The procurement process is an essential part of commercial businesses. It involves all the acitivities that are related to obtaining goods or services. But what exactly is the procurement process? And what options are there to maximize efficiency during this process?
Have you become interested in this topic? Read all you need to know about the procurement process below.
What is the procurement process?
The procurement process involves all activities that are related to organizations attempting to purchase the highest-valued goods at the lowest price possible. During this process the company obtains all goods and services that are necessary for the company’s day-to-day functioning. The procurement process consists of several steps, namely: identifying the goods and services that are necessary for the company, selecting the appropriate suppliers for these goods and services, negotiating the terms and prices with the selected suppliers, purchasing the goods and services, receiving and checking the goods and services and keeping records of the entire process.
Furthermore, a distinction can be made between direct and indirect procurement. Direct procurement means that the company attempts to obtain goods and services that are directly necessary for the company to produce their end products. In contrast, indirect procurement involves all goods and services that are vital to the company’s day-to-day functioning, but are not directly related to producing the end product. Examples of goods and services connected to indirect procurement are office supplies, furniture or maintenance of equipment.
Procure to pay
During the procure to pay (P2P) process, a company will first recognize its need for certain goods and services. Thereafter, the necessary goods and services will be purchased, received and be paid for in order for the company to make use of them. Procure to pay covers the complete process from ordering the relevant goods and service to the payment.
Managing the procure to pay process can be quite a difficult task for those with less experience or knowledge about the procurement process. To solve this problem, you can of course choose to outsource the P2P process to a third party who will then manage the entire process. In this way, you will no longer have to worry about any errors arising during the process. This increases efficiency throughout the entire process.
Source to pay
The source to pay (S2P) process involves more steps as it includes the regular activities such as procurement and payment as well as strategic sourcing. This means that the sourcing activity is seen as a separate function, which might be necessary for companies with very complicated procurement demands. The S2P process thus starts a step earlier than the P2P process and is therefore a bit more complex. However, S2P processes do improve the efficiency within the supply chain even more than P2P processes. The relationships with (potential) suppliers are better managed and the S2P process helps maximize internal control mechanisms. All these advantages taken together make it clear that investing in a high-quality S2P process is definitely worth it.