What is procurement cycle with example – the topics for today’s article. Those who business student or working for a business organization should have a clear idea on procurement activities.
In this article we shall talk about some insights on procurement cycle with example so that your knowledge can be further flourished.
What is procurement cycle with example
The procurement cycle is an important management tool, outlining the key steps and activities through the procurement process. Whether a buyer is procuring goods or services, the processes outlined here are relevant.
The procurement cycle is a set of activities within several steps by the following of which any buying organization can find and obtain their esteemed goods or services. It can also be named as procurement process.
There are five rights in the language of procurement that are right quality, quantity, price, place and time. This procurement cycle helps ensuring this five rights during make a deal with suppliers. This also helps developing the strong supplier networks as well.
For any business organization, this is the responsibility of procurement team to follow those set of activities throughout the procurement process.
The procurement cycle start with the identification of business need and ends when that need is satisfied.
Each steps of procurement cycle contributes by adding value to the buying organization. These added values are mainly to reduce costs, minimize risks and improve efficiency.
What are the steps of Procurement Cycle?
The steps of procurement cycle are as follows:
- Define business need and develop specification
- Market Analysis and make or buy decision
- Develop Strategy and Plan
- Pre-procurement market testing
- Develop Documentation and detailed specification
- Supplier selection to participate in Tender
- Issue Tender Documentation
- Bid and Tender evaluation and validation
- Contract award and implementation
- Warehouse, logistics and receipt
- Contract performance and improvement
- Supplier relationship management
- Asset management
All procurement follows the same process, whether it is for products or service. Each time an organization identifies a requirement, the aspects explained here to be followed.
The CIPS Procurement cycle is a comprehensive diagram which shows each stage relating to the procurement process.
Source: CIPS Procurement Cycle
This procurement cycle identifies every aspect in the sourcing, buying and supplying process. Each stage linked to the next in the cycle and when all are complete, the cycle starts again.
However, the 13 steps procurement cycle mentioned above can be divided by two broad category which are as follows-
Pre-contract award Stage
When all the elements in the procurement cycle that take place before the contract is awarded are referred to as pre-contract award stage.
Post-contract award stage
Similarly when all the elements in the procurement cycle that take place after the contract has been awarded are known as post-contract award stage.
Both these stages fit together to provide procurement professionals with a method to ensure that procurement is conducted effectively and efficiently.
The point at which the pre- and post-contract award stages come together is the actual award and implementation of the contract. These two types of award stages are equally important.
We will review the pre and post contract awarding stages more details in next article.
As we already learned the CIPS Procurement cycle is divided into two stages, we need to memorize the elements within procurement cycle that are placed between the pre and prost contract award stages.