Procurement Process: The Complete Guide

Procurement is a business process in the fullest sense of the term. It plays a key role in business strategy, involves a number of workflows, and requires input or action from multiple departments.

What is procurement? 

Procurement is the process by which businesses and organizations source and obtain goods and services from external suppliers in order to achieve their strategic objectives. 

Procurement is a complex process that consists of several workflows or subprocesses including approving vendors, issuing purchase orders, receiving goods, and paying invoices. Depending on the organization, other workflows may also take place within the procurement process. 

procurement process workflow

Why is the procurement process important? 

According to the Deloitte Global CPO survey 2019, 61% of chief procurement officers (CPOs) agree that procurement-related risks have been on the rise over the past year. Some of the top risks highlighted in the report include economic downturn, internal complexity (at product and organization levels), and managing risk with suppliers. Additionally, there is a chance of potential supply chain disruption. 

To minimize these risks, organizations need a procurement process that functions effectively even in difficult scenarios to help them keep their supply chain flowing and ensure that sourcing efforts are not disrupted.

See why more businesses trust Pipefy’s no-code software to help them build the perfect procurement processWhy Pipefy

Procurement vs purchasing

Although the terms procurement and purchasing are often used interchangeably, they are not the same. Purchasing is the act of buying goods and services from a vendor. In this sense, it is purely transactional. Procurement is a broader, more strategic process of which purchasing is but one subprocess. 

Elements of the procurement process

Procurement, like any other process, is made up of a set of basic components and workflows. These components include the people, information, and work required to meet the process goal, as well as some specific workflows that help organize the steps in the procurement process. 

Basic components

Every workflows consists of a set of basic components. Sometimes these are referred to as “people, processes, and paper,” but it might be clearer to name them for what they are: actors, information, and work. 

Actors are the people, systems, and tools that participate in the procurement process. This can include employees, vendors, databases, and software. Anyone who impacts or moves the work along should be considered an actor. 
workflow information
Information includes data, documents, and correspondence that are needed for the procurement process. For example, this can include approvals, purchase orders, a database of approved vendors, tax information, or spreadsheets. 
workflow activity
Of course the procurement process can’t happen without work. That includes any task or activity that is a requirement of the process. 
Learn more about creating a workflow or the features of a workflow management system.

4 common procurement workflows

Business processes can usually be broken down into a series of workflows. Procurement is no exception. Although every business and organization will have a unique procurement process that’s built on specific needs and experience, we can imagine some of the most common workflows that occur in a typical procurement process. 

1. Approving vendors

Identifying and vetting vendors is an important part of procurement. By establishing relationships with multiple vendors, a business can avoid supply chain disruptions and create incentives for better prices from the vendors.

Approving vendors may require input from a purchasing manager or the finance team. Information required may include logistics or tax information. 

See an example of a vendor approval workflow.

2. Creating purchase orders

One of the most well-known workflows in procurement is the purchase order process. These usually originate with a request from an employee, but may also be automatically triggered by software that detects a change in inventory.

Copies of PO will likely be shared with a purchasing manager, warehouse, and finance teams. 

See an example of a purchase order workflow.

3. Receiving goods or services

Once a need has been identified, and goods or services ordered, there will be a workflow for confirming and documenting receipt of those goods or services. Often this will include a three-way matching process. 

See an example of a goods received workflow.

4. Paying invoices

A typical procurement process will also include paying for the goods or services that have been received. A reconciliation process between the invoice, PO, and goods received note (GRN) may be required. 

See an example of a pay invoices workflow.

Find the right template for your workflow or processSee templates

10 procurement process steps

Step 1: Identify the company needs

The procurement needs of each organization are unique. They will vary based on size, industry, products, customer sensibilities, risks, digital presence, priorities, etc. Some organizations may even choose to use different processes for specific products or customers.

But there is a basic blueprint for the procurement process that can be adapted to your particular circumstances and needs.

At a fundamental level, before researching and engaging in talks with vendors, a company needs to identify requirements and evaluate their validity. Asking questions such as — is this a genuine need? By when does the product/service need to be sourced? What criteria should it meet or what kind of features does it need to have? — helps the company gain clarity and prevent possible roadblocks at a later stage.

Step 2: Review and authorize purchase requisition

After the strategic analysis of the need for the procurement service, the next step is to kick off the operational aspect. The requesting team within a company sends its requirements to the procurement team, which then does a thorough review of the request. Approved requests are signed off and pushed down the workflow.

Step 3: Approve budget

Approved purchase requisitions are forwarded to the accounting team for vetting against the budget. Based on past engagements with vendors, industry data, etc. a certain cost estimate is generated and that budget is approved and allocated for this specific purchase. By this stage, the company has confirmed the need for the product as well as earmarked a certain amount to procure it. You’ll like to work closely with your finance team during this step. Keep in mind that sometimes the best price isn’t the lowest price, but the best combination of what you pay and what you’ll receive. 

Step 4: Review vendors

Most companies have an approved list of vendors with whom they have prior relationships. Procurement systems carry this data making it easier to select a vendor for this transaction. However, in the event of ambiguity with the vendor list (for example, this particular product has never been sourced before or past engagements have not been too successful to continue), exhaustive research is required to identify choices.  

Step 5: Select vendor

Usually, companies shortlist two or three vendors before selecting one. They then reach out to each of them to express their interest and also ask for quotes and other details such as the warranty expiration period and the level of support provided in the event of issues. These details help the company finalize a vendor to proceed with.

Step 6: Negotiate with the vendor

By now, the company is clear about its vendor of choice. This could be because they are happy with the pricing point, service levels are good, or that they have a depth of experience. The company then begins to negotiate the actual price and terms of the contract with the vendor. After a few back-and-forth discussions, the terms are agreed upon and both parties sign the contract and purchase order (PO) is raised. For pre-approved vendors, this may be a straightforward process where a price has already been agreed upon and hence, it’s only a matter of rolling out a contract and initiating a PO. By practicing good contract management it can make future engagements with vendors more streamlined. 

Step 7: Receive goods or services

At this stage, the vendor dispatches the goods or provides the services they are hired for. On receipt of a shipment, the company ensures that the quality and quantity meet expectations and communicates in case of any concern. In cases where a service is procured (for example, a food stall service in your company cafeteria), it’s likely to be an ongoing transaction and continuous assessment is done to ensure that the company’s needs are met.

Step 8: Three-way matching

Three-way matching is a match between the purchase order, vendor invoice, and the product delivery confirmation report (also referred to as packing slip or receiving document). This is an accounting process that is done totally by the products ordered, dispatched, and received. This helps to avoid errors such as early or late payments, unauthorized payments, and quantity mismatches.

Step 9: Approve supplier invoice payment

After a successful three-way match, it’s time to release the payment to the vendor. This is a straightforward step in which the accounting team approves the payment as per the conditions of the contract (for example, within 30 days of receipt of shipment).

Step 10: Update and maintain business records

Maintaining document repositories is an important step in procurement. Although we discuss this as a final step, it’s an ongoing part of the entire process where every financial and business transaction needs to be traceable. This is not only essential from an audit perspective but also useful to conduct postmortems that help understand the efficacy of the procurement process or decide whether to continue engagement with a vendor or not.

Optimizing your procurement process

In any business process, there are ways to reduce friction, minimize errors, and improve outcomes. Optimizing the procurement process becomes especially important as businesses scale and become more complex.

no-code platform
No-code. Using a no-code process management tool can make it fast and easy to organize and improve the procurement process. When changes are needed, team members with permission can make revisions on their own, no need to wait for IT. 
drag and drop interface
Drag-and-drop interface. The elegance and simplicity of no-code software come from its user-friendly, drag-and-drop visual interface. Modify workflows, create reports, and customize forms or processes with just with a few clicks. 
automation
Automation. Your process can likely be simplified and sped up through the use of automation. Emails, notifications, approvals, status updates, and document generation are all items that can be done automatically so that your team can focus on other priorities. 
integrations
Integrations. Most companies rely on a variety of tools to manage their processes: email/messaging platforms, document creation tools, accounting software, etc. Unify these systems to create a single source of truth and improve collaboration.
templates
Templates. Not every process or workflow needs to be built from scratch. Templates can provide a customizable framework to get work underway quickly. 
public forms
Public forms. One challenge for any process is capturing the right information from both internal and external stakeholders. Forms provide a flexible structure and make it possible for anyone with access to update work items or submit requests.
dashboard
Dashboards. Visualizing your process data and producing insights and reports is essential for optimizing your workflows. Identify bottlenecks, troubleshoot handoffs, and see the status of all items in motion at once.

Build an efficient procurement process that scales

Business processes evolve over time. The procurement process is no exception. Pipefy’s no-code software puts control of your procurement process in your hands.

A drag-and-drop interface makes implementation a snap, and a full toolbox of features and options gives you complete visibility and control. Build the process you want with Pipefy.

Build the procurement process that’s right for your businessTry Pipefy