What is Sourcing? How To Get Started
What is Sourcing? How To Get Started
Starting a business in itself is a big leap of faith. It requires you to make necessary arrangements for raw material procurement or sourcing, warehousing, shipment, etc. This article will discuss a few things relating like the importance of sourcing and how to go about this so read on to know more about it.
Why is the procurement process important?
Procurement is the process of spending an organization's profits and revenues on successfully acquiring necessary goods and services. Cost savings objectives are highly dependent on such procurement.
As per a survey, 65% of big organizations, 66% of medium sized enterprises and over 55% of those into small-scale organizations need to manage their expenditure from an enterprise-level. Such a process procurement system proved to be an effective choice on countless occasions, as it helps reaping higher profits by organizations.
Steps of acquiring/procuring raw materials and services
Procuring raw materials can be taxing, especially if you have not made up your mind in respect to the vendor(s) you will be purchasing your raw articles from. Here we lay down several steps you must follow for a smooth-running procurement process
Step 1. The first step is to figure out the requirement for goods and services from different business units. For any procurement cycle to take off, there needs to be a starting point where the business units in any firm or even an organization needs goods and services from any external agent or supplier.
Therefore, the first step for any business' procurement process requires the business units of the said organization to identify and assimilate the requirements of the business and it's units. This lets the owners get a more clearer idea of expenses and where they can curb the cost through spend analysis.
Step 2. The next step requires one to research and jot down the suppliers readily available to deliver the raw materials and services needed by the organization.
Once the business units are clear in their requirements and wants, further action needs them to look for potential vendors dealing in the goods/services of their choice/need. Either one can look up on the internet or take recourse to more structured measures of RFPs, RFQs, and RFIs.
The grounds on which this step holds primacy is because it helps assess relevant suppliers and block out insignificant ones(suppliers who don't match up your requirements).
The list of suppliers is assessed on a number of basis, notably their pricing structure, quality of service or goods they are providing, their reputation and recognition, provisions for warranty, guarantee and return services, and also post-delivery customer follow-up. Once these potential vendors are examined and evaluated thoroughly, the supplier goes for the one that proffers maximum value at minimum or moderate costs.
Step 3. Negotiation holds profound importance for contracts so bargaining in passing is critical. After making up your mind in favor of the supplier who promised to fulfill the requirements of your business units, the contract lifecycle management process sets in. Contracting is a matter of greatest consideration for firms or organizations, as this marks the beginning of a buyer-supplier collaboration. Crucial factors like pricing structure, terms & conditions, delivery patterns, the scope of work need to be assessed. This helps streamline the functions and determine opportunities where one could save money, especially through various discounts structures.
Step 4. Raising of PR and release of purchase order: From the moment of finalization of contract with the fitting supplier, one needs to stay in touch with them in order to raise a purchase requisition or PR(as we call it). This PR has necessary details like description of the service/good, pricing and quantity, supplier information, and the approval workflow written over it. Once this PR is shown the green light, the finance team sets free the purchase order or PO to the external supplier, that has information related to the PO number, payment terms, etc.
Step 5. Making payment once the invoice is received: Upon receiving the PO, the supplier sends back an invoice with the prices for the goods/services. Once the back and forth of the invoice and PO is carried off, the procurement team matches to make certain of quality and quantity. The payment made has a direct bearing on the costs/compromise reached upon by the parties involved i.e. the organization and the suppliers.
Step 6. The next step involves reception and auditing delivery of the goods/services requested by the business units of the organization. The supplier goes through the contractual terms and the payment sent by the organization, on the basis which he delivers the goods. On receipt, companies ought to audit to make sure the quality comes up to snuff or not. In case things don't go as expected, the receivers can request for a return as may be mutually discussed beforehand.
And if there were no specific provisions made for defective or slightly subpar pieces, then one has to make do with those pieces only if there are no plans on changing the supplier. Or go through the entire process of getting a new supplier to have their necessary needs for goods and services met.
Step 7. Lastly, the receivers are requested to keep proper records of invoices. This is necessary so as to avoid any future misunderstandings and it will also let the organization/business units keep a track of their expenses. This track record allows users to know where the expenses have gone up and whether it reaped any significant returns or not.
In this article we talked about the procurement process and why it's needed for any business. We have set out several procurement steps that one can follow if they are starting their journey as a business owner. Needless to say, it is important to be on good terms with your suppliers and be able to find the right materials so that your time is not wasted in looking for the most fitting external supplier.