IT procurement is the series of activities and procedures necessary to acquire information technology (IT) products and services.
It procurement involves both strategic and administrative responsibilities. It includes the creation and management of request for quotations (RFQs), requests for proposals (RFPs), requests for information (RFI) and managing supplier relationships. Day-to-day tasks may include conducting market research, negotiating pricing, establishing terms and conditions for services, resolving invoice discrepancies and communicating the status of purchases with internal customers.
The Information Services Procurement Library (ISPL) provides a framework for the management of IT procurement. The framework is based on a set of best practices which offer various management tools for helping the chief procurement officer (CPO) understand and effectively manage this complex category of expenditures.
- Direct procurement refers to obtaining anything that’s required to produce an end-product. For a manufacturing company, this includes raw materials and components. For a retailer, it includes any items purchased from a wholesaler for resale to customers.
- Indirect procurement typically involves purchases of items that are essential for day-to-day operations but don’t directly contribute to the company’s bottom line. This can include anything from office supplies and furniture to advertising campaigns, consulting services and equipment maintenance.
- Goods procurement largely refers to the procurement of physical items, but it can also include items like software subscriptions. Effective goods procurement generally relies on good supply chain management practices. It may include both direct and indirect procurement.
- Services procurement focuses on procuring people-based services. Depending on the company, this may include hiring individual contractors, contingent labor, law firms or on-site security services. It may include both direct and indirect procurement.
Process:
- Identify which goods and services the company needs.
First, a business must identify its requirements for a specific item or a service. This may be a new item that the company hasn’t previously purchased, a restock of existing goods or a subscription renewal. This step typically involves delving into the nitty-gritty details of what the business needs, such as the precise technical specifications, materials, part numbers or service characteristics. At this stage, it’s a good idea to consult all business departments affected by the purchasing decision to ensure the procured items accurately reflect the needs of each department.
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Submit purchase request.
When an employee or business group needs to procure a significant quantity of new supplies or services, they make a formal purchase request (also known as a purchase requisition). A purchase request notifies the company that a need exists, usually via department managers, purchasing staff or the financial team, as well as specifications such as price, time frame needed, quantity and other important things for the purchasing team to keep in mind. The department overseeing the purchase can then approve or deny the purchase request. If approved, the procurement team can proceed with selecting a vendor and making the purchase.
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Assess and select vendors.
With a clear list of requirements and an approved purchase request, now is the time to find the best vendor and submit a request for quote (RFQ) this is what the purchasing team sends to potential suppliers in order to receive a quote it is important to be as detailed as possible so you can compare apples to apples. Vendor assessment should focus not only on cost but also on reputation, speed, quality and reliability. Many companies consider ethics and social responsibility as well, since procurement is often intertwined with corporate identity. A retailer that prides itself on sustainability would stand to benefit from partnering with environmentally responsible suppliers, for instance.
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Negotiate price and terms.
A common best practice is to get at least three quotes from suppliers before making a decision. Examine each quote carefully and negotiate where possible. If you need to walk away from a deal, be sure that you have concrete alternative options. Once you’ve agreed on final terms, be sure to get them in writing.
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Create a purchase order.
Fill out a purchase order (PO) and send it to the supplier. The PO should be sufficiently detailed to identify the exact services or goods needed and to enable the supplier to fill the order.
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Receive and inspect the delivered goods.
Carefully examine deliveries for any errors or damage. Make sure everything is delivered as specified in the PO and that the quality meets or exceeds expectations.
- Conduct three-way matching.
Accounts payable should conduct three-way matching by comparing the purchase order, order receipt or packing list and invoice. The goal is to ensure the goods or services received match the purchase order and to prevent payment for unauthorized or inaccurate invoices. Highlight any discrepancies between the three documents and resolve issues before arranging payment.
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Approve the invoice and arrange payment.
If the three-way match is accurate, approve and pay the invoice. Businesses should strive to have a consistent invoice payment process through accounts payable that checks that payments match the invoice amount and due date. A standardized process can help make sure invoices are always paid on time, which can prevent late fees and build good relationships with suppliers.
- Recordkeeping.
It’s important to maintain records for the entire procurement process, from purchase requests to price negotiations, invoices, receipts and everything in between. These records may be useful for multiple reasons. They help the company reorder goods at the right price in the future, as well as assist with auditing processes and calculating taxes. Clear, accurate records can also help resolve any potential disputes.