The 7 step procurement process: A breakdown with examples

Procurement is a critical function within any organization, ensuring that the necessary goods and services are acquired efficiently and cost-effectively. Whether you're a small business or a large corporation, understanding the procurement process is essential for maintaining operational efficiency and achieving strategic goals.

‍

We’ll walk you through the seven key steps of the procurement process, using a practical example at each stage to illustrate how it works in action.

1. Identifying needs and requirements

The first step in the procurement process is identifying what goods or services are needed. This involves understanding the organization's requirements, whether it's raw materials for manufacturing, office supplies, or specialized services like IT support.

‍

This includes performing the following:

• Internal consultation: Engage with various departments to understand their needs. For example, the production team might need specific raw materials, while the HR department might require recruitment services.
• Requirements specification: Clearly define what is needed, including specifications, quantities, and quality standards. This might involve creating a detailed list or a request for information (RFI) to gather more data.
• Budget approval: Ensure that the identified needs align with the organization's budget. This may involve getting approval from the finance department or senior management.

‍

A well-defined list of requirements essentially serves as the foundation for the next steps in the procurement process. Let’s take a look at an example to help show how this all works.

‍

Imagine a sales team struggling to manage customer data effectively. They report that their outdated CRM system leads to missed opportunities and inefficiencies. After discussions with stakeholders, the procurement team identifies the need for a new CRM software that integrates existing tools, offers advanced analytics, and improves user experience.

‍

In this scenario, the procurement team collaborates with the sales, IT, and finance departments to create a detailed list of requirements for the new CRM software. Key specifications include:

• Cloud-based solution
• Integration with existing tools (email, marketing automation)
• Scalability for future growth
• User-friendly interface
• Budget limit of $100,000 annually

2. Supplier research and selection

Once the needs are identified, the next step is to find potential suppliers who can meet those requirements. This involves researching the market, evaluating suppliers, and shortlisting the best candidates.

‍

Here’s what you’ll need to perform at this stage of the procurement process:

• Market research: Conduct a thorough market analysis to identify potential suppliers. This can include online research, industry reports, and attending trade shows.
• Supplier evaluation: Assess suppliers based on criteria such as price, quality, reliability, and past performance. Tools like supplier scorecards can be useful here.
• Request for Proposal (RFP): Send out an RFP to shortlisted suppliers, detailing your requirements and asking for a formal proposal.

‍

Referring back to the procurement team in our example, they proceed to the second stage of the procurement process by conducting market research to identify potential suppliers. After thorough analysis, they shortlist five vendors offering CRM solutions that meet their requirements.

3. Request for Quotation (RFQ) and negotiation

With a shortlist of suppliers in hand, the next step is to request detailed quotations and negotiate terms. This stage is crucial for ensuring that you get the best value for money. To properly perform this, the sales team needs to conduct the following:

• RFQ preparation: Prepare and send out an RFQ to the shortlisted suppliers, specifying the required goods or services, quantities, and delivery timelines.
• Quotation analysis: Evaluate the received quotations based on price, quality, delivery terms, and other relevant factors.
• Negotiation: Engage in negotiations with suppliers to secure the best possible terms. This might involve discussing price reductions, payment terms, or additional services.

‍

The procurement team in our ongoing example would receive proposals from the shortlisted vendors mentioned earlier. They evaluate each proposal based on predefined criteria. For instance, Vendor A offers the best features but is slightly over budget, while Vendor C strikes a balance between cost and functionality, offering a scalable solution with excellent customer support.

‍

In this stage, the team negotiates with Vendor C to refine the contract terms and secure a commitment for free training sessions for employees. To formalize this process, the team prepares a RFQ detailing the specifications, budget, and evaluation criteria (e.g., cost, features, support, and implementation timeline).

4. Purchase order creation and approval

Once terms are agreed upon, the next step is to formalize the agreement through a purchase order (PO). This document serves as a legally binding contract between the buyer and the supplier. Here’s what to do when creating your purchase order:

• PO drafting: Create a detailed PO that includes all relevant information, such as item descriptions, quantities, prices, delivery dates, and payment terms.
• Internal approval: Obtain necessary approvals from relevant departments, such as finance, legal, and senior management.
• PO issuance: Send the approved PO to the supplier, confirming the order.

‍

In our ongoing example, a formal PO is issued to Vendor C, and the contract is signed. The contract includes details such as the scope of work, payment terms, implementation timeline, and service-level agreements (SLAs). Then, the procurement team ensures all legal and compliance requirements are met.

5. Order receipt and inspection

After the PO is issued, the next step is to receive the ordered goods or services and inspect them to ensure they meet the required specifications:

• Track the order: Monitor the order to ensure it is delivered on time. This might involve regular communication with the supplier.
• Receipt of goods: Physically receive the goods or services and verify that they match the PO.
• Inspection and quality control: Inspect the received items for quality, quantity, and compliance with the specifications. This might involve testing, sampling, or other quality control measures.

‍

In our example, this is the step where the procurement team issues a purchase order to Vendor C, and the software is delivered according to the agreed timeline. Upon receipt, the IT team inspects the software to ensure it meets the specifications outlined in the contract. They verify that:

• The software is the correct version and includes all promised features.
• It integrates seamlessly with existing tools.
• The installation process is smooth and error-free.

‍

Any discrepancies or issues are reported to Vendor C for resolution before proceeding further.

6. Invoice approval and payment

Once the goods or services are received and inspected, the next step is to approve the supplier's invoice and process the payment. This includes:

• Invoice verification: Compare the supplier’s invoice with the PO and the received goods or services to ensure accuracy.
• Approval workflow: Route the invoice through the organization’s approval workflow, which might involve multiple departments, such as procurement, finance, and the requesting department.
• Payment processing: Once approved, process the payment according to the agreed terms. This might involve issuing a check, initiating a bank transfer, or using an electronic payment system.

‍

In our CRM example, after the software passes inspection, Vendor C submits an invoice to the sales company. The procurement team reviews the invoice to ensure it aligns with the contract terms. Then once the invoice is approved, the finance team processes the payment to Vendor C.

7. Record keeping and performance review

The final step in the procurement process involves maintaining records and reviewing supplier performance. This stage is crucial for driving continuous improvement in future procurement activities. This involves:

• Documentation: Maintain detailed records of all procurement activities, including POs, invoices, contracts, and correspondence. This is essential for audit purposes and future reference.
• Supplier performance review: Evaluate the supplier’s performance based on criteria such as delivery timeliness, product quality, and responsiveness. This might involve formal performance reviews or feedback sessions.
• Continuous improvement: Use the insights gained from the performance review to improve future procurement processes. This might involve renegotiating contracts, seeking new suppliers, or refining internal procedures.

‍

To conclude our example, Vendor C delivers the CRM software on time, and the IT team oversees its installation and integration. The procurement team monitors the implementation process to ensure it aligns with the agreed terms. After three months, they conduct a performance review to assess whether the software meets the sales team’s needs and delivers the expected value. Feedback is collected, and any issues are addressed with the vendor.

Why procurement software matters 

Procurement software plays a pivotal role in modern business operations by streamlining processes and ensuring efficiency. For organizations managing multiple suppliers and complex purchasing needs, manual methods can lead to inefficiencies, errors, and wasted resources. This is where procurement software makes a measurable impact.

‍

By centralizing key activities such as supplier management, purchase orders, and invoice approvals, procurement software provides real-time visibility into workflows, making it easier to track progress and address bottlenecks. Automation also enhances efficiency by reducing the risk of human errors in critical areas like invoice matching and pricing discrepancies, ensuring businesses only pay for what they’ve ordered and received.

‍

Additionally, procurement software fosters stronger supplier relationships. Tools for performance tracking, communication, and timely payments help businesses establish trust and reliability with their suppliers, paving the way for long-term partnerships.

‍

In summary, procurement software matters because it not only optimizes processes but also empowers organizations to make smarter decisions, reduce costs, and build stronger supplier networks—all essential for staying competitive.

Accelerating your procurement process with Ramp Procurement

The procurement process is a complex but essential function that ensures an organization acquires the goods and services it needs to operate effectively. By following these seven key steps in the procurement process, organizations can streamline their procurement activities. But with procurement software like Ramp, you’ll reduce costs at the same time. 

‍

Ramp Procurement simplifies the entire procure-to-pay process, automating repetitive tasks and combining procurement, bill pay, and vendor management into one streamlined platform. With real-time visibility and control over business expenses, you can eliminate inefficiencies and make faster, smarter decisions that drive results.

‍

Curious about our impact? For Ramp clients like Precision Neuroscience, the benefits include cutting PO processing time in half, shortening month-end close to just 1-2 days, and consolidating four platforms into one.

‍

Ramp Procurement delivers measurable savings and efficiency, making it a powerful tool for modern businesses. Want the same results for yourself?

‍

Transform your procurement process with Ramp Procurement.