Steps To Purchasing Cycle - Standard & Tender Process
So what exactly is a purchasing cycle? Well it’s the steps taken to order and pay for products that a business requires. The purchasing cycle determines the frequency that products are purchased.
Below you will find the steps for a Standard procurement cycle, and then when it involves tendering.
I. 11 Steps in a Standard Procurement Cycle
- The Need
You need to identify that there is a need to update the inventory or stock. You may also need a business service or ad hoc product. - Specify
Now you need to decide how much and when you want the products or services delivered. - Requisition or Order
This is when you write the purchase order or requisition order. - Financial Authority
Before the order can be placed, it usually requires some kind of authority for its purchase. With some purchase orders, this is reasonably automatic. With a large order that will be put out to tender it could be multi staged. - Research Suppliers
Repetitive orders usually have set suppliers, although it does no harm to review the options sometimes. Other orders will either need to go out to tender or there will be a choice of suppliers. - Choose Supplier
The supplier is now chosen. - Establish Price and Terms
In a large company, many suppliers will be contracted with a Master Agreement where prices and terms are set for a defined period. For other orders, now is the time to negotiate terms and prices. - Place Order
At this stage in the purchasing cycle, the order is placed and this becomes a contract between the business and the supplier. - Order Received and Inspected
The goods are delivered, checked in the warehouse and entered into the inventory. Shortages and breakages are reported to the supplier for the appropriate credits to be supplied. - Approval And Payment
Usually within 30 days, the invoices are received and paid. - Update Of Records
The purchasing ledger and stock records are updated. This is automatically done by many purchasing computer systems.
II. 14 Steps for Purchasing Cycle with Tenders
- The Need
In this case, the need usually goes through a business case and is then tightly defined and specified. - Financial Authority
This usually happens at a higher level and includes the management of the department that requires the goods. - RFP
A Request For Proposal (RFP) is written, in which the need is highly specified. - Invite Tenders
This is always done formally, usually by posting the request in trade magazines and appropriate web sites. Government projects are posted on government web sites. - PQQ
A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in order to select a short list of appropriate potential suppliers. - Tenders
The tenders are sent in from the qualified suppliers. - Qualifying
A number of meetings are held to clarify any questions that suppliers may have. - Evaluation
This is the most exciting part of the purchasing cycle and can take many weeks for a big tender. All the tenders are evaluated and the requirement awarded to the winning bidder. - Negotiation
The fine print of the terms and conditions are negotiated with the chosen supplier. The price is fixed at the bid price. - Contract Award
In a very short time, the contract is awarded to the chosen bidder. - Manage Contract
This is the period in the purchasing cycle when the goods are delivered. - Approval And Payment
If the contract is carried out completely then full payment is made. If there are problems, there may be a damage request. - Sign Off
At the end of the contract work and deliveries, the contract is signed off and all relationships with the supplier are finished. - Update Of Records
The purchasing ledger and stock records are updated. This is automatically done by many purchasing computer systems.
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