Purchasing Cycle

The purchasing cycle, also known as the procurement cycle, is the series of steps that an organization follows when acquiring goods or services from a supplier. The purchasing cycle typically includes the following stages:

Identify the need: The first step in the purchasing cycle is to identify the need for a particular product or service. This may be initiated by a department within the organization or by an individual employee.

Develop specifications: Once the need has been identified, the organization must develop detailed specifications for the product or service being purchased. This includes defining the required quantity, quality, delivery schedule, and other relevant specifications.

Identify potential suppliers: After the specifications have been developed, the organization must identify potential suppliers who can provide the product or service. This may involve conducting research, soliciting bids, or leveraging existing supplier relationships.

Request for proposal (RFP): Once potential suppliers have been identified, the organization may issue a request for proposal (RFP), which is a formal document that outlines the organization’s requirements and invites suppliers to submit proposals for meeting those requirements.

Evaluate proposals: After receiving proposals from potential suppliers, the organization must evaluate them based on a range of factors, including price, quality, delivery schedule, and compliance with specifications.

Negotiate contract terms: Once a supplier has been selected, the organization must negotiate contract terms and pricing to ensure that they are getting the best possible value. This may involve developing a negotiation strategy, preparing a contract, and engaging in direct negotiations with the supplier.

Place the order: After the contract terms have been agreed upon, the organization issues a purchase order to the supplier, outlining the specific products or services to be delivered, delivery schedule, and payment terms.

Receive and inspect goods or services: After the supplier has delivered the products or services, the organization must inspect them to ensure that they meet the required quality standards and specifications.

Approve and process payment: Once the products or services have been received and accepted, the organization processes payment to the supplier according to the terms outlined in the contract.

Evaluate supplier performance: Finally, the organization should evaluate the supplier’s performance to ensure that they are meeting their obligations under the contract and identify areas for improvement.

The purchasing cycle is a critical part of an organization’s procurement process, and effective management of this cycle can help to ensure that the organization is able to obtain the goods and services it needs at the best possible value.

8 R’s of Purchasing

The 8 R’s of purchasing are a set of principles that guide effective purchasing practices. They are:

Right quality: Ensuring that the purchased products or services meet the required quality standards and specifications.

Right quantity: Acquiring the appropriate quantity of products or services to meet the organization’s needs, while minimizing waste and excess inventory.

Right time: Obtaining the products or services when they are needed, in order to support the organization’s operations and minimize disruptions.

Right source: Selecting the appropriate supplier or vendor who can provide the required products or services at the best possible value.

Right price: Negotiating the best possible price for the products or services, while maintaining quality and other required specifications.

Right terms: Establishing favorable contract terms and conditions that protect the organization’s interests and minimize risk.

Right place: Ensuring that the products or services are delivered to the right location, whether it’s a physical location or a digital one.

Right relationship: Building and maintaining positive relationships with suppliers and vendors to foster collaboration, improve communication, and drive innovation.

By following these principles, organizations can optimize their purchasing practices and ensure that they are obtaining the goods and services they need at the best possible value, while minimizing risk and maintaining high levels of quality and customer service.