What is a Procurement Cycle?
The process of acquiring goods or services for your company from an outside source is referred to as the procurement cycle. It involves a series of events that lead up to the final purchase of goods and services. The events may include order requests, purchases, budget negotiation and others.
Significance of Procurement Cycle in E-Commerce Logistics
By implementing an efficient procurement strategy in the procurement cycle, businesses may maximize all phases of the supply chain and their cost savings. Some of the benefits of a procurement cycle are as follows:
- Improves customer relationships: Businesses supply their goods to clients more reliably by following an efficient procurement cycle and getting the correct supplies at the right time.
- Reduces cost and saves time: A smooth procurement cycle ensures that necessary products and services may be acquired with minimal possible delay, lowering costs.
- Enhances market value: E-commerce businesses can gain significant market value by developing a reputation for dependably locating the goods their clients require by utilizing a strong procurement cycle.
Pre-requisites of Procurement Cycle and How It Works
Companies must stick to some requirements to implement the procurement cycle. The following are some of the requirements:
- An efficient analysis team
- Perfect inventory management
- Proper maintenance of records
- Comprehensive supply and dispatch team
The procurement cycle includes the following events:
- Analyzing a company’s needs: The first stage is to determine the exact needs of the company to initiate the procurement cycle.
- Creation of purchase request: Subsequently, a purchase request is created by the concerned individuals and sent for approval to the procurement team. Once the request is approved, the document is referred to as a purchase order.
- Selection and evaluation of suppliers: Considering all the requirements, the most appropriate suppliers are evaluated and ultimately, selected to move the procurement cycle forward.
- Contract negotiations and delivery management: One of the key steps in a procurement cycle is negotiating with the chosen suppliers to find the best pricing for your ordered goods. In this stage, delivery management details are also agreed upon.
- Assessment of procurement cycle: Ultimately, the procurement cycle has to be assessed from time to time to ensure it runs smoothly.
Use Case With Procurement Cycle
Assume a new e-commerce market wishes to enter the market. They must first understand needs and contact tender suppliers who can meet their requirements. Hence, a designated employee creates a purchase request that is verified by the business’ procurement team. Subsequently, the right vendor is selected, and pricing and delivery details are agreed upon. After 15 days, the vendor delivers all the ordered goods to the company’s warehouse and finishes the procurement cycle.