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Understand How Procurement Works

The process of acquiring goods and services is called procurement. As simple as it may sound, procurement is a long process. Apart from making big losses, the business may also collapse if the process of procurement is not done correctly. The process begins when the company gets the need for a commodity. In certain occasions, the process goes up to when the audit is done.

The difference in performance of one business with its competitors may be through good procurement processes. Numerous advantages are enjoyed by a business doing good procurement. Doing good procurement has advantages as stated below.

First, returns on money spent is one thing the business gets. By comparing the cost of procurement and the profits made, this can be calculated. If profits surpass the cost of procurement, this is a proof that good procurement was done.

Understanding the working of the procurement department may be key in gauging its performance. The process involves eight or nine steps. First the business has to determine need for a commodity or service. The main area of specialty of the firm is what gives this information. When plans for acquirement of the commodities are made, this step ends.

Next the standards of commodities required are established. How much will be used for the purchase is known here. Substandard goods, though cheap, initially have extra costs like repairs and replacements.

After determining the right standards of goods and services, a research on the best suppliers is made. The name given to this step is market research analysis. Possible research on sellers or paying them a physical visit can be used here. Tenders are invited at this stage.

The business will proceed from the research to analyze the vales given. The quoted costs of applications on tenders or research data is compared. A company then goes for the supplier plan with the best cost deal to the firm.

All the above steps can come to a halt if this next step fails. The stage involves looking for funding. Proposals and budgets are forwarded to the finance department. Money is availed to the department once the proposals go through.

With cash at hand, the procuring department may go directly to purchase the goods or order services. The department may also go into some negotiations with the supplier. Good negotiations at this stage may see the supplier give the firm a good discount.

Release is the final stage of the process. From the supplier, goods find their way to the company’s stores. Procurement is also tasked with controlling the flow of goods from the stores to the other departments within the organization. It is important that the procurement department controls the release of goods to ease the keeping of inventory on all purchases. Doing this solves many would be tussles when auditing is done.

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