Steps of Purchasing Process

The Purchasing Process:

Traditionally, the purchasing process is a cycle, with each step requiring the exchange of information and various approvals to move forward. Every business will have its own unique touches to add, but generally speaking, the purchasing process follows a well-established pattern of events.

Purchasing Process Steps:

1. Needs Analysis: At this stage, the company recognizes and documents a need for goods or services to solve a particular problem. The procurement team describes the need to be met, and works with others to determine how best to do so. For example, a company facing high travel expenses might invest in more fuel-efficient company transportation for its sales staff, or reduce the amount of travel required for remote employees by investing in advanced telecommunication software.
2. Purchase Requisition to Purchase Order: The “purchasing” portion of the purchasing process kicks off with a purchase requisition submitted to the purchasing department or purchasing manager by the individual, team, or department requesting the goods or services. The purchase requisition contains full details on the items or services to be obtained.
   Purchase requests below established budget thresholds are automatically updated to purchase orders, and submitted to the preferred supplier for that item or service. More expensive purchases, or unexpected purchases not in the budget, will be forwarded to the appropriate individuals for review and approval before they can be transferred to POs.
   Rejected purchase requisitions are returned to the issuing party for review and correction or clarification as needed.
3. Purchase Order Review and Approval: Approved purchase orders are sent to accounting to verify the funds exist in the appropriate budget to cover the requested goods and services.
4. Requests for Proposal: POs that receive budget approval are returned to the procurement department and, as required, used to create requests for proposal (RFPs), also known as requests for quotation, or RFQs. These are dispatched to vendors to solicit bids to fulfill the order for goods or services. Potential suppliers submit their bids, and are carefully reviewed based on their performance history, compliance records, and important characteristics such as average lead times, reputation, and price.
5. Contract Negotiation and Approval: The vendor with the winning bid is then awarded a contract, which is further refined before signing to ensure optimal terms and conditions and to ensure a mutually satisfactory arrangement for both parties.
   Once the contract is signed, the purchase order is a legally binding agreement between buyer and seller.
6. Shipping and Receiving: The supplier delivers the goods or services within the agreed-upon timeframe. Once they’ve been received (in the case of goods) or performed (in the case of services), the purchaser carefully reviews the goods and services to ensure they’ve received what was promised, and notifies the vendor of any issues.
7. Three-Way Matching: A cornerstone of spend management, three-way-matching is the comparison of shipping documents/packing slips with the original purchase order and the invoice issued by the supplier. This comparison is used to ensure all the information related to the transaction is accurate.
   Discrepancies must be rectified as soon as possible to avoid additional charges, delays in production and payment, or damage to supplier relationships.
8. Invoice Approval and Payment: Successfully matched orders are approved for payment. Any modifications or additional charges may require another layer of approvals before payment can be issued. Once approved, payment is issued to the vendor. Ideally, such payments are made with the goal of capturing early payment discounts and other incentives while avoiding late payment fees.
9. Accounting Records Update: Completed orders are recorded in the company’s books, and all documents related to the transaction are securely stored in a centralized location.