P2P cycle helps in strategic sourcing, greater ROI, and vendor development. **E-procurement **also enables vendor management with e-billing and **auction strategy. **Know more here.
Do you find the procurement process a bit complex? If it is understood properly, it is not so. For anyone who loves to shop, the procurement process appears to be a dream at first glance: it appears to be nothing more than shopping with someone else’s money.
Although this is right, procurement is much more complicated. Procurement should be considered a key aspect of every organisation’s corporate strategy, since it is a broad concept that encompasses many core business functions. Strategic procurement is a company-wide initiative.
Procurement necessitates a streamlining method known as the procurement process flow. Observing the e-procurement process helps all stakeholders in understanding the various moving parts that go into making acquisitions and identifying possible problems and stumbling blocks.
Purchase requisitions, purchase orders, goods receipts, and invoices are integrated into e-billing software as a single interface for procure-to-pay.
Automation reduces the cost of the procurement-to-pay process, and helps streamline the process, maximise spending, increase compliance, and reduce risk.
How can the process of procurement help?
Implementing a well-defined procurement structure will help companies manage their supply chain and related risks in today’s world of global political and economic volatility, evolving trade laws, and so on.
This procedure is a non-core business activity in the financial services sector, since it involves acquiring goods that are only used to support the company’s core operating activities.
A procurement process avoids supply chain disturbances that affect profitability by effective risk management of operational risk, financial risk, contract risks, etc.
The below-mentioned processes streamline the procure-to-pay process.
- Forecasting the Material required
It’s a method of determining what supplied products you’ll require, and when you’ll need them, using a forecast manufacturing production schedule. The MRP procedure, pricing, and material valuation are all controlled by the MRP type. The MRP controller in the development department is in charge of material requirement preparation. It gives insight into your spending areas and segments, enabling you to spend analysis to identify cost saving opportunities.
Following the identification of the business units’ requirements, the next move is to define a list of possible vendors that could provide the goods and services. This operation uses a quick search online, or more structured steps such as RFPs, RFQs, and RFIs.
This procedure aims to evaluate potential suppliers. Some of the assessment metrics include pricing, service quality, industry reputation and acknowledgement, warranty and assurance terms, and customer service. Following the evaluation, the project is assigned to the most valued supplier and the highest consumer pricing.
- Negotiation with vendors/Requesting Quotation
Once a supplier has been selected to fulfil an organisation’s needs, the contracting process begins. Contracting is a necessary step for any business that wants to enhance value creation and promote buyer-supplier interaction. This approach involves assessing critical factors, including pricing structure, project scope, conditions of employment, and timely delivery, among others. Furthermore, thorough contract analysis and negotiation will uncover other cost-saving opportunities, such as dynamic discounting.
Procurement teams may use **contract management **to manage vendor relationships efficiently, discuss pricing, and schedule products and services while minimising risk.
After finalising its contract with a supplier, the next step is to establish a purchasing requisition (PR). A PR summarises the product or service, its price and quantity, the supplier’s information, and the process of approval.
When a PR is accepted, the** finance handling **team sends the supplier a purchasing order (PO), including the PO number, payment terms, and supplier information.
- After getting an invoice, complete the Payment process.
When a supplier receives a PO, he sends an invoice that includes the price of the ordered products or services. The procurement team matches the POs after the company receives them and invoices them to maintain quantity and quality.
Payment is issued either before, or after delivery. It depends on the payment terms agreed upon between the company and its suppliers.
The Goods Receipts record displays the Goods Receipts for the mentioned material purchased through the Purchase Order.
The company will report the following information after purchasing the goods; this information would be used for accounting, stock inspections, rotation, and returning any faulty goods.
- The delivered goods.
- Vendor was responsible for the delivery.
- How, when, and who delivered the goods?
- Goods Receipt Invoice (GRIN)
It is a critical step in the ease of procurement cycle. It is the process of matching the products received by a company with the company PO (purchase order). It entails inspecting the products for damage and suitability for use and checking the price, quantity, and payment terms. The system tracks the goods movement, and the receipt of goods’ material documents is registered. Stock accounts are automatically updated, and the appropriate general ledgers are uploaded.
After the GRIN process, the next step in the procurement-to-pay process is invoice checking, which is crucial in the procurement process.
Payment to vendors is the final phase in the cycle, known as the procure-to-pay process. Then, according to payment conditions, the vendors are billed. Companies can pay vendors in a variety of ways in today’s fast-paced technological environment.
Managers can have better control over the system and save money by the ease of procurement and shutting down unnecessary and inefficient positions by outsourcing key activities in the Procure to pay method.
A SaaS management tool can help reduce costs and maximise spending by increasing manager’s awareness about how procurement SaaS and automation reduces cost.
By choosing the right Finance and Accounting Outsourcing Services provider, the outsourcing organisation can achieve positive business results and the desired competitive advantage.
Join us to understand the procure-to-pay cycle’s steps for a greater ROI. For more information on the procurement-to-pay cycle, get in touch.