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What is a Procurement Cycle?

Procurement process talks about obtaining products and services. It includes requirement understanding of goods or services to be purchased, of and the process of receiving the requested goods or services. Procurement Module as a centralized platform to control and monitor all the activities funneled to procure goods and services.

Concept

A conventional Procurement process in any organization consists processes and procedures, that increase internal customers’ response and reduce non-value added activities. It is to ensure the requester receives goods or services at the best possible price considering the quality, quantity, time, and location. The Procurement Team needs to consider various factors, such as delivery & handling, marginal benefit, and price fluctuation before taking a purchasing decision.

The End-to-End Cycle

Purchase Request

The Purchase Request (PR) defines the requirement for goods or services raised by an individual from a department or cost center. It is an internal document and does not possess any relationship with the external parties. The PR is the overture to the Purchase Order (PO). Requester gets a chance to upload the product and desired Vendor details in the PR which in term helps the Purchasing team to have a choice of vendor.

A Requester raises Purchase Request and a PR code is generated to track the PR. The PR goes through an approval process. The approvers can approve, reject, or refer back to any previous level. Approved PRs lead to generation of PO and rejected PRs do not get processed. There are cases where Procurement Team takes a decision to directly purchase goods without even raising a Purchase Order.

If the Approvers are not defined for a PR, the PR gets auto approved and the Procurement team generates a PO based on the PR requirements. For more details, see Purchase Request.

Figure: Procurement Process Flow Diagram

Purchase Order

A Purchase Order (PO) is the first official offer to a seller issued by a buyer. It contains, quantities, and agreed prices for goods or services. Purchase Order is required to establish a control mechanism. a clear and explicit way of communication between the buyers and the sellers on the purchase. It also helps to manage incoming orders and pending orders.

If the PO is raised to procure services, it is referred as Order (CPO). The Procurement Team generates a PO or CPO code. This PO or CPO code has to go through If the PO or CPO is approved, the Procurement Team places the order to the seller or the service provider. For more details, see Purchase Order.

Goods/Services Received Note

Goods Received Note (GRN) or Service Received Note (SRN) is a document issued by the buyer to check or validate the delivered goods by the seller for the verification and record purpose. GRN and SRN are issued by the buyer respectively on receiving of goods and services as a delivery proof. The Procurement Team can issue a GRN or SRN for some specific PRs directly without raising POs. Once issued, the GRN or SRN goes for approval.

to calculate the available inventory. It adds a great sense of responsibility for the involved logistics and provide more visibility of the communications between the vendor and the customer. For more details, see Goods or Services Received Note.

Invoice

Finance Department initiates the Invoice process for the ordered goods or services. Invoice code is generated mentioning the details of the goods or services ordered and sent for approval. For more details on generating Invoice, see Generating Invoice.

Payment

If the Invoice code gets approved, Finance Department initiates payment to the seller or service provider. Procurement Process ends with the closure of PR which indicates that the requirement of the Requester is fulfilled by the Procurement Team.