The procurement sector plays an important role in a company’s business. To act strategically, professionals who intend to work in this area must then understand the simplest concepts, such as the difference between direct and indirect procurement, and how the corporate procurement cycle works.
In this post, we explain the difference between them, the steps that are part of such process and some insights on the importance of automation. Keep on reading!
Direct x indirect procurement
Direct procurement refers to purchases related to a company’s key activity. A cosmetics organization, for instance, requires packages to box its products, and adhesive labels to identify such products, among other raw materials related to the production process.
The indirect procurement, on the other hand, has to do with company operation – that is, it doesn’t relate to the product or service it sells. Some examples of indirect procurement are: computers for employees, corporate travel, and cleaning / maintenance services for offices.
As it represents only a small portion of the area’s total costs, indirect procurement doesn’t usually have the same relevance as the direct one – which is a mistake. This is because indirect procurement can also generate high costs for businesses, if it isn’t part of a smart strategy.
The procurement process between companies
Unlike B2C, B2B procurement usually takes more time due to several factors, such as the meticulous choice of suppliers – if the proposals fit the budget, if they meet legal requirements – and the fact that it involves multiple decision-makers within the company.
See below the steps of a corporate procurement process:
Steps in B2B procurement flow:
1. Purchase request
In most companies, before sending a purchase request to the sector in charge, the requester must have such request approved by his/her manager.
To optimize procurement time, the request must include, in a detailed way, the specifications of the product or service that the requester wants to buy or hire.
2. Supplier selection
Once approved the purchase request, the buyer must search for the best suppliers to fulfill a purchase order. More than fulfilling an order, the supplier can even become a great strategic partner of the company.
At this stage, to avoid damaging the company’s image, in addition to price and quality considerations, the buyer can assess if all possible suppliers have a regular situation – that is, without any fiscal, labor and tax pending issues.
3. Price quotation
After all possible suppliers are pre-selected, the buyer must deliver the price quotation request.
At this stage, suppliers will inform values, delivery times and payment modes related to the purchase in question.
4. Proposal analysis
Price is important in proposal analysis, in order to go on negotiating with possible suppliers, but other requirements must be checked as well.
Do the specifications match what has been requested? Can the supplier deliver within the deadline? Information like this must be evaluated too.
5. Negotiation with suppliers
Negotiation with suppliers is one of the most strategic stages in procurement flow. In fact, this stage allows achieving savings – which is procurement’s economic indicator.
5. Closing the purchase
Closing the purchase is the last stage of the procurement flow, when the purchase order is issued.
The purchase order is issued by the buyer, in order to formalize such order for the chosen supplier.
Why automate the procurement flow?
The list above showed the key characteristics of each stage of the corporate procurement flow.
This process, when carried out in an operational and decentralized way, can take a lot of time of the involved professionals, and adversely impact the results of businesses.
The digitization of procurement processes is now a reality, and can transform the routine of such professionals, as it frees buyers to act more strategically.
When choosing an e-Procurement solution, which automates the entire procurement flow, all stages of that area are recorded in a single location and can be tracked in real time.
Additionally, data consolidation allows a more analytical view of the whole procurement process, for a more accurate decision-making procedure.
We have already explained, in another post of this blog, how e-Procurement can automate the procurement management. Click here to read it.
Our B2B procurement management solutions help businesses to achieve more savings, agility, compliance and collaboration in all processes.
Did you like our post? Then please share it with your co-workers.
Here on our blog you can find several contents and news to make buyers’ routine easier.