Main Steps to Create a Strong Contract Procurement Process
Do you want to streamline purchasing goods and supplies in your organization? Developing the contract procurement process can surely help.
A robust procurement system can save you from legal issues, help you get the best deals, and establish long-term relationships with your suppliers. Implementing the complete contract procurement strategies requires a multi-step procedure.
In this article, we’ll cover the primary steps involved and the importance of using contract procurement solutions in your organization.
What is Contract Procurement?
Contract procurement is a process where organizations purchase goods depending on their needs based on a pre-set mechanism. It usually starts with identifying the need for a particular supply in the organization and ends with the formal signing of the contract.
The existence of formal contract procurement methods can help you manage ordering, receiving, approving, and paying for the goods.
Importance of Contract Procurement
Contract procurement is a formal procedure for handling your suppliers and goods under consideration. Proper management of this system can let you get hold of valuable suppliers that can positively impact organizational performance.
With a system in place, you’ll be able to identify the problems and loopholes more easily than the haphazard system of ordering goods and supplies. This means your organization will have fewer problems and higher overall productivity.
Purpose of Contract Procurement
Contract procurement strategies can help organizations with multiple aspects. Here are the primary purposes you can expect the process to fulfill:
● Provides you with the complete details of the products and services required in the organization
● Helps in the timely creation of purchase orders
● Allows you to get timely delivery of goods
● Authorized individuals do the payment approval process
● Ensures milestones of the supplier contract are fully met
● Allows better reviewing of contract fulfillment
Designing the Contract Procurement Process
We have a detailed guide here to help you identify the exact steps to design the complete contract procurement process.
Identifying Requirements for Services and Goods
The first step in the contract procurement process is identifying the requirements for the goods and services. Any of the internal departments can highlight such a need. For example, your organization’s HR department might need new HR software.
Once such a request is brought up to the procurement department, the requisition is said to be officially initiated. There can be multiple sub-steps in the process that the procurement department might use to ascertain the actual need for the product or service.
In the next step, the procurement department puts ads or explores the market based on the features requested for a particular good or service. A list of suppliers is identified, and then they are evaluated based on the broad range of selection criteria (required features, pricing, etc.), which is predetermined.
Negotiating the Contract Terms
The supplier meeting the criterion can be shortlisted. After which the negotiation for the product quality, deliverables and other terms can be started. When everything is finalized, the parties sign the contract.
Releasing the Purchase Requisition and Purchase Order
Not all the product or service deliverables are asked for in bulk. There can be smaller milestones based on which the company approves the purchase requisition and creates a purchase order. These are often for goods purchases because they are required in batches. Your company and the supplier must sign the purchase order and keep one for their record.
Invoicing & Payment and Keeping Records
Once you receive the products or services, you approve the invoice. The finance department can make the payment. To ensure you’ve everything for record purposes, you must keep a copy of the purchase order, invoice, and proof of payment.
The auditing process is essential to ensure that the goods and services you’ve received are of the benchmarked quality. It will help you determine if you’ll continue with the particular supplier for your future needs. You can also choose the crucial points the supplier doesn’t fulfill so things can be improved in your next interaction.
Lastly, efficient contract procurement solutions keep a record of the invoices for a few years. It is to satisfy the IRS (Internal Revenue Service) Audit. Also, such invoices can be helpful as references when you have a similar procurement need.
Additional Steps Required in Public Procurement
A public procurement process is a bit more detailed and complex as compared to the same process in the private sector. Here are the additional steps you’ll have to implement in public contract procurement options:
Preparing and Publicizing Purchase Documents – Once the requirements for the purchase are finalized and the criterion set, it is made public. So everyone has access to what is being sought.
Bids Evaluation and Processing – In public contracts, processing and evaluating bids are an integral part of the process. Different suppliers place bids matching your content requirements.
Award Recommendations – The supplier offering the best bid and matching all the required criteria is recommended for the contract award.
Contract Negotiation – Negotiations in a public contract are conducted at this stage when the particular supplier is shortlisted for the award. If the terms are not entirely settled, the next-in-line supplier is chosen.
The rest of the process remains the same as the companies issue purchase requisitions for ordering the new goods, the invoice is cleared, the quality of the goods and services is audited, and invoices are maintained.
Advantages of a Strong Contract Procurement Process
Below are the main benefits of implementing strong contract procurement methods in your organization:
Improves Compliance – It helps you improve compliance with the company policies and the other organizational functions
Minimizes Risk – The risks, including the high pricing, low quality, and untimed delivery of the goods, can be managed with a formal procedure.
Resolves Document Issues – Not having the invoices, purchase orders, or other records for referring back could be a problem, which can be resolved through an efficient contract procurement process.
Ensures Timely Execution of the Contract – When contract terms are decided, there are lesser chances of errors and non-execution of the delivery.
Helps in the Audit Process – A strong contract procurement process is helpful in the audit process as it allows you to track all the receipts and required documents.
Reduces Approval Time – By setting a process in place, you can ensure that everyone knows what and when to approve. So the additional time that could cause the delay can be eliminated.
Enhances Productivity – With everything in place properly, you won’t have to spend additional resources and time sorting out things, leading to improved productivity.
Use of Contract Procurement Software in Establishing a Strong Contract Procurement Process
Manually managing the procurement process’s activities can be time-consuming and complex. By using specialized contract procurement software, you can reduce the time required for each activity. Besides, you can automatically assign roles and deadlines and get all the contract details with a few clicks. Overall, it can boost your productivity by manifolds and generate the best results.
Contract procurement process can streamline the buying of goods and services in any organization. It is a multi-step process that can improve productivity, reduce errors and limit the chances of delays. Using software for managing contract procurement methods can bring in more ease and better results for your organization.