7 Stages of Procurement Cycle

The procurement cycle is an essential component of every business organization. Learn about the seven critical steps in the procurement cycle and how Zluri simplifies your SaaS procurement process. 

An effective procurement process is crucial for a company's growth. As you scale and expand into new markets, you rely more on consultants, local experts, and outsourcing. But the smoother and more organized your procurement process is, the easier it is to scale. So how can you make this happen? 

The size and nature of the firm have a significant impact on how the procurement process is structured. No technique works for all businesses; it must be customized for each kind to ensure optimum efficiency. Yet, creating a robust procurement process takes time and effort. Finding the ideal balance between the cost and the caliber of outsourced goods and services is challenging.

Whether your company needs to reevaluate its procurement process or you're considering starting from scratch, this article outlines the procurement process's basics and the different stages. 

What is a Procurement Cycle?

Procurement, as a process, is a necessary component of every business organization. Businesses must procure various products and services from outside vendors to function, support growth, and improve performance. 

Understanding the procurement cycle will provide your company with an easy-to-follow guide for setting up and managing your procurement operations. A procurement cycle is a cyclical process that occurs when evaluating a stage and then implementing changes based on the outcome of its evaluation. 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.

Procurement is more than purchasing the right tools or software for your company. A thorough understanding of the requirements of your company's business units is necessary for an effective procurement process. This 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 process 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 documents include a variety of forms and instructions, such as bids, contracts, invoices, and purchase orders. These are all necessary for cost-effectively conducting business. Procurement documentation 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. 

The 7-Step Procurement Process

Procurement ensures business optimization, which helps them connect with the best suppliers at competitive prices. Here is a seven-step procurement process that businesses use to create plans for executing their procurement activities:

1. Identification of business needs

The first step 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 step 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 cycle 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 procurement cycle by purchasing a particular new software package. This decision may be based on 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.

Procurement teams can gather the information required to find acceptable vendors and start dialogues through this inquiry and elaboration. For instance, procurement teams can make wise decisions based on factors like identifying the number of necessary user licenses, characteristics that are deemed to be non-negotiable, and so on. 

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 step. 

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 order or purchase requisition, maximizing efficiency and agility.

Getting clearance from the necessary organizational stakeholders is the primary goal of this stage. 

3. RFX creation and execution

Once your pending purchase has been approved, the next step 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 software vendors. 

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 IT procurement teams in becoming familiar with the market. IT procurement teams 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. 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 purpose of the RFP is 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 quotation (RFQ). It is a critical step in the procurement 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 needed to fulfill them. 

Additionally, you can utilize an RFQ as a sourcing technique when you already know which vendor 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, the procurement team compiles the information provided through the RFX process and examines it with internal stakeholders.

The best procurement management teams enlist help to thoroughly evaluate a list of vendors because this can be lengthy. With the use of insights gleaned from a database, Zluri can assist you with your SaaS purchasing decisions and make a wise choice. How, you ask? Zluri can help you determine which software tools are most frequently utilized and what other users like and dislike about them. Following understanding the needs and creating a list of tools you need, Zluri qualifies vendors for those products. We select the ideal provider and offer them the most affordable price for the necessary tools.

After selecting your supplier, 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.

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 goods or services you've procured and ensure they have arrived as expected. In addition, various installation stages take place in this step. 

• The first of many is the onboarding stage, where you learn to use your new platform. Depending on your vendor, the onboarding may be self-guided (videos or how-to guides), or your customer success representative may manage it.

• Setup, it has everything to do with adapting your new software package to your needs. For instance, if you've just acquired a new CRM, you'll need to create sales pipelines and activity cadences that correspond 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, your website's lead-generation forms, and your VoIP calling service.

• Your new software tool 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 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 step.

By conducting in-depth observations and feedback sessions with your vendors, you may evaluate the advancement of your business. You can assess their performance based on the reliability and caliber of their services and goods. Talk to your provider about a solution if your company's objectives are not achieved.

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.

7. Keep records of vendor invoices

When your business decides to outsource some portion of your operations, it's crucial to track the progress of that effort. Keeping 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 payments show 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.

Having said that, a digital paper trail makes it much simpler to maintain the books in compliance. 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 is an automated management software that can simplify your accounts payable procedure. With a single web platform, procurement teams can quickly help finance staff monitor vendor bills and AP procedures. 

Simplify Your SaaS Procurement Process With Zluri

Each step of the procurement process can be simplified using Zluri. It's an ideal partner that helps you buy and implement software solutions efficiently. It allows you to analyze your software requirements and make strategic decisions. This helps you with 2X savings in SaaS solutions compared to traditional on-premises solutions.

From automation to negotiating on your behalf to get the SaaS you require and developing a standard procurement process, Zluri ensures transparency throughout your SaaS buying process. 

Zluri offers a SaaS management platform that helps track SaaS consumption and gains insight into SaaS subscriptions. Thanks to the app insights, unused, abandoned, and duplicate apps can be removed. The platform aids businesses in cutting back on wasted SaaS money. This can effectively improve the SaaS stack and strengthen SaaS purchases. 

Zluri also provides a thorough summary of all upcoming SaaS renewals. It keeps track of your renewals and warns you before auto-renewals, allowing you to cancel services in advance if necessary. Your complete SaaS experience is automated. 

Like what you read? Then you'll love our product demo! 

Request a Zluri demo today.