JSS ACADEMY OF TECHNICAL EDUCATION

NOIDA

DEPARMENT OF MECHANICAL ENGINEERING

REPORT ON:

PURCHASED PRODUCT: PROCUREMENT

NAME: SHUBHAM PANDEY

ROLL NUM: 2000910400124
SUBJECT: QUALITY MANAGEMENT
SUBMITTED TO : MR. VEERENDRA KUMAR A N
 Index

1. Introduction.
2. Types of procurement.
3. 9 steps in the procurement process.
4. Stages of procurement.
5. 7 common principles of procurement.
6. How procurement and finance could work
together.
 INTRODUCTION

Traditionally, some businesses have used the term

procurement synonymously with purchasing. But now,
purchasing is often seen as just one stage in a larger,
more strategic procurement process.
Procurement involves every activity involved in
obtaining the goods and services a company needs to
support its daily operations, including sourcing,
negotiating terms, purchasing items, receiving and
inspecting goods as necessary and keeping records of all
the steps in the process.
Procurement is an important step in understanding
supply chains, because it helps a company find reliable
suppliers that can provide competitively priced goods
and services that match the company’s needs. That’s the
case whether the company is seeking raw materials for
manufacturing, a marketing services provider or new
office supplies.
 Types of Procurement

Procurement can be categorized in several ways. It can be

classified as direct or indirect procurement, depending on how
the company will use the items being procured. It can also be
categorized as goods or services procurement depending on
the items that are being procured.
 Direct procurement refers to obtaining anything that’s
required to produce an end-product. For a manufacturing
company, this includes raw materials and components.
For a retailer, it includes any items purchased from a
wholesaler for resale to customers.
 Indirect procurement typically involves purchases of
items that are essential for day-to-day operations but
don’t directly contribute to the company’s bottom line.
This can include anything from office supplies and
furniture to advertising campaigns, consulting services
and equipment maintenance.
 Goods procurement largely refers to the procurement of
physical items, but it can also include items like software
subscriptions. Effective goods procurement generally
relies on good supply chain management practices. It
may include both direct and indirect procurement.
 Services procurement focuses on procuring people-
based services. Depending on the company, this may
include hiring individual contractors, contingent labor,
law firms or on-site security services. It may include both
direct and indirect procurement.
 9 Steps in the Procurement Process
Procurement processes vary greatly depending on each
company’s structure and needs, but generally include the
following nine core steps:
1. Identify which goods and services the company needs.

First, a business must identify its requirements for a

specific item or a service. This may be a new item that the
company hasn’t previously purchased, a restock of
existing goods or a subscription renewal. This step
typically involves delving into the nitty-gritty details of
what the business needs, such as the precise technical
specifications, materials, part numbers or service
characteristics. At this stage, it’s a good idea to consult all
business departments affected by the purchasing decision
to ensure the procured items accurately reflect the needs
of each department.
2. Submit purchase request.

When an employee or business group needs to procure a

significant quantity of new supplies or services, they make
a formal purchase request (also known as a purchase
requisition). A purchase request notifies the company that
a need exists, usually via department managers,
purchasing staff or the financial team, as well as
specifications such as price, time frame needed, quantity
and other important things for the purchasing team to keep
in mind. The department overseeing the purchase can then
 approve or deny the purchase request. If approved, the
procurement team can proceed with selecting a vendor and
making the purchase.
3. Assess and select vendors.

With a clear list of requirements and an approved purchase

request, now is the time to find the best vendor and submit
a request for quote (RFQ) – this is what the purchasing
team sends to potential suppliers in order to receive a
quote – it is important to be as detailed as possible so you
can compare apples to apples. Vendor assessment should
focus not only on cost but also on reputation, speed,
quality and reliability. Many companies consider ethics
and social responsibility as well, since procurement is
often intertwined with corporate identity. A retailer that
prides itself on sustainability would stand to benefit from
partnering with environmentally responsible suppliers, for
instance.
4. Negotiate price and terms.

A common best practice is to get at least three quotes from

suppliers before making a decision. Examine each quote
carefully and negotiate where possible. If you need to
walk away from a deal, be sure that you have concrete
alternative options. Once you’ve agreed on final terms, be
sure to get them in writing.
5. Create a purchase order.

Fill out a purchase order (PO) and send it to the supplier.

The PO should be sufficiently detailed to identify the exact
services or goods needed and to enable the supplier to fill
the order.
6. Receive and inspect the delivered goods.

Carefully examine deliveries for any errors or damage.

Make sure everything is delivered as specified in the PO
and that the quality meets or exceeds expectations.
7. Conduct three-way matching.

Accounts payable should conduct three-way matching by

comparing the purchase order, order receipt or packing list
and invoice. The goal is to ensure the goods or services
received match the purchase order and to prevent payment
for unauthorized or inaccurate invoices. Highlight any
discrepancies between the three documents and resolve
issues before arranging payment.
8. Approve the invoice and arrange payment.

If the three-way match is accurate, approve and pay the

invoice. Businesses should strive to have a consistent
invoice payment process through accounts payable that
checks that payments match the invoice amount and due
date. A standardized process can help make sure invoices
 are always paid on time, which can prevent late fees and
build good relationships with suppliers.
9. Keep Records.

It’s important to maintain records for the entire

procurement process, from purchase requests to price
negotiations, invoices, receipts and everything in between.
These records may be useful for multiple reasons. They
help the company reorder goods at the right price in the
future, as well as assist with auditing processes and
calculating taxes. Clear, accurate records can also help
resolve any potential disputes.
 Stages of Procurement
The nine major steps of the procurement process can also be
thought of in three distinct stages: the sourcing stage, the
purchasing stage and the receiving stage.
 Sourcing stage: This covers the initial steps in which the
business identifies its needs, creates a purchase request
and assesses vendors. Even after the initial sourcing steps
are complete, it’s a good practice to build a strong
relationships with suppliers. They can establish grounds
for suppliers to learn from partners, improve products
and processes and develop trust.
 Purchasing stage: This stage includes negotiating terms,
creating orders and receiving and inspecting goods and
services.
 Payment stage: Accounts payable conducts three-way
matching to ensure order and invoice accuracy. The
invoice can then be approved and the payment is
arranged. Records of all invoices, orders and payments
should be kept and carefully maintained.
 7 Common Principles of Procurement
In public-sector organizations, the procurement process is
generally similar to the process in private-sector organizations
— but with a few important differences. Because the people
involved handle public funds, they generally must follow
rigorous principles during the procurement process.
These principles can be regarded as an ethical code of conduct
that holds public servants accountable for their purchases.
Some of the principles may also be beneficial to private-sector
organizations.
The principles vary somewhat depending on the organization.
Here are seven of the most common procurement principles:
1. Value for money:
The organization must manage funds efficiently and
economically when procuring goods and services. This
may include conducting cost-benefit analyses and risk
assessments. It’s worth noting that low cost does not
necessarily equate to greater value; characteristics such as
quality and durability also factor into determining whether
the purchase represents value for money.
2. Fairness:
Procurement should not provide preferential treatment to
individuals or suppliers. All bids should be assessed
objectively, based on how well they meet the
organization’s needs.
3. Competition:
Organizations should seek competitive bids from multiple
suppliers, unless there are specific reasons not to do so,
 such as a sole-source provider where the good or service
is only available from a single vendor.
4. Efficiency:
Procurement processes must be carried out efficiently to
help maximize value and avoid delays.
5. Transparency:
Organizations should make relevant procurement
information available to everyone, including the public as
well as suppliers. Information should be kept confidential
only when there are legal or other valid reasons to do so.
6. Integrity:
Those who practice public procurement should always
strive to be perceived as trustworthy, reliable, honest and
responsible. Funds must be used for their intended
purpose and in the public interest.
7. Accountability:
People involved in the procurement process are
accountable for their actions and decisions. They are
required to report procurement activities accurately,
including any errors.
 How Procurement & Finance Can
Work Together
In many companies, procurement and finance teams operate as
separate departments. Historically, they have sometimes been
at odds for one major reason: Procurement spends money,
while finance focuses on profitability, which sometimes means
finding ways to spend less.
However, a strategic partnership between the two groups can
benefit the business as a whole, partly because each group can
provide unique insights into the business’s operations. For
example, a well-run procurement team may have a deep
understanding of how carefully sourced goods and services can
help business groups maximize profitability. This helps the
finance group get a better overall picture of company spending
and how it affects the bottom line.
Integrated supply chain management that can connect
information from across the business, including finance, is an
important tool to bridge the traditional divide and help teams
work together to advance business objectives. Supply chain
management software can also help you track progress toward
goals by providing the information you need for key
performance indicators (KPIs) in a simple-to-understand
format for your procurement team.