The procurement function gained organizational level importance in the 1800s when Charles Babbage recognized the need for “materials man” in his book “On the Economy of Machinery and Manufacturers”. The procurement function gained importance during the Industrial Revolution when its strategic contribution to the railroad industry was recognized. During the World Wars, the importance of procurement was diminished to a clerical role.
During the 1960s, the procurement function regained its prominence as a strategic business function. Material management, competitive bidding, and the need for trained procurement professionals were the key trends that emerged during this period.
Supplier competition and management were the key focus during the 1980s.
The modern-day evolution of procurement began in the 1990s when procurement officers looked at long-term business relationships and contracts with vendors.
The modern procurement process is a key contributor to business excellence. Procurement managers perform a wide range of functions from developing solicitations to working with vendors. The role of the Chief Procurement Officer (CPO) is as important as that of the CEO of the CFO. The integration of modern technology with the procurement function equips businesses to keep pace with increasing global competition and changing consumer needs.
Steps in the Procurement Process
Procurement management focuses on managing and optimizing organizational spending. The procurement function encompasses the following steps:
- Identifying organizational needs: The organizational needs are usually submitted by various departments as requests to the procurement department. Once submitted the consolidation of requests is done by the procurement department.
- Review and vendor selection: Based on the review of various requests, appropriate vendors are chosen. Price quotes are requested from the chosen vendors. Vendors are reviewed based on their track record, cost, quality and speed of service, and reliability.
- Purchase requisition: Once the vendor has been identified, a purchase requisition is submitted for approval with details on the vendor information, price, quantity, and description of items required.
- Generating purchase order: Once the purchase request has been approved, a formal purchase order is submitted to the vendor. Establishing long-term vendor relationships is done through a supplier onboarding process.
- Order processing: Once the goods are delivered, the vendor submits an invoice which is to be approved within a stipulated time.
- Payment: The final step is the payout of the invoice.
- Documentation: The entire procurement process must be documented with appropriate receipts and invoice copies.