Procurement Cycle

Diagrams

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The procurement cycle is the systematic process organizations use to acquire goods and services efficiently. It involves several steps, from identifying the need for a product or service to making the final payment to suppliers. This cycle ensures businesses get what they need while managing costs effectively. 1. Identifying the Need: It all starts when a company identifies a need for a particular product or service. It could come from various departments, such as production, maintenance, or office supplies. 2. Requisition: A requisition is created once the need is identified. This document outlines what needs to be purchased, including specifications, quantities, and delivery timelines. 3. Approval: The requisition often goes through an approval process. Ensures that the purchase aligns with the company's budget and policies. Once approved, a purchase order (PO) is generated. 4. Purchase Order (PO): The PO is a formal document sent to the supplier. It serves as an official request to provide the specified goods or services. It includes item descriptions, quantities, prices, and delivery dates. 5. Goods/Service Receipt: When the supplier delivers the requested goods or services, the receiving department confirms the delivery. They ensure that what was ordered matches what was received. 6. Invoice and Payment: The supplier sends an invoice matching the details on the PO. This invoice is processed for payment, which typically follows an internal approval process. Payments are made to the supplier, usually through electronic means. The procurement cycle offers several advantages. It provides transparency into the procurement process, allowing businesses to manage spending effectively. It reduces manual tasks and the risk of errors, leading to increased efficiency. Moreover, it helps build strong supplier relationships by ensuring timely and accurate payments. In conclusion, the procurement cycle is a fundamental process in business operations. It simplifies and streamlines the complex task of obtaining goods and services while managing costs and ensuring transparency. For organizations of all sizes, mastering the procurement cycle is key to achieving operational excellence.