Blog Article 6 popular procurement methods & tips to choose suppliers


6 popular
procurement methods
& tips to choose
suppliers
Rana Bano
Article 7 min
Published on February 14, 2023

For anyone responsible for procurement in a company,

choosing the best procurement method and finding
the right supplier is a huge responsibility.
After all, an average company spends $343,000 on
SaaS tools alone, with the amount projected to grow
year over year.

As company projects get more complex, it becomes

more important than ever to use a procurement
method to optimize this budget and source suppliers
best suitable to provide the necessary goods and
service.

In this article, we'll look at the different procurement

methods and share tips to help you select reliable
suppliers.

What is procurement?

Procurement refers to activities involved in obtaining

the goods and services a company needs to support
its daily operations. This process includes sourcing
items, negotiating terms, purchasing the items,
receiving and inspecting goods, and keeping records
of every step of the procurement process.

Many people confuse procurement vs. purchasing, but

there is a clear difference between the two terms.
Here are some of the key differences:

Procurement is everything related to sourcing and

carefully obtaining goods and services for a
company's business operations, while purchasing is
buying the said goods and services.
The scope of procurement includes sourcing,
negotiating, purchasing, receiving, and recording
keeping. Contrarily, purchasing is just a part of the
procurement process.
Procurement focuses on getting the best value from
goods and services for business profitability while
purchasing focuses on getting the best price.
Purchasing is short-term and more transactional.
Procurement is long-term, with the aim to build a
mutually beneficial relationship with suppliers.

Procurement is a necessary element of the supply

chain that helps a company identify reliable suppliers
that can meet its business requirements at a
reasonable price. This allows a business to avoid
wasting time, money, and resources dealing with an
inefficient vendor.

6 procurement methods to find

reliable vendors
A company's procurement team uses different
methods to source for vendors. There are six main
types, but the names may vary according to the
company:

1. Open tendering

Open tendering is a competitive bidding procedure a

company uses to allow suppliers to bid for its
contracts. Here's how it works—a company releases an
invitation to tender (ITT). Prospective vendors can
then respond with how they intend to fulfill the
contract and persuade the company that they are the
best for the job.

This method provides the most competition among

suppliers and encourages new or emerging vendors to
bid and obtain more work. Note that not all who bid
are suitable for the contract, especially complex
acquisitions, and it takes time to evaluate all the
tenders to get the required standard.

2. Request for proposals

Request for proposal is an open request a company

makes to announce a project and solicits qualified
contractors to bid for it. This method comes in handy
in the procurement world when vendors and service
providers propose their goods and services to a
procurement team.

How it works
Quick links
What is procurement?
6 procurement methods to find
reliable vendors
6 best practices for choosing
suppliers
Use a spend management
platform to control company
expenses
Many organizations prefer this method, and
governments always use them. It involves preparing a
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statement of work describing the needs the company
wants to fulfill and the timeline for completing it. It
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also advises bidders on how to prepare the proposals
and the desired format the bid should be presented
in, like the samples here.
The vendor usually submits these requests in two
separate envelopes: one for technical proposals and
the other for financial proposals. The financial
proposal is sealed and only opened after the technical
proposal is approved or rejected. Request for
proposals opens up the competition, helping
companies get the best-fit supplier at the best price.

3. Two-stage tendering

CFO Trends
Two-stage tendering is a procurement strategy where
2023
the buyer invites tender in two stages:
See how top CFOs
are tackling 2023
1. The first stage tender has complete information
Download
now without prices from all bidders;
2. The second stage tender includes the price
specifications from the selected bidders.

The first stage is usually for bidders to submit their

proposals with their best solutions to fulfilling the
request for offers, after which each proposal is
carefully evaluated and scored. The vendor with the
highest-ranked bid is invited to stage two, where they
submit a financial proposal after discussions to reach
an agreement for the proposed solution, and finally,
contract negotiations.

One advantage of the two-stage tendering is that the

preferred supplier is more likely to understand the
requirements, potentially reducing implementation
risks.

4. Request for quotations

Request for quotations, also known as invitation to

quote, simplifies procuring small-value, readily
available, off-the-shelf goods and services. It's fast and
doesn't require a lot of paperwork, unlike the above
three procurement methods.

It's a non-competitive procurement method as the

procuring company chooses the contractor, supplier,
or service provider to request quotations from. At
least three vendors are invited to submit quotes, and
the best quote is selected based on compliance with
the requirements.

5. Selective tendering

In selective tendering, suppliers can only submit

tenders by invitation. This method is also known as
restrictive tendering as it limits the request for tenders
to a select number of suppliers or service providers.
Here, the competition is confined to a certain number
of vendors who are vetted based on their track record
for a specific contract. Companies can ensure their
requirements are met and satisfied more effectively
and increase the quality of work.

6. Single source

Single source is a non-competitive procurement

method where goods and services are acquired from a
sole vendor. The management conducts a strict
approval process before using this method.

Single source procurement is only used under

exceptional circumstances like:

Emergencies,
When only one vendor is qualified to fulfill the
requirements,
Where there is a continuation of previous work which
another vendor cannot do due to patent rights,
The procurement of related items is only available
from a specific source
Where there is a clear advantage of using this
method over other competitive methods

6 best practices for choosing

suppliers
Choosing suppliers is often tricky—but that's mostly
because companies are unclear on how to do it right.
To avoid assessing proposals from unfit suppliers, here
are a few best practices to follow:

1. Treat vendors as vetted partners

Taking a partnership approach to your vendor

relationships means looking beyond the mechanics of
purchase agreements and contracts.

Consider supplier relationships as people

management, with the added value that human
interactions bring to a business. For example, send
out online invitations to your hosted events and team
bonding activities. When you make vendors feel like
they're a part of your team, they'll be more likely to
help you manage savings and risks and give valuable
products for your company.

2. Carry out a needs assessment

Needs assessment helps you scope the need for

procurement, explore potential solutions, and prepare
the vendor community to deliver. It includes
identifying what purchases are required, which
department needs them, and the allocated budget.

Let’s say a company’s paid advertising team is looking

to improve their ad management to better personalize
their ads. It’s important for them to go through a
software needs assessment that takes into account the
integrations, advertising platforms, support, and data
offered by the various platforms. Other teams, such as
analytics and marketing operations, need to be
looped in to provide a more comprehensive
assessment.

Develop a procurement planning process that

identifies the need for goods and services from
different departments in the company to ensure
smooth business operations.

3. Select suppliers with care

Of course, cost is always a consideration. Companies

need to select suppliers that make sense from a return
on investment perspective. For example, if selecting
vendors for your marketing tech stack, you must
always pay attention to how it impacts the customer
acquisition cost.

If you’re buying a large physical product, location will

be important – shipping fees might be more expensive
from long distance vendors compared to local
vendors. You might also want to consider a vendor’s
engineering talent: a top team will be consistently and
proactively improving their product.

Other factors include customer recommendations,

industry reputation, and their tangential service
offerings. Be sure to consider these factors when
choosing your suppliers and ensure they fulfill your
requirements.

4. Make negotiations as detailed as possible

Flesh out important details related to procurement like

responsibilities, financing, payment schedules, and
delivery dates before signing a contract to ensure
both parties are committed to honoring the
agreement.

This keeps you and the supplier on the same page,

reducing misunderstanding and keeping the project
on schedule.

5. Digitize procurement systems

Procurement systems are getting digitized in today's

data-driven company culture. This is helpful and makes
procuring complex tools more efficient. For example,
your company might need a data pipeline tool to
streamline its data workflows as its tech stack gets
more and more complex.

It's too useful to be ignored, and procuring it is

different from other company activities than, say,
vetting and hiring freelance writers, which can be
done manually.

Take advantage of technology to manage and track

your procurement processes efficiently.

6. Streamline payment systems and

authorization process

Keep records of receipts and track relevant metrics

such as invoice cycle time and the average cost per
invoice with accounts payable.

We recommend using a payment authorization

process to compare documents like the invoice,
purchase order, and receipt. This will also help you
uncover details that don't align in the papers.

Use a spend management

platform to control company
expenses

Spend analysis in procurement has gone beyond

interpreting expenditures. To achieve cost-efficiency,
you need to coordinate people, products, and
sourcing methods and track how your suppliers fulfill
their obligations.

Carrying out this process manually is complicated as

you must track various market information from
multiple external sources. Using a spend management
software tool like Spendesk makes the most sense as
 it helps your business gain spend control quickly and
conveniently.

This will also make you confident you chose the right
procurement method and supplier—or give you a
reason to look for a different vendor to get better
results.

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