The Procurement Process
The procurement process can be divided into five steps. Define the business need
You need to understand what the fundamental business requirement is. At this point, it is important to understand the difference between a requirement and a solution. For example, the business requirement is to source some software to help to get information published on the company intrantet. An item of software to publish information on the company intranet is a solution not a requirement. The requirement is to be able to publish information on the intranet. It may be that an outsourced solution is a better option. Develop the Procurement Strategy
Depending on the scale of your project, there could be a very wide range of potential solutions and approaches to your business need and a number of ways of researching the market and selecting a supplier. Supplier Selection and Evaluation
After researching the market and establishing your procurement approach, you need to evaluate the solutions available. This may involve a formal tender process or an on-line auction. You criteria for comparing different solutions and suppliers are critical. Weight the key criteria heavily and dont attach too much importance to aspects that will have little impact on the solution. Negotiation and award.
Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the carriage costs are huge or if the maintenance contract is onerous.
Consider carefully the process by which the goods or services will be ordered and approved; how they will be delivered and returned if necessary; how the invoice process will work and on what terms payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce costs and risk significantly Induction and Integration
No goods or services should be ordered of delivered until the contract is signed, but this is not the end. It is vital that the supplier is properly launched integrated. The P2P process needs to be in place and need to be understood on both the buy-side and the supplier side. Any service levels that have been agreed need to be measured and KPIs put in place. Regular reviews should be established.
LSTK stands for Lump Sum Turn Key.
In the construction industry, LSTK combines two concepts. The LS (lump sum) part refers to the payment of a fixed sum for the delivery under e.g. an EPC contract. The financial risk lies with the contractor. TK (turn key) specifies that the scope of work includes start-up of the facility to a level of operational status. Ultimately the scope of work will define just exactly what is needed. Progressive LSTK
Very large projects may be split into phases where a fixed price (lump sum) is agreed at the start of each phase. This reduces the overall project risk taken on by the contractor at the start of the project, and increases flexibility on the part of the project owner to adapt the pro
Procurement process
Procurement may also involve a bidding process i.e.,Tendering. A company may want to purchase a given product or service. If the cost for that product/service is over the threshold that has been established (e.g.: Company X policy: "any product/service desired that is over $1,000 requires a bidding process"), depending on policy or legal requirements, Company X is required to state the product/service desired and make the contract open to the bidding process. Company X may have ten submitters that state the cost of the product/service they are willing to provide. Then, Company X will usually select the lowest bidder. If the lowest bidder is deemed incompetent to provide the desired product/service, Company X will then select the submitter who has the next best price, and is competent to provide the product/service. In the European Union there are strict rules on procurement processes that must be followed by public bodies, with contract value thresholds dictating what processes should be observed (relating to advertising the contract, the actual process etc.). [edit] Procurement steps
Procurement life cycle in modern businesses usually consists of eight steps: Information gathering: If the potential customer does not already have an established relationship with sales/ marketing functions of suppliers of needed products and services (P/S), it is necessary to search for suppliers who can satisfy the requirements.
Supplier contact: When one or more suitable suppliers have been identified, requests for quotation, requests for proposals, requests for information or requests for tender may be advertised, or direct contact may be made with the suppliers. Background review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined, or trials undertaken. Negotiation: Negotiations are undertaken, and price, availability, and customization possibilities are established. Delivery schedules are negotiated, and a contract to acquire the P/S is completed. Fulfillment: Supplier preparation, expediting, shipment, delivery, and payment for the P/S are completed, based on contract terms. Installation and training may also be included. Consumption, maintenance, and disposal: During this phase, the company evaluates the performance of the P/S and any accompanying service support, as they are consumed. Renewal: When the P/S has been consumed or disposed of, the contract expires, or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier. Additional Step - Tender Notification: Some institutions choose to use a notification service in order to raise the competition for the chosen opportunity. These systems can either be direct from their etendering software, or as a re-packaged notification from an external notification [Link] to changing circumstances.
