PROCUREMENT PROCESS.
Procurement is the process involving sourcing or obtaining goods or products for the working of
a business. This term may refer to the actual buying while it may also be referred by some
businesses to the entire process that leads up to the purchase process. Procurement alternatively
may mean for a production-based company to obtain raw materials, or sub-production essentials
to start the production cycle.
Procurement involves two parties: the buyer and the seller. Despite of this, it is the act of buying
that is labelled as procurement and not the activities of the seller. Procurement is usually a part of
the input to a company which will then be using the goods or procured in the making of their
own final product.
The activities that procurement includes are as follows:
• Identification of Requirement
• Determination of the Specifics of the Requirement
• Sourcing
• Negotiation and Finalization of Price and Terms
• Purchase Requisition and Order
• Delivery of the Purchase Order
• Product Supply and Inspection
• Payment Process
• Record Keeping and Review
1.Identification of Requirement
This is the first step in the procurement process where one needs to buy new raw materials
and involves the requisition process in most businesses. The procurement team in the
business realizes the need for acquiring new raw materials to meet the demands of the
customers.
2.Determination of The Specifics of The Requirement
After identifying the need for raw materials and realizing the specifications of the product or
required which can include technical specifications or product details. This will prevent
mistakes which will be costly during the procurement process. If the requirements are not in
budget then the procurement team requests approval from the business. If it is in budget then
it is checked if in stock. If not in stock, then sourcing and purchasing from vendors begin.
3. Sourcing
The procurement team in this stage performs the research that is required to determine the
sources that will supply the raw materials. For repeated orders, there will be pre-existing
vendor lists. For a new raw material, the process of identifying and then vetting vendors is
longer. It is faster to work with a pre-existing vendor that already been determined to be a
good supplier.
If the specified material is on budget then one goes ahead to the next step. If not, request for
approval to the form is made.
Hence the company tries to stick to its previous suppliers. New suppliers will need to be
investigated to understand their reputation, speed, quality, reliability, and prices.
The procurement department will next investigate vendors, request quotes for the item
needed, and then select a vendor. Usually at least three quotes are looked for.
4. Negotiation and Finalization of Price and Terms
If the material is in stock then the product Inspection begins. If not then Sourcing takes place
and quote acquisition is made. Here the buyer decides between the merits of having a single
high-volume supplier or multiple suppliers. In the case of a single supplier, the higher volume
of orders will be giving better bargaining power when negotiating rates. On the other hand, if
a single supplier is unable to fulfill an order it may affect the entire manufacturing process.
More than one supplier can decrease the risks.
5.Purchase Order and Requisition
At this stage the purchase requisition is generated within the company and will be approved
by the appropriate authority. This leads to the generating of a purchase order with all the
specifics of the order. This company involve the buyer in this process for both the buyer and
seller to understand the specifications of the order that have to be precisely compared with
the purchase requisition along with the supplier quote to avoid any error.
6. Delivery of The Purchase Order
This is the stage where the shipment notice is sent to the buyer. The delivery of the purchase
order will be depending on the practices of the buyer and the seller.
7. Product Supply and Inspection
After the product is ready, the buyer and the procurement team thoroughly inspect the items
supplied and check if they match the criteria. The buyer may either approve or reject it. Both
of the options will cause an action as per the terms and conditions of the agreement of
purchasing as given by the company. If the buyer takes delivery of the items it is implied that
they are accepted and the payment process can begin.
8. Payment Process
The specifications of the original purchase order, receipt of items along with the payment
request invoice is compared and if there are any mismatch they are resolved before making
the payment. Next the payment is made as per the modes of payment.
9. Record Keeping and Review
Both companies, the buyer along with the seller maintain their books of record to keep track
of their auditing and taxation processes. The entire process should usually be under the
continual review so that any improvement as well as settle any disputes which might have
arisen. Re-evaluation makes the procurement process more efficient and prevents the
reoccurrence of disputes.
Such efficient procurement practices keep the flow of purchased goods and prompt and
without any delay. It is also the responsibility of the people who are involved in the process
to keep up with the negotiations at the necessary and appropriate steps in order to ensure that
the goods and that are being or have been procured are of the exact requirement, highest
standards and best price. The excellent record-keeping not only helps in the auditing of the
records but also assists in the case of reordering of the same items. The ethical selection of
vendors ensure the fair supply of high-quality items.
PROCUREMENT PROCESS OF TATA STEEL LTD/- TO PRODUCE
STEEL BARS.
TATA Steels ltd/- is a steel and iron bar manufacturing company based in Kalinganagar region
of Jajpur District in Odisha. TATA Steels is a subsidiary of the TATA Group and has its plant
set up to a 6 million-tonne per annum capacity, at the integrated steel plant at Kalinganagar
Industrial Complex. The steel works are established in two modules of 3 million tonnes of steel
each and when working together, have a capacity of 6 million tonnes per annum.
PROCUREMENT PROCESS
The whole Procurement process to produce steel can be constituted to be on 3 Levels
FLOWCHART FOR TATA STEEL’S PROCUREMENT PROCESS.
START
T
IDENTIFICATION REFER BACK TO DEPT.
NO
RECEIVE AND YES YES
WITHIN SPECS IN STOCK INSPECTION
SCRUTINISE PR’S
INPUTS CONSIDERED NO
PR’S SEND REQUEST FOR QUATATION RECORD
IN STOCK TOSELSECTED SET OF SUPPLIERS KEEPING
SPECIFICATIONS INSPECTION
& DRAWINGS
SUPPLIERS AND
RECEIVE AND
OFFERS
ANALYSE OFFERS.
RECEIVE
IS
RECEIVE
RECCOMENDATION YES
FROM CONCERNED RECCOMENDATIONS RECCOMENDATION
DEPT. NECESSARY? S AND APPROVALS
NO
O ISSUE
PURCHASE/WORK
ORDER
END
1. IDENTIFICATION
The procurement process starts by the identification of the Raw material i.e., its amount,
quality, specifications for the current production cycle. For TATA Steel it is basically
Iron Ore. So, the Specifics of how much and of what grade of Iron Ore is Required for
the current Production cycle of steel Bars is specified to the purchase department.
2. RECEIVE AND SCRUTINISE PR’S
The next process is to receive the Purchase Request from the department and scrutinize
the specific that have been mentioned, after cross checking the PR, if they are found to be
within the required Specifications then the next process is proceeded or else the PR is
referred back to the purchase department
3. STOCK CHECK
If the Purchase Request matches up to the specifications then they are checked to be in
stock, if available quantity is in stock then it is directly inspected. If not, then Requests
are sent out to Suppliers.
4. CALLING OUT SUPPLIERS FOR QUATATIONS
Based on the required quantity and other specifications for the need of the material
quotations are asked for from different set of suppliers who are already in trade with
TATA Steels.
5. RECEIVE AND ANALYSE OFFERS
The Offers that are received are then analyzed based on their price quotations, quality of
materials to specifications, and various vendor analysis techniques are used in this
process.
6. RECEIVE RECCOMENDATIONS AND APPROVALS
Although many quotations are received for quality and business purposes the company
policy is to hear out recommended vendors from the respective departments. Based on
the history of supply the company chooses to do trade with quality suppliers. But if there
aren’t any recommendations to offer then the next step is followed which is of issuing a
work or purchase order.
7. ISSUE WORK/PURCHASE ORDER
After doing vendor Rating and selecting the appropriate candidate, a supply order is
issued from the company in the name of the vendor. This document is sent to the
accounts department and a copy is kept with the purchase department.
START
T
IDENTIFICATION REFER BACK TO DEPT.
NO
RECEIVE AND YES YES
WITHIN SPECS IN STOCK INSPECTION
SCRUTINISE PR’S
INPUTS CONSIDERED NO
PR’S SEND REQUEST FOR QUATATION RECORD
