PROCUREMENT

Procurement Process
“Procurement is the process of sourcing material from vendor, inspecting it and finally paying the vendor for
accepted materials.”
Procurement is a requirement for almost every organisation which is why it is considered as a very fundamental
module of any ERP system. Procurement being a transaction-intensive process, it is one of the most widely used
ERP module.
Steps of a typical procurement cycle and these steps are detailed below:
1. Determining what to buy and how much—Procurement planning:
The first step of procurement cycle is deciding what items to buy and of how much (quantity). This
process is also called procurement planning process and depending on type of items, the process differs.
For regular production items i.e., items that are needed for producing finished goods, a detailed material
requirement planning process is needed, whereas for one-time purchases and items that are not needed
regularly, user department can create a purchase requisition.
For example, a company manufacturing car will need tire, battery and engine regularly for making the
car and these items need to be planned by a material requirement planning, process, whereas it may need
some engineering spares for its machines only in case there is a breakdown and for these the engineering
department can create purchase requisitions as and when required.
2. Determination of the source of supply and selecting vendor: Determining the right source of supply
is the next challenge for buyer. Once buyer identifies few technically capable vendors, he asks for a
price quotation and delivery terms from them. Once price and commercial terms of different vendors are
compared, purchaser finally selects the vendor for the particular item.
3. Purchase order creation: In this step a purchase order is created with item details, quantity, price,
delivery terms, etc. This is a legal document between the company and the vendor.
4. Goods receipt: In this step goods are received. There can be several checks during goods receipt
process like quantity check (whether the same quantity had been delivered as asked for), quality check
(whether goods are of proper quality as per specification provided), etc. Goods receipt is generally
happens at factory level where a goods receipt posting to stock with reference to a purchase order is
done.
5. Processing vendor payment and invoice verification: The final step of procurement process is paying
vendors after verifying the invoice submitted by him.