What is procurement cycle?

The procurement cycle is the process of selecting a vendor, buying goods or services from them and managing their ongoing performance. Also known as the procurement life cycle, purchasing cycle or sourcing cycle, the procurement process is, indeed, circular in most cases.

rfp360.com - The procurement cycle: Sourcing from beginning to end - RFP360

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In this blog we’ll explore the procurement cycle. To begin, we’ll define the procurement cycle as well as each of the steps that are involved. In addition, we’ll share information about technology designed to improve your sourcing cycle. Successful procurement is an ongoing process not a project. Indeed, there’s more happening behind the scenes within the procurement cycle than most people think. From beginning to end, the purpose of the procurement cycle is to reduce costs, manage risk and improve efficiency. Certainly, each step of the process contributes to that goal. The procurement cycle is the process of selecting a vendor, buying goods or services from them and managing their ongoing performance. Also known as the procurement life cycle, purchasing cycle or sourcing cycle, the procurement process is, indeed, circular in most cases. The steps in the purchasing cycle are:

7 steps in the procurement cycle

1. Challenge or need identification

Typically, the procurement cycle begins when your organization identifies a need, challenge or opportunity. This may happen at a departmental, executive or organizational level. Regardless of where the need originates, it must be defined and a solution proposed before moving forward. Often, this is done using an internal business case or requirements discovery.

Potential responses to the need:

Explore the market: Use a request for information (RFI) to research and plan a potential project Leverage an existing solution: Identify an existing vendor or supplier that might be able to meet the new need Make a purchase: Identify vendors or suppliers, establish scope and estimate budget. Then, move forward in the purchase cycle Do nothing or delay purchase: If the need is not deemed urgent enough, your organization may decide not to seek a solution

2. Approval to purchase

Depending on the strategic value, risk and cost of the problem, your purchase may require one or more levels of approval. Small, tactical purchases may not be required to go through the entire purchase cycle. Indeed, many organizations empower their teams to manage smaller purchases to ensure continued momentum. Ideally, the parameters and process for this step of the procurement life cycle is defined clearly in your organization’s procurement policy. This step in the procurement life cycle ensures visibility to the planned purchase and verifies that the budget is available. Many find a RACI matrix helpful in this scenario to plan who in the organization is responsible (R), accountable (A), consulted (C) and informed (I) on the project.

3. RFX creation and administration

Once you have defined your need and obtained approval, you’re ready to gather information from potential vendors using an RFX. While the request for proposal (RFP) is the most common way to compare vendors, you may choose to use a request for qualifications (RFQ) or request for quotation (RFQ) depending on your needs.

Explore this RFX selection guide for more information.

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This step in the procurement cycle standardizes vendor information to make it easier to compare offers and make a data-based decision. Additionally, using an RFX helps to improve consistency and fairness, reduce risk, ensure competitive proposals and aids transparency.

4. Vendor evaluation and selection

After gathering responses from the RFP process, the procurement team should engage stakeholders to review and score the RFP. Hopefully, it will be easy and you’ll have a clear leader. If not, you may decide to narrow your supplier selection and create a shortlist. Then, either send a supplementary RFP to clarify differentiators or request RFP presentations from the finalists. Additionally, you may request supplementary information from each vendor to help you make your decision. For example, you could issue a security questionnaire, vendor risk assessment, sustainability report or supplier diversity information.

5. Contract negotiation and payment

The next step in the procurement cycle is to formalize your deal. Send an award notification letter to your selected vendor to begin procurement negotiations. Remember, that the agreement should be mutually beneficial to ensure a long-term, valuable relationship.

Possible negotiation considerations

Statement of work and scope

Itemized costs

Payment terms

Contract length

Delivery dates

Performance expectations

Standard terms and conditions

Once the contract has been negotiated and signed, process the payment for services according to the agreed upon terms.

6. Implementation and delivery

Finally, the solution to your initial need is here. Whatever goods or services you purchased can be put to work. Understandably, some people view this as the end of the procurement life cycle, however, for most purchases, this step is ongoing. For example, if you’ve just purchased new software, your team will need to complete onboarding, training and then continually leverage the tool. No matter what you’ve purchased, it’s important to pay attention to this step to maximize the value of your investment. Be sure to verify delivery, track quality, and seek stakeholder feedback.

7. Vendor performance review

Like all relationships, vendor relationships need time and attention to thrive. So, it’s important to schedule regular vendor performance evaluations. These reviews give you the opportunity to reassess the need.

rfp360.com - The procurement cycle: Sourcing from beginning to end - RFP360

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