the US include Food and beverage industries and electronic and computers industries. To achieve this objective, the purchasing department must understand the business requirements. It is also required to buy products and services from the right source, at the right price, quantity, time, and the correct specifications as required by customers.

The overall aim of this objective in manufacturing companies is to ensure that the raw materials needed in the production process are acquired, in the right quantity and quality and from viable sources. The implications this has is that if the wrong raw materials are bought, the entire production process is stalled and the company might end up making losses or producing poor quality products that do not meet the customers’ specifications(Matthews & Schneller, 2011). For the purchasing process to be efficient and effective, there must be keen following of the whole process and knowledge of the supplier markets.

Opportunities must, therefore, be identified, internal operations managed and all focus directed towards achieving this objective. In identifying opportunities, suppliers with the highest quality and cost friendly products are selected. Ensuring diversity in suppliers selected could also be beneficial to the company. The purchasing department has the responsibility of choosing the best suppliers, using the most viable criterion to choose the most current suppliers as they are usually very competitive.

Internal operations involve managing procurement staff effectively, formulating policies and strategies. Proper leadership in the purchasing department, collaboration and teamwork helps in achieving this objective (Matthews & Schneller, 2011). For the purchasing

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This chapter provides an overview of purchasing and the purchasing process, including the objectives of a world-class purchasing function, purchasing’s span of control, the purchasing cycle, and the documents used to manage the purchasing process. These topics provide the foundation from which to introduce the tools, techniques, and strategies used by purchasing organizations in a competitive market.

This chapter also points out the many different categories of purchases. In addition to buying production material and items, purchasing can be responsible for buying transportation, services, packing supplies, MRO items, capital equipment, and even the corporate jet! There is no one system or approach that applies to all purchase situations. Purchases can vary according to type, importance, impact on quality, time frame for delivery, and dollar volume. We rarely find purchasing personnel who are experts in all the different types of purchases, which is why so many purchasing departments have specialized personnel. These personnel all have one thing in common, however: the opportunity to manage large amounts of resources through the purchasing process. By utilizing eprocurement tools, purchasing can achieve the goals of satisfying user requirements, minimizing non-value-added time, and focusing on deployment of sourcing strategies that can provide tangible value to their enterprise.

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Navigating the 10 Stages of the Procurement Cycle

Explore the 10 stages of the procurement cycle, get expert tips on how to navigate each step, and find ways to drive cost savings and efficiencies.

By Hugo Britt | November 10, 2022

Procurement is an incredibly complex function that plays a crucial role in the success of an organization. Supplier selection, issuing RPFs, and negotiating contracts – and everything in between – is all part of an intricate process.

Understanding and mastering these steps is essential to ensuring efficiency, cost-effectiveness, and ultimately, achieving business goals .

Understanding 10 Stages of the Procurement Cycle

We know that navigating the different stages can feel daunting. I mean, do you really need to complete every step for every purchase? Does every purchase require an audit? How often should you be reviewing supplier performance?

They may not want to admit it, but some practitioners are even wondering if there ways to cut corners while cutting costs.

With careful planning and understanding of each stage, procurement professionals can easily navigate and simplify the sourcing process. In this article, we’re diving into the 10 key stages of the procurement cycle. Each section will provide strategies to reach your goals along with practical tips to help you confidently navigate each step.

Procurement is a complex yet necessary function that plays a crucial role in the success of an organization. Understanding and mastering the procurement cycle is key to ensuring efficiency, cost-effectiveness, and ultimately, achieving business goals.

1. Determine your business needs

The procurement cycle begins when you realize your organization needs to obtain goods or services from an external supplier . Take time to understand budget constraints, the overall objectives of your business, and the priorities of individual departments.

When you have a clear understanding of your needs, your team can make better purchasing decisions that drive cost efficiencies.

Pro Tip:  During this process, be sure to seek guidance and input from cross-functional internal stakeholders. This research will provide you with useful information regarding company needs. Engaging with subject-matter experts can also ensure compliance and buy-in during the later stages of the procurement cycle. 

2. Complete a market analysis

Next up, you’ll need to complete a thorough market analysis to understand the options available. This will ultimately enable you to compile a list of prospective suppliers. Your market analysis ought to consider costings, key players, and challenges and dynamics, alongside how the market is evolving.

Pro Tip: Once you have completed your market research, produce a market summary document that details your key findings.

3. Compile a list of suitable suppliers

Armed with a summary of the market, you have all the necessary information to compile a list of appropriate suppliers.

Pro Tip: Make sure you are shortlisting vendors with your top priorities in mind. Priorities may include sourcing locally , improving efficiency, and cost reduction. You may also be looking to drive innovation throughout the supply chain or foster a closer working relationship with your supplier.

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4. produce tender documents.

Before selecting suppliers, provide them with precise specifications including budget, volume, time frame, service agreement, and terms and conditions.

Pro Tip: Your documents should distinguish between your specific requirements and personal preferences. For this reason, it’s a good idea to involve key stakeholders at this stage of the procurement cycle.

5. Issue RFI, RFQ, or RFP

If your procurement process is complex, you might consider starting the RFx process for your chosen suppliers. This could entail asking for information (RFI), a quote (RFQ), or a proposal (RFP) .

In more complicated scenarios, an RFP can provide you with more detailed information around several factors. If you know exactly what you want and when you need it, an RFQ might be more than sufficient.

Pro Tip: Although it may take some time, don’t take shortcuts during this process if you have to submit an RFx. The goal is to find a supplier that can best meet your needs.

6. Negotiate and award the contract

Gather and analyze data from potential suppliers. Once you have done this, you can award the contract to your chosen supplier.

At this stage, it’s essential to negotiate contract terms that serve both parties. This will ensure you can embark on a long and healthy partnership . Your contract should address factors including costings, terms and conditions, break clauses, and KPIs.

Pro Tip: Review similar contracts your organization has on the books for a better idea of what you need to include. See what’s working well, where to lower costs and how to improve efficiencies . It’ll also serve as a way to learn from former mistakes and eliminate unrealistic contract terms.

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7. finalize the purchase order.

Once both parties are happy with the details outlined in the contract, you can finalize your purchase order. This should include a description of the goods and services you are buying, volume requirements, time frames, and costs.

After your financial team approves, the supplier will get a purchase order to fulfill the order and send an invoice.

Pro Tip:  Purchase orders serve as legal documentation. To ensure protection for both sides, it’s important to clearly define the details of your arrangement.

8. Process payment

Your supplier will provide a detailed invoice that includes the agreed price and instructions on how to pay it.

Pro Tip: Make sure you carefully review the payment terms offered by your supplier to ensure you make timely payments. Utilize payment technology to simplify and automate the payment process.

9. Audit your order

All being well, your chosen supplier will deliver your goods or services as specified and within the required time frame. Maintain a log of your delivery date and verify the items received. Jot down any problems encountered to resolve them with your provider. Reference them when it comes to reviewing or renewing a contract.

Pro Tip : Keep records of all of the documents associated with your purchase, including contracts, invoices, order audits, etc. This will help you to accurately manage your procurement budget, analyze your company’s spending , and make improvements in the future.

10. Review performance

Regularly assess contract performance to ensure your procurement team is obtaining the most value and meeting objectives. Use supplier KPIs, workflows, and key results to evaluate progress and gauge the success of your supplier partnership. Frequently review and modify contracts as necessary.

Pro Tip: Having regular communication with your suppliers will provide opportunities for them, and your internal stakeholders, to give feedback. Schedule review dates with your vendor to review feedback and discuss changing expectations and requirements. Make any necessary amendments to the contract at this time.

Thoroughly completing each step of the procurement cycle can feel daunting at times. Luckily, businesses have the opportunity to cut down on the time it takes to procure goods and services by utilizing third party resources.

Driving efficiencies throughout the procurement cycle.

Making sure you’re completing each step throughout the procurement cycle can feel daunting at times. Luckily, businesses have the opportunity to cut down on the time it takes to source goods and services.

Group purchasing organizations (GPOs) can prove invaluable when it comes to streamlining and simplifying the procurement cycle. At Una, our speed to savings timeline sets us apart. Members are able to skip the lengthy supplier selection process, bypass RFPs in certain categories, and take advantage of well-established supplier relationships. We connect our members to ready-to-go supplier contracts that align with your stakeholders’ goals in a matter of weeks.

Other GPOs may focus solely on your bottom line. We prioritize our members’ success and take an advisory approach to procurement. Our services go well beyond cost savings to include overseeing the contract negotiation process, spend analyses, and personalized consulting. Our sourcing advisors work as an extension of your procurement department and are here to educate, advise, and enable your success.

To learn more about a GPO’s role within your procurement strategy and how to further improve the procurement process, download a free copy our popular playbook below:

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Procurement and Acquisitions Essay

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Uniform Commercial Code (UCC) is an act which enables uniformity in commercial code, in relation to particular commercial transactions or concerning personal property as well as contracts and documents relating to them. They include commercial papers, sales, credit letters, and deposits in banks, collections, and transfers in bulk, lading bills, and other title documents. Consequently, UCC eliminates regulations in agency acquisition unnecessarily repeated and paraphrases or restates FAR.

It limits these regulations to the necessary guidelines required to implement policies in FAR and the procedures within the agency in question. Model Procurement Code (MPC) involves the statutory formations and guidance in policy for controlling and managing supplies procurement, construction and services, and enhances public satisfaction (Jordan, 2009).

Supply chain management includes optimization and the oversight in acquiring various inputs that necessitates purchasing and conversion of raw materials into finished products. Ideally, such initiatives play a vital role in enhancing the optimization of various outputs in enhancing planning. FAR enhances planning of acquisitions as one has to list down all potential considerations, buying rules, material handling rules as well as transportation of official supplies and equipment rules have to be followed strictly.

The Purchasing and Supply Management Department and the Legal Department have adopted the use of lawyers where the legal experts advise on some complex aspects.

The common legislation undertaken includes interpreting complex legislation, providing guidance as well as advising on precedence and drafting of terms and conditions regarding contracts. They have also to ensure that each state follows its purchasing law rules. Such an example is the state of Mississippi which has rules for purchase figure starting from purchases not exceeding $3500.00 (Jordan, 2009).

The Federal Acquisition Regulations requires that the Federal agencies should influence the acquisitions of the various agencies in fostering markets in order to enhance sustainable materials, technologies, services, and products. Federal agencies are normally required to enhance implementation of high-performance through sustainable construction, repair, renovation, maintenance, and management.

In addition, the organization should consider deconstruction practices that will ensure reliability and efficient distribution of resources. Contractors in the organization will ensure that the agency’s goals are, ultimately, achieved. Each inventory shall contain a complete and accurate record of all controlled substances on hand on the date the inventory is taken, and shall be maintained in written, typewritten, or printed form at the registered location. An inventory taken by use of an oral recording device must be promptly transcribed.

Consequently, manufacturing resource planning (MRP II) incorporates effective planning strategies that enhances planning and distribution of resources. This will ensure effective utilization of resources in the manufacturing company. It looks at operational planning in terms of units as well as financial planning.

In addition, it is capable of answering the questions of “what-if” during the process of simulation, and ensures that the extension that regards closed-loop MRP can be utilized effectively. Purchasing and procurement also denotes a function of, as well as, the responsibility in procuring supplies, materials and services (Johnstone, 2006).

Cost-based pricing only looks at the product cost. This can lead to a decline in sales especially where consumers are not concerned about the price but focus on other aspects such as product design or quality. Market-based pricing always leads to miscalculations especially for firms which have not stayed in that particular market for a long time. The basis of consumer’s value-pricing may be different from the firm’s basis.

For example, the firm could be basing its judgment on quality while consumers look at quality. On the other hand, Life cycle pricing is based on the stage of life cycle of the product. Most consumers are ignorant of this stage and may deem themselves overcharged at some point. Segmented pricing segregates the market or products and prices products differently. This is a limitation when consumers get information from other consumers (Johnstone, 2006).

Customer-driven pricing is a situation where the market forces of demand from customers determines equilibrium prices in the market. In contrary, competition-driven pricing is where entities raise or reduce their prices based on their competitor’s price. This has often led to price games between competing firms.

However, both of these have an effect on the buying organization’s willingness and ability to purchase a good or service. For example, consumers could put their level at a price below the purchase price, leading to that product becoming a cash-cow and its purchase abandoned.

Large companies issue mandates that force compliance and do not offer smaller partners the active role of improving. Supply chain managers exist to solve this problem. As a supply chain manager, one is compelled to keep a constant relationship between suppliers and company.

These professionals are not supposed to reveal confidential information to suppliers. An instance is payment delay information in the cash conversion cycle which could lead to bad firm-supplier relationship in future if revealed. Such is an example of the gate-keeping role of supply and management professionals. Supply chain professionals influence the firm’s decision on purchases and thus indirectly influence the firm as decision-makers on product and supplier selection as well as price acceptance.

Johnstone, N. (2006). The Environmental Performance of Public Procurement: Issues of Policy Coherence, London: OECD Publishing

Jordan, D. (2009). Free Course Book for Course 3: Statutory Law and Intelligence 2011, London: Routledge

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Essays about: "purchasing cycle"

Showing result 1 - 5 of 34 essays containing the words purchasing cycle .

1. Estimating Impacts Using LCA in Procurement Processes : A case study for a multinational networking and telecommunications company

Author : Gustav Westling ; [2023] Keywords : Procurement ; Sustainability ; Sourcing ; Life Cycle Analysis ; Life Cycle Assessment ; LCA ; SCM ; Supply Chain Management ; Inköp ; Hållbarhet ; Strategiskt inköp ; Livscykelanalys ; LCA ; SCM ; Försörjningskedjehantering ; Supply chain-hantering ;

Abstract : This thesis investigates how a company can implement life cycle analysis (LCA) into procurement. The thesis also explores the potential synergies between the LCA and procurement. A single casestudy was utilized for this purpose. It uses LCAs using a simplified methodology, interviews, and a literature review to carry out the study. READ MORE

2. Barriers to achieving the full intended residential value : The case of a large main contractor in Sweden

Author : Fatme El-Saghir ; Ella Espling ; [2023] Keywords : Residential value ; project management ; decision making ; complex projects ; construction industry ; Kundvärde för boende ; projektledning ; beslutsfattande ; byggindustrin ; komplexa projekt ; bostadsrätter. ;

Abstract : Residential construction projects are complex. New trends such as globalization,urbanization, and sustainability put even more pressure on the capital intense andalready low marginal industry. In Sweden, the market is competitive. There are many large residential contractors active today. READ MORE

3. The Impact of IPO Underpricing on Long-term Performance of Stocks : Comparative Analysis of the Swedish and United Kingdom stock market

Author : Suleika Farah Mohamed ; Njusi Chenyi Joyce ; [2023] Keywords : ;

Abstract : Initial Public Offerings (IPOs) represent critical events in the life cycle of companies, often characterized by a phenomenon of underpricing. IPO underpricing is a situation in which the initial public offering (IPO) price of a company's shares is set lower than their actual market value on the first day of trading. READ MORE

4. The barriers of circular public procurement for ICTs

Author : Laila Adelson ; [2023] Keywords : circularity ; circular economy ; circular public procurement ; ICT ; Earth and Environmental Sciences ;

Abstract : The EU procured for roughly 202000 MEUR (14% of the EU GDP) during 2021 in the public sector. The majority of these contracts are traditional, linear business model purchases. READ MORE

5. Towards Circularity in Fashion E-commerce — Business Model Development

Author : Maria Hallgren ; Alfhild Hedelin ; [2022] Keywords : Business Model Canvas ; Business Modelling ; Circular E-Commerce ; Clothing Reuse ; Sustainability ; Value Proposition Canvas ; Business and Economics ; Technology and Engineering ;

Abstract : I dagsläget står textilindustrin i Sverige inför flera utmaningar relaterat till dess negativa miljöpåverkan och brist på cirkularitet. Ett identifierat ämne inom detta område är klyftan mellan e-handlare av kläder och second hand-organisationer eller andra mottagare av kläder. READ MORE

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Procurement Cycle

The Introduction

The procurement cycle defines structure of management of purchasing process from the very beginning of the project and till the moment of recycling of the equipment or the termination of the services bought within the limits of the corresponding project. Thus, the procurement cycle provides support of the corresponding project during all its cycle that is from the beginning and before definitive end. For this purpose all the cycle is shared on some separate stages which management to carry out easier and more effectively, than management of the entire project as a whole. On each of these separate stages there are certain purchasing processes, and each of these stages demands use of certain resources.

The Main Stages of Procurement Cycle

If the industrial enterprises, wholesalers and retail dealers completely observe the principles of purchases listed above it, most likely, it will provide success in their purchasing activity. The businessman should pass four stages in a procurement cycle as it is recommended by The U.S. Small Business Administration.

1. The Estimation of Requirements. Before to buy, the businessman should define, how its requirement for the given goods is combined with other requirements and firm possibilities. For definition of requirements for some products it is enough to enquire about available stocks and last sales. For other groups of the goods it means acceptance of risky decisions on what models to choose and in what quantity to buy each of them. The businessman should not remain with the unseasonable or unfashionable goods.

2. The Choice of the Supplier. After the estimation of requirement for the goods is made, the businessman should find the supplier who can sell these goods. There are goods which can be received only at one seller; in that case all is reduced to the decision, to be engaged in these goods or not. But different potential suppliers can deliver the most part of the goods. In similar cases the businessman should estimate not only cost, but also a degree of service, an acceptability of conditions of delivery, possibility of settlement of problems with the credit, the schedule of deliveries, storekeeping, and also to provide actions under unforeseen circumstances.

3. Negotiations About Purchases. Discussion at a solving third stage includes procurement prices, and also volumes of deliveries, terms of deliveries, deliveries by one or several parties, costs on transport and packing, quality assurances of the goods, the discount for advertising and the goods advancement, special offers of rather slightly damaged goods or sale and so forth

4.  The Control. And at last, to improve conditions of deliveries, the businessman should reconsider from time to time the relations with each of suppliers. In case of need, he should search for the new supplier.

If delivery terms are broken or late, the businessman is obliged to stir up the activity. The businessman, using by all available means, should achieve from suppliers of acceleration of deliveries. Arriving thus, it can to prevent, for example, a stop of the enterprise because of shortage of necessary raw materials.

Analysis of the Procurement Cycle on the Example of War Industry

The procurement cycle should during all  cycle of the project (as a rule, upon termination of its each next stage) to provide certain results which allow supervising bodies and representatives of a military management to check a course of realization of the project and to make decisions on end of a certain next stage and transition to a following stage. The overall aim of management of purchasing process consists in contribution of successful realization of purchasing projects for the purpose of maintenance of requirements of armed forces in the necessary equipment in target dates and according to the established level of financing, and also for the purpose of decrease in the risks connected with purchasing process. However it is necessary to notice that purchases in military sphere represent difficult complex process, even under condition of application of the structured mechanism provided by a procurement cycle. Therefore working out and use of a procurement cycle should supplement, but not replace at all with itself effective ­ management of purchasing process. As examples of procurement cycles in military sphere it is possible to use U.S. Defense Acquisition System and the procurement cycle of British Armed Forces CADMID displaying all stages of cycle of the project, which are Concept, Assessment, Demonstration, Manufacture, In-Service, Disposal. Various procurement cycles are applied and in an economy private sector, and also in other spheres of public sector.

The procurement cycle is the management mechanism defining ways of realization of complex processes of purchase by group on realization of the purchasing project. These ways are defined on the basis of experience of management of the previous purchasing projects, and also on the basis of the existing advanced methods confirmed in the form of formal procedures. The procurement cycle also demands observance of the certain rules regulating process of studying and consideration of all basic aspects and questions on which successful realization of the project depends. Besides, the procurement cycle should during the entire cycle of the project (as a rule, upon termination of its each next stage) to provide certain results which allow supervising bodies and representatives of a military management to check a course of realization of the project and to make decisions on end of a certain next stage and transition to a following stage. The overall aim of management of purchasing process consists in contribution of successful realization of purchasing projects for the purpose of maintenance of requirements of armed forces in the necessary equipment in target dates and according to the established level of financing, and also for the purpose of decrease in the risks connected with purchasing process. However it is necessary to notice that purchases in military sphere represent difficult complex process, even under condition of application of the structured mechanism provided by a procurement cycle. Therefore working out and use of a procurement cycle should supplement, but not replace at all with itself effective management of purchasing process.

Operation of the Equipment and Services

At this stage of  cycle of the project the lion’s share of its general resources is spent. Therefore so it is important to consider in the project beginning all expenses at all stages of its  cycle, in particular, expenses on operation and service of the equipment during all term of use. This stage provides use of the got equipment and-or services in interests of the military organization of the state. In the general context of management of purchasing activity of armed forces at an operation phase such kinds of activity are carried out:

a)Acquisition and use of spare parts and account materials;

b)Maintenance service and equipment repair (these services can partially or appear completely the supplier, but they should be provided the corresponding contract);

c)Demonstration tests for check of reliability of the equipment according to requirements of the customer.

One more important component of activity at this stage of  cycle of the project is equipment modernization according to new requirements. Modernizational actions can be spent within the limits of the separate projects which management should be carried out in the same way, as well as management of purchasing projects.

Recycling of the Equipment and the Termination of Services

At the final stage of cycle of the purchasing project there is a recycling of the equipment and the termination of term of rendering of services. The termination of rendering of services is rather simple process which occurs according to conditions of the contract concluded within the limits of the corresponding project. Recycling of the physical equipment is too rather simple process, but it can be connected with certain expenses (especially in cases when interests of preservation of environment demand especially responsible relation to recycling questions). On the other hand, it can bring certain incomes for the military organization (for example, in case of sale of the used equipment or products of its recycling, or restoration of separate components of the equipment for the purpose of their further operation). Therefore it is important, that all aspects of this activity have been considered in advance and provided in purchasing strategy of the corresponding general project.

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Environmentally sustainable public procurement to strategically reshape markets and effect lasting change

Johannes Schnitzer, Managing Counsel at McKinsey leads the legal department’s Global Public Sector Team and provides support across the globe on high-priority engagements with public sector clients. Johannes also counsels on McKinsey’s strategic priorities in the public sector arena from a legal risk management perspective.

March 14, 2024 The climate crisis is a significant challenge that requires urgent attention. To address this matter, it is essential to adopt a holistic approach involving all sectors of society, including governments, businesses, and individuals. One significant area in which governments can make an impact is through environmentally sustainable public procurement. By leveraging their purchasing power, governments—with annual expenditures of several trillion dollars on goods, services, and works across the globe—can lead by example, propel the adoption of sustainable practices and technologies to move markets, and promote the transition to a net-zero and circular economy.

However, traditional public procurement regimes (including regulations, policies, and procedures) have primarily prioritized the procurement process—the “how” to buy rather than the “what” to buy. The selection of the winning bid has often focused on the initial purchasing price, which can fail to consider full life cycle costs while not leveraging the private sector’s capabilities to address some of the most pressing issues of our time—to procure more products, services, and works that cause minimal adverse environmental impact.

‘Green’ public procurement, according to international public procurement rules

Some of the seminal international texts on public procurement are the World Trade Organization Agreement on Government Procurement, the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Public Procurement, and the European Union Public Procurement Directives. These texts have influenced the procurement rules of numerous governments worldwide, including all 27 EU member states, Canada, India, the United States, and Zambia. Despite being ten years or older, the texts already, to some extent, include provisions regarding environmental sustainability, allowing procuring entities to use technical specifications such as ecolabels indicating that a product meets a specific environmental standard, and evaluation criteria that consider environmental characteristics.

From a procedural perspective, those international texts on public procurement law have been promoting open tendering (known as sealed bidding in the United States) as the default procurement method, typically based on the lowest price as the only award criterion. This procurement approach, as a general rule, does not allow for input during the tender process on the technical specifications and the way bidders and bids are evaluated.

Existing guidance and debate

In recent years, there has been a significant shift in the approach to public procurement, which is increasingly viewed as a strategic tool to drive innovation, combat climate change, and promote environmental sustainability. For instance, the United Nations (UN) 2030 Agenda for Sustainable Development, which was adopted by all UN member states, specifically addresses the need to “ensure sustainable consumption and production patterns” through 11 different targets. One of these targets aims to “promote public procurement practices that are sustainable, in accordance with national policies and priorities.” Simultaneously, there has been a global trend of refining strategies for using public procurement to reduce environmental impacts. These strategies have evolved, such as incorporating environmental considerations into acquisition planning. Other approaches include requiring products or services to have a certification or other confirmation reflecting environmental attributes, weighing environmental impacts in technical evaluations for award, and excluding bidders if there is substantiated evidence that they have failed to adhere to the minimum standards of environmental laws or have engaged in environmental misconduct. These approaches can also include assessing environmental impacts as part of life cycle costs when evaluating for contract award. In 2017, the International Organization for Standardization (ISO) issued a best-practice guideline on sustainable procurement, known as ISO 20400.

Leadership and management when buying ‘green’

To achieve sustainable public procurement, leadership and management of acquisitions are essential, distinct capabilities that are characterized by different behaviors, skills, and time horizons. With respect to environmentally sustainable public procurement, governments can be encouraged to take a proactive role in setting ambitious sustainability targets and ensuring that their procurement policies align with these goals (for example, by making life cycle costs mandatory for certain purchases).

At the same time, the public acquisition workforce could be further empowered and enabled to increasingly buy “green.” This can entail giving procurement personnel the training, guidance, and development to successfully apply “green” procurement in practice. However, this task is challenging due to the inherent complexity of public procurement. The process is highly formalistic to ensure the efficient use of taxpayer funds and to prevent bias in purchasing decisions. Therefore, careful consideration should be given to requesting specific ecolabels as minimum criteria.

Similarly, defining technical specifications that require the use of low-carbon materials presents its own challenges. Additionally, applying true life cycle costing to evaluate different bids requires a unique skill set. Finally, contracting agencies are also required to avoid any “greenwashing,” meaning they need to implement effective quality control and contract compliance measures to ensure that suppliers deliver on their promises as, for instance, suggested by the UN Environment Programme.

Public–private collaboration

The acquisition workforce at a government entity is responsible for procuring a diverse range of products, services, and construction projects. This can include anything from food, vehicles, and furniture to IT equipment, electricity, cleaning services, maintenance services, and even large-scale infrastructure projects such as roads, bridges, and airports. To this end, a comprehensive understanding of the procurement process and the environmental impact of the items or services being purchased is necessary to ensure that environmental sustainability is appropriately considered. This involves defining appropriate technical specifications, evaluating bidders (often even subcontractors and suppliers), and assessing submitted bids.

By working together, governments and businesses can identify opportunities for innovation and cocreate sustainable solutions that meet the needs of both parties. For instance, ISO 20400 encourages organizations to engage with suppliers and collaborate to achieve sustainable procurement goals. It emphasizes the importance of building long-term relationships with suppliers based on trust, transparency, and shared sustainability objectives.

This collaboration can take various forms, such as joint research and development or public–private partnerships (PPPs) that leverage the expertise and resources of the private sector. Other approaches that have the potential to add value include the following:

• Participating in legislative public procurement consultation. Public procurement frameworks are frequently under reform. By involving private companies—including technical and legal stakeholders—in the consultation process, governments can benefit from their knowledge and experience, ensuring that the resulting legislation is well-informed and practical. For instance, the United Kingdom is currently conducting its Transforming Public Procurement program, which is an initiative to enhance how goods, services, and works are procured for the public sector.
• Sharing best practices. It has been proven to be effective to provide learning opportunities in real-life scenarios, tool kits, guidance notes, et cetera that highlight concrete technical specifications and evaluation criteria. These resources offer practical examples and guidance for how to apply theoretical concepts in real-world situations. By showcasing real-life scenarios, organizations may be able to better understand how to navigate complex situations and make informed decisions depending on the individual case.
• Getting outside support from experts. When defining technical specifications and award criteria, it might be an option for organizations to seek outside support from technical and legal experts. This could apply to total costs of ownership, which evaluate the cost of the product or service being procured over its entire life cycle. Seeking outside support can help to ensure that all costs are properly taken into account, including maintenance, repair, and disposal costs.
• Conducting premarket consultations. Premarket consultations with companies that are likely to bid for a contract opportunity can offer several benefits, including improved market understanding, enhanced competition, risk mitigation, innovation, and collaboration. Engaging with vendors early on, followed by measures to level the playing field, could allow the organization to gain insights into the market landscape, attract a wider pool of potential vendors, identify and address potential risks, and explore innovative solutions.
• Using procurement methods that promote innovation. These methods, such as the competitive dialogue under EU public procurement law, can be useful when the procuring entity’s needs are complex or not fully defined. The competitive dialogue procedure allows the procuring entity to engage in a discussion with prequalified bidders to develop the most suitable solution for their needs, including the specification and use of environmentally sustainable materials.
• Using PPPs. A PPP is a collaborative arrangement between the public and private sectors to jointly undertake a project or provide a service, with effective risk allocation at its core. This means that risks should be allocated to the party that is best able or most incentivized to bear them. In PPPs, capital and operating costs can be paid by the public sector, which takes the risk of cost overruns and late delivery. However, the increased risk transfer in PPPs provides a greater incentive for private sector contractors to adopt a whole-life-costing approach to design, which considers life cycle costs such as operation and maintenance.

Environmentally sustainable public procurement is a significant component in addressing the climate challenge and promoting a circular economy. Although international texts on public procurement already allow for the consideration of environmental sustainability criteria, many governments have not pulled every lever available to promote sustainability in their procurement processes. However, in recent years, there has been a significant shift in governments recognizing the potential of public procurement as a strategic tool to drive innovation and combat climate change. To fully realize the potential of environmentally sustainable public procurement, strong leadership and management are widely considered to be essential, along with enhanced public–private collaboration.

Journal of Materials Chemistry A

Chemical pre-lithiation of limn 2 o 4 balances the low first cycle efficiency of silicon anodes.

Chemical pre-lithiation is carried out using lithium naphtha- lene to incorporate excess lithium into lithium manganese spinel (LiMn 2 O 4 ). Pre-lithiated LiMn 2 O 4 powder is collected and processed under ambient air conditions, demonstrating its seamless integration into current lithium-ion manufacturing. Precise control of the lithiation content in LiMn 2 O 4 allows tuning of the first cycle efficiency, and when demonstrated in a full-cell configuration comprising a silicon anode, can achieve a projected specific energy of ∼216 Wh kg –1 performance.

• This article is part of the themed collection: Journal of Materials Chemistry A HOT Papers

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J. Ko, B. Tan, M. Logan, S. A. Langevin and K. Gerasopoulos, J. Mater. Chem. A , 2024, Accepted Manuscript , DOI: 10.1039/D4TA02544J

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