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Procurement

Uncover 7 Stages of Procurement Cycle in 2024

As an IT procurement manager, your expertise plays a vital role in streamlining the process of getting the right software for your team. To make this happen, it's essential to understand how to make the software procurement cycle as efficient as it can be. Following a well-structured procurement cycle ensures that the software you choose meets your team's needs, making work easier and more productive.

An effective procurement cycle is crucial for a company's growth. As you scale and expand into new markets, you rely more on consultants, local experts, and outsourcing. A well-structured procurement cycle not only ensures smooth operations but also facilitates scalability.

However, it's essential to recognize that a company's size and nature significantly impact its procurement cycle's structure. No one-size-fits-all solution must be tailored to each business's needs to achieve optimal efficiency. Yet, creating a robust procurement cycle is time-consuming, as it demands careful consideration and effort.

One of the most daunting challenges lies in striking the right balance between cost and outsourced software quality. Whether your company needs to reevaluate its existing procurement cycle or is contemplating building one from scratch, it becomes crucial to cover the fundamentals and various stages of the procurement cycle.

What is a Procurement Cycle?

The procurement cycle, often referred to as the purchasing cycle, is a systematic process that your procurement team follows to acquire the software they need to run their operations efficiently

The cycle typically begins with an initial contract negotiation, followed by a bid evaluation, at which time the vendor is expected to deliver. If they do not perform as expected, an unfavorable decision can be made, and change needs to be implemented.

The procurement cycle is more than purchasing your company's right tools or software. A thorough understanding of the requirements of your company's business units is necessary for an effective procurement process. The procurement lifecycle includes selecting the best supplier to fulfill those requirements, routinely assessing the performance of suppliers, and negotiating contracts that can deliver the best value at the lowest possible price.

Every procurement management cycle comprises the 3 Ps'–Process, People, and Paperwork.

Process: A set of guidelines must be followed when browsing, placing an order, acquiring, and paying for goods/services. Checkpoints and procedures increase with the purchasing complexity.
People: A complex procurement lifecycle comprises a series of stages involving different stakeholders and their specific responsibilities. Every step of the procedure is started or authorized by them. The risk and cost of the transaction are directly related to the number of parties engaged.
Paper: Procurement essential paperwork includes a variety of forms and instructions, such as bids, contracts, invoices, and purchase order creation. These are all essential paperwork for cost-effectively conducting business. Procurement procedural paperwork is generally maintained at the organization level so that it can be found for reference and auditing purposes.

Now that we know the fundamental 3 Ps' of the procurement management process, let's examine the different stages of the procurement cycle.

7 Stages Involved in The Procurement Cycle

Procurement ensures business optimization, which helps them connect with the best suppliers at competitive prices. Here are the seven stages of the procurement cycle that your procurement department might use to create plans for executing their procurement activities.

1. Identifying your business needs

The first stage of the procurement cycle is entirely internal. By definition, this is where stakeholders within your organization define a need that should be filled.

The goal at this stage is to identify the requirement, frame it, and define it in terms of what it should do for you within your business, whether it's a product or a service that must be bought to support your internal operation. To identify precisely what the supplies in question should supply in terms of practical usage, defining needs also entails creating specifications.

For example, a procurement lifecycle may begin with identifying a specific good or service, such as an HR software platform to manage applications. If you require an HR software platform to manage applications, you will start the stages of the procurement cycle by purchasing a particular new software package.

This decision may be based on your business objectives, budget limitations, technical requirements, or customer feedback in your business sector. You may also want to evaluate new packages before deciding which best meets your needs.

Your procurement department can gather the information required to find acceptable vendors and start dialogues through this inquiry and elaboration. For instance, your procurement team can make wise decisions based on factors like identifying the number of necessary user licenses, non-negotiable characteristics, etc.

2. Purchase requisitions & approvals

Since it depends on your company's specific procurement systems, the exact purchase request and approval workflow will depend on your company's unique procurement systems.

Factors like the strategic value of the purchase, potential risks involved, and expense caps imposed by your finance team will be considered during each reviewing stage.

Before you begin planning for your next purchase, team members should be presented with a clear picture of the goals and priorities that drive the business that will suit them best. For example, you might set a departmental purchasing limit, allowing department leaders to procure products and services below this price point without raising a purchase request or purchase requisition, maximizing efficiency and agility.

Getting clearance from the necessary organizational stakeholders, including your procurement department, is the primary goal of this stage.

3. RFX creation and execution

Once your pending purchase has been approved, the next stage of the procurement cycle is to ask eligible vendors for the data you need using an RFI, RFP, or RFQ (collectively referred to as an RFX). The software procurement process is streamlined using RFI, RFP, and RFQ.

RFI (Request for Information): The first step in choosing a vendor is to issue a request for information, or RFI. It can be characterized as generic scouting for gathering data on various providers. This is done at the preliminary stage when a company starts looking for potential suppliers.

RFI is a method for learning more about vendors. You can get a broad overview of vendor profiles from it. It is also used to assist your IT procurement team to become familiar with the market. Your IT procurement team can better compare marketplaces when they collect varied data methodically. In addition, it investigates the potential remedies that suppliers provide.

RFP (Request for Proposal): A request for a proposal or RFP is a formal request process for the procurement life cycle. This includes comprehensive project information that enables you to receive quotes and recommendations for the best solution. In addition, it contains stringent procurement guidelines for timeliness, content, and vendor responses.

The RFP aims to identify a vendor who meets the requirements of the IT procurement team, including deliverables, delivery schedules, etc.

RFQ (Request for Quotation): The service provided by the vendor is defined as a request for a quotation (RFQ). It is a critical stage in the procurement life cycle process when you know what you want but need information on how vendors will satisfy your requirements and how much it will cost.

Unlike RFP, RFQ asks the vendor to deliver software by specified parameters rather than looking for originality. It consists of a table with a list of requirements and the price to fulfill them.

Additionally, you can utilize an RFQ as a sourcing technique when you know which potential supplier you want to deal with but need more precise pricing information. It also aids in negotiations with your current vendor when your contract is up for renewal.

4. Choose a vendor & negotiate contract terms

To assess and evaluate vendors by requirements, your procurement team compiles the information provided through the RFX process and examines it with internal stakeholders.

Review the received proposals carefully, considering both technical and financial aspects. Shortlist vendors whose proposals align with your requirements and budget. Engage in discussions and ask questions to clarify any uncertainties.

An example scenario could be:

Scenario: Your organization is looking to implement a new cloud-based CRM system. Vendor A proposes a solution that meets all technical requirements but is slightly over budget. Vendor B offers a more cost-effective solution but lacks certain essential features. In this case, you may need to negotiate with Vendor A to align their pricing with your budget while ensuring all necessary features are included.

After supplier selection, it's time to discuss the conditions of the contract. You should openly include the following when drafting the contract details: The spending budget, the assessed amount of work, the duration of the agreement, expected delivery dates, terms and conditions, and other legal formalities.

Key points to consider during negotiations include:

Pricing and Payment Terms: Negotiate pricing that fits your budget and establish clear payment terms, including milestones.
Service Level Agreements (SLAs): Define SLAs that ensure the vendor meets your performance expectations.
Data Security and Confidentiality: Address data security and confidentiality requirements to protect your organization's sensitive information.
Termination Clause: Include a termination clause that outlines the conditions under which the contract can be ended.
Escalation Procedures: Establish escalation procedures for resolving disputes or issues that may arise during the contract's duration.
Renewal and Exit Strategy: Plan for contract renewal or termination, including transition procedures.

Further, the contract should be as concise and straightforward as possible, and both parties should receive signed copies of the same. In addition, you can maximize cost savings and streamline project scope for similar partnerships in the future by reviewing previous vendor contracts.

5. Implement & integrate vendor collaboration

After both sides have signed the contract, the onboarding procedure starts. Be mindful that if your organization or product is highly complicated, onboarding vendors may prove to be more difficult. Additional oversight may be necessary to ensure the seamless integration of new workflows or supply chain operations.

This stage of the SaaS purchasing process is critical as you receive the products or services you've procured and ensure they have arrived as expected. In addition, various installation stages take place.

The first of many is the onboarding stage, where you learn to use your new platform. Depending on your preferred supplier, the onboarding may be self-guided (videos or how-to guides), or your customer success representative may manage it.
Setup has everything to do with adapting your new software package to your needs. For instance, if you've just acquired a new CRM, you must create sales pipelines and activity cadences corresponding to your current procedures.
In Migration, you import relevant and essential data from an existing tool, a manual source, a spreadsheet, or a new software tool. This is all of your customer data in the context of your CRM implementation.
In most circumstances, you'll want to set up Integrations between your new software and your current tech stack. You might link your CRM to your email marketing program, website lead-generation forms, and VoIP calling service.
Your new software is prepared to be introduced to your team when the processes mentioned above have been finished, which includes a training and familiarization phase.

6. Review Supplier Performance

Relationships with reliable and profitable vendors enable your company to concentrate on promoting growth and improvement. Your vendor management approach should include regular supplier performance reviews regularly. They assist in holding suppliers responsible for meeting their standards and KPIs and establishing action plans if you find areas of weakness. Measuring vendor performance is essential to keep this competitive advantage, but many businesses skip this stage.

By conducting in-depth observations and feedback sessions with your external suppliers, you may evaluate your business's procurement efficiency and advancement. You can assess the preferred supplier's performance based on their services, products' reliability, caliber, and delivery time. Talk to your provider about a solution if your business requirements are unmet.

The procedure loops back to the contract negotiation and agreement phase through a contract renewal process if your needs are still being fully addressed, the solution is still crucial, and the pricing is still reasonable. This also helps to build a long-term relationship with your external supplier and improves procurement efficiency.

7. Keep records of vendor invoices

When your team decides to outsource some of your operations, it's crucial to track the progress of that effort. A clear picture of how well a company has been performing is critical and can help you make informed decisions.

Keeping a clear record of all your supplier invoices, purchase orders, delivery reports, and payment terms shows how much your company has spent on outsourcing and the overall return of those investments. In case of an audit, you should also retain this paperwork on file.

Now, let's see how to maintain records of vendor invoices.

Establish a Centralized Repository: It's vital to establish a centralized location for storing all vendor invoices. This repository should be easily accessible to authorized team members and be structured logically for efficient retrieval. A digital document management system can help ensure all invoices are captured, organized, and safeguarded.
Capture All Necessary Information: Each vendor invoice should contain essential information, including the vendor's name, invoice number, date of invoice, description of purchased items or services, quantity, unit price, and the total amount. Ensure that these details are consistently recorded to maintain uniformity.
Date and Categorize Invoices: Sort invoices chronologically by date of receipt to facilitate easy tracking. Additionally, categorize invoices based on specific projects, departments, or budget codes. This categorization aids in expense allocation and financial reporting.
Verify Accuracy: Meticulously review an invoice for accuracy before adding an invoice to the records. Ensure that the billed amounts match the purchase order and any negotiated terms. Any discrepancies should be resolved with the vendor promptly.
Archive Supporting Documents: Besides invoices, it's imperative to archive supporting documents, such as purchase orders, delivery receipts, and contracts. These documents serve as evidence of the procurement process and can be invaluable in the case of disputes or audits.
Regularly Reconcile Accounts: Perform regular reconciliations between vendor invoices and your financial records. This procurement cycle step helps detect discrepancies and ensures that your organization is not overpaying or underpaying vendors.

‍Example: Imagine you are responsible for acquiring software licenses for your organization. You receive an invoice from Vendor XYZ for 100 software licenses at $50 per license. Without proper record-keeping, you might overlook that your purchase order only authorized 50 licenses. By meticulously documenting this information, you can promptly identify the error, contact the vendor to rectify it, and avoid unnecessary costs or license shortages.

However, data entry and manual spend tracking are prone to human mistakes. Even the slightest error might have adverse effects. There is a solution, though, Zluri. Zluri offers a SaaS buying service that can simplify your procurement cycle’s entire process. Let's see how.

Simplify Your SaaS Procurement Cycle With Zluri

Each stage of the procurement cycle can be simplified using Zluri. It's an ideal partner that helps you buy and implement software efficiently. It allows you to analyze your software requirements and make strategic decisions while ensuring transparency and trust throughout the procurement cycle.

Let’s see how.

Step 1: Discovery - Mapping Your SaaS Landscape

The first crucial stage in Zluri’s procurement cycle is the 'Discovery' phase. Zluri leverages its advanced SaaS Management Platform (SMP) to thoroughly understand your organization's SaaS stack.

Zluri leverages five discovery methods, including single sign-on (SSO), integration with financial and expense management systems, direct API integrations, desktop agents (optional), and browser extensions (optional). This comprehensive approach ensures we identify every application in use.

Zluri’s experts collaborate closely with your team to create a comprehensive map of your SaaS stack using our platform. No stone is left unturned as we unearth over 225,000+ applications within your organization.

Step 2: Management - Efficiently Navigating Your SaaS Stack

Zluri excels at 'Management,' where we help you effectively navigate your SaaS stack. Our experts focus on eliminating redundancy and duplication of applications, ensuring you stay ahead with auto-renewals, and optimizing license tiers. This proactive approach eliminates shadow IT and optimizes your SaaS spending, resulting in significant cost savings.

Step 3: Consolidation - Strategic Procurement Planning

In the 'Consolidation' phase, we gather all your purchase and renewal data from the year, combining it with your purchase history. This information is central to our efforts to assist you in planning your SaaS purchases for the next 12 months, streamlining your procurement process and ensuring efficiency.

Step 4: Savings - Maximizing Your ROI

The 'Savings' step is where we bring real value to your organization. Your teams or departments select the tools they need, and Zluri steps in to negotiate the best prices on your behalf. Our SaaS buying experts leverage ZOPA (zone of possible agreements), determining the maximum price you're willing to pay for an application.

We also consider BATNA (best alternative to a negotiated agreement), evaluating different pricing options and selecting the most suitable one.

Zluri also automatically identifies and removes unutilized licenses or duplicate apps from your existing subscriptions, further optimizing your spending.

Moreover, our experts manage all the necessary closure processes, including legal, security, and finance checkpoints, meticulously documenting each contract. This ensures that you can easily track and monitor your SaaS applications.

In addition, Zluri's SaaS buying service carries no financial risk for you. You only pay when it helps you achieve at least 2x savings, meaning that the amount you save is double the cost of our service.

With Zluri, you gain a strategic partner that understands the intricacies of the SaaS marketplace, ready to help you build the best SaaS stack for your business within your allocated budget. Our strategic planning can result in up to 50% savings on subscriptions with zero upfront costs.