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What is the Procurement Process? Steps & Strategies

What is the procurement process?

The workflow or process of negotiating terms and obtaining products, services, or labor from an outside source — typically through a tendering or competitive bidding procedure, is referred to as the procurement process. Purchasing decisions are typically made during procurement processes when resources are scarce.

Procurement encompasses the entire process of acquiring goods, services, and works from external vendors, encompassing everything from identifying needs to negotiating contracts and managing payments.

Understanding the procurement process: From need to payment.

A company’s ability to save money is directly impacted by the procurement process, which makes it indispensable. Businesses can be certain that their objectives are being fulfilled when they routinely evaluate the procurement process. When a process is not operating as intended or when issues arise, adjustments can be made. Since increasing efficiency is the primary goal of procurement, companies need to make sure their process yields the most value possible.

Every company has a different procurement process because it can differ based on requirements. Each company has its own set of conditions, and so it will have a different procurement process compared to another business that has additional requirements.

The procurement process flow.

Ensuring a smooth flow of goods and services is vital for every company. The procurement process journey may vary between companies but a well-defined series of steps that govern how companies acquire what they need is fundamental for organizations to thrive.

  • Identifying a need: The procurement process starts with recognizing a requirement for goods or services.
  • Creating a Purchase Order (PO): A document detailing the specific needs of the requested item is created.
  • If a pre-approved supplier exists:
    • The PO is sent for approval by the designated procurement or finance team.
    • Upon approval, the PO becomes a purchase requisition.
  •  If a pre-approved supplier doesn’t exist:
    • The procurement team issues multiple RFQs (Request for Quotes) outlining the requirement.
    • Received quotations are analyzed, and a suitable vendor is chosen.
    • The procurement team negotiates a contract with the chosen vendor and sends a PO.
  • Receiving and verification: Upon receiving the purchased items, a three-way matching verification is conducted, comparing the PO with the vendor’s invoice and verifying if the received goods match the PO and invoice details.
  • Payment and accounting: After the successful three-way matching, the invoice is authorized for payment. The vendor is paid, and the financial department accounts for the purchase cost.
Guided Procurement

Guided Procurement Tour

Explore our automated procurement workflows in the Guided Procurement tour.

The benefits of a streamlined procurement process.

Implementing a well-defined procurement process offers numerous benefits for businesses:

  • Cost savings: Strategic sourcing, effective spend management, and negotiation can lead to significant cost reductions through competitive pricing and optimized vendor selection.
  • Improved efficiency: Automating repetitive tasks and streamlining workflows frees up valuable staff time for more strategic activities like supplier relationship management.
  • Enhanced risk management: Proactive risk management techniques like vendor diversification and contract review mitigate potential disruptions and ensure business continuity.
  • Greater transparency: Clear audit trails and well-defined approval processes foster accountability and compliance with internal policies and regulations.
  • Stronger vendor relationships: Building trust and collaboration with vendors leads to better communication, improved service quality, and potentially more favorable terms.

Best practices for a robust procurement process.

Here are some best practices to consider for each stage of the procurement process:

  • Need identification and requisition: Implement clear guidelines for requisition creation to ensure all necessary information is captured and proper approvals are obtained.
  • Purchase order creation and approval: Utilize standardized purchase order templates and define clear approval workflows based on spending limits.
  • Goods or service receipt and verification: Establish a formal receiving process for goods and ensure proper documentation is completed during verification.
  • Invoice processing and approval: Leverage automation for invoice data capture and integrate with accounting systems for seamless data flow. Define clear approval processes based on invoice amounts.
  • Payment and reconciliation: Negotiate favorable payment terms with vendors (e.g., early payment discounts) and automate payments whenever possible to expedite the process.

How Airbase helps in the procurement process.

The traditional procurement process can be a paper-laden mess, riddled with manual tasks and prone to delays. Airbase, a modern spend management platform, wields innovation to streamline every stage and empower companies to transform procurement from a tedious task into a strategic advantage.

It offers intuitive electronic templates for creating purchase orders (POs) and requisitions. All essential details are captured with ease, eliminating the need for manual data entry and the risk of errors associated with paper-based systems. This not only saves time and resources but also ensures greater accuracy and transparency within the procurement process.

The platform also simplifies the vendor management process by providing a centralized vendor database. New vendors can be onboarded efficiently, all relevant information is stored in one easily accessible location, and past performance data can be tracked to make informed vendor selections in the future.

Airbase empowers companies to create and distribute RFQs electronically with just a few clicks. Vendor responses are managed efficiently, companies can compare quotes side-by-side within a user-friendly interface, and collaborate with internal teams for informed decision-making.

It allows companies to route purchase orders and other procurement documents for electronic approvals, eliminating delays and bottlenecks that plague traditional methods. This not only accelerates the procurement process but also empowers greater control and accountability within your organization.

Gain valuable insights into your spending habits with Airbase’s comprehensive reports and dashboards. Track spending trends in real time, monitor budget utilization, and identify areas for cost savings.

Experience greater efficiency, cost savings, and control over your spending, allowing your procurement team to focus on what truly matters — securing the best deals and fostering strong relationships with your vendors.

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