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Understand How Procurement Works

Procurement is the process of acquiring goods and services. The process of procurement is long even if it sounds simple. This process is so important that failure to do it correctly may lead to enormous losses and in some cases collapse of businesses. 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.

When done properly, procurement can give one company a competitive edge over others. Numerous advantages are enjoyed by a business doing good procurement. Some of the gains of properly done procurement process are stated below.

First, returns on money spent is one thing the business gets. Gains made are measured against the expenses made during procurement to establish this. If profits surpass the cost of procurement, this is a proof that good procurement was done.

To know if a procurement department is performing at its peak one needs to understand it’s working. Eight or nine steps may be involved in the whole sequence. The initial step involves agreeing on what the business needs -be it goods or services. This is based on the company’s area of specialty. After determining its needs, plans for the purchase are made.

Next, decide on what standards should be looked for in goods being bought. This will give a bearing on the cost implications to the company. Repairs and replacement costs are hidden costs that make low quality goods expensive in the long run although they may be cheap at purchase.

Next, embark on a research of the best possible suppliers. We call this step market research analysis. This can be done by visiting the suppliers or going through their previous work. Tendering is done during this step.

Following research of the suppliers, the company then analyses values. Tender applications are compared with their costs. 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. It is the stage where finances are sought. Here budgetary plans are forwarded to the finance desk. 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. Negotiations are important as sometimes the supplier may give a discount.

The process ends at release. Warehouses is the place where goods land from the supplier. It is important to note that how goods flow from the warehouse to the other departments is the role of the procurement department. This is crucial since it helps in inventory keeping of the goods as they come and leave the stores. This closes any loopholes that would emerge during audit.

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