What Is Procurement?

Procurement is the process of sourcing, purchasing, and acquiring goods and services that an organization needs to operate. It plays a critical role in supply chain management, ensuring that businesses obtain high-quality materials and services at the best possible cost while maintaining compliance, risk management, and efficiency.

The Procurement Process

Procurement typically involves several key steps:

  1. Identifying Needs – Organizations determine what goods or services they require.
  2. Supplier Selection – Researching and selecting vendors based on cost, quality, and reliability.
  3. Negotiation & Contracting – Agreeing on terms, prices, and conditions with the supplier.
  4. Purchase Order & Approval – Formalizing the request with an official purchase order (PO).
  5. Receiving & Inspection – Ensuring the goods or services meet quality and contract specifications.
  6. Invoice Processing & Payment – Reviewing invoices, reconciling with orders, and processing payments.
  7. Performance Evaluation – Assessing suppliers for future business relationships.

Procurement is an extensive topic. In this article, we will focus on supplier selection and discuss other areas of procurement in future posts. 

Supplier Selection

Choosing the right supplier is key to saving costs, improving product quality, and ensuring a reliable supply chain. This important process often includes:

Defining Supplier Criteria

Before evaluating potential suppliers, businesses should establish clear selection criteria. These typically include:

  • Cost-effectiveness – Competitive pricing without sacrificing quality.
  • Quality assurance – Compliance with industry standards and specifications.
  • Reliability and reputation – Proven track record of timely deliveries and strong customer feedback.
  • Financial stability – Suppliers with strong financial health to ensure long-term viability.
  • Sustainability and ethics – Compliance with environmental, social, and governance (ESG) policies.
  • Technology and innovation – Ability to adopt new technologies and improve efficiency.

Defining supplier criteria is a structured process that involves collaboration with key stakeholders, data analysis, and alignment with business objectives. Here’s how it is done:

Engage Key Stakeholders

Procurement teams meet with internal stakeholders, including operations, finance, quality assurance, and legal teams, to identify critical supplier requirements. This ensures that procurement aligns with business needs and compliance standards.

Analyze Business and Market Needs

Conduct a market assessment to understand industry standards, cost benchmarks, supply chain risks, and emerging trends.

Establish Measurable Criteria

Define specific, quantifiable supplier selection parameters such as price limits, acceptable lead times, quality certifications (e.g., ISO 9001), and sustainability commitments.

Develop a Supplier Evaluation Framework

Create a scoring system or weighted matrix to compare suppliers objectively based on cost, quality, reliability, risk factors, and service capabilities.

Document and Standardize

Formalize the criteria in procurement policies and guidelines to ensure consistency across supplier evaluations and future sourcing decisions.

Researching Potential Suppliers

Businesses can find suppliers through:

  • Industry directories and trade associations, such as ThomasNet, Alibaba, and procurement databases.
  • Recommendations and referrals – From industry peers, networks, or existing suppliers.
  • Requests for Information (RFI) – Gathering general supplier details before shortlisting candidates.

What is an RFI? 

A Request for Information (RFI) is a preliminary document used in procurement to gather general information about potential suppliers, their capabilities, and available solutions before issuing a formal Request for Proposal (RFP) or Request for Quotation (RFQ). An RFI is typically broad and exploratory, allowing businesses to make informed decisions about which suppliers to engage in the next stages of the procurement process.

A Request for Information (RFI) typically includes the following key components:

  1. Introduction & Purpose – A brief overview of the organization and the reason for the RFI
  2. Company Background – Details about the issuing organization. 
  3. Scope of Inquiry – A description of the products, services, or solutions being explored. 
  4. Supplier Information Request – Questions about the supplier’s experience, capabilities and certifications. 
  5. Product or Service Specifications – General inquiries about available offerings, quality standards, and technical capabilities
  6. Pricing and Cost Estimates – A request for indicative pricing structures, cost breakdowns, and potential bulk discounts. 
  7. Compliance and Sustainability – Queries about regulatory compliance, sustainability practices, 
  8. Technology and Innovation – Requests for information on digital capabilities, automation, and innovations relevant to the procurement need.
  9. Next Steps & Timeline – The expected response deadline, evaluation process, and potential follow-up actions. 

 

Request for Proposal (RFP) or Request for Quotation (RFQ)

Once suppliers are identified, businesses issue RFPs or RFQs, asking for detailed proposals that include:

  • Pricing and payment terms
  • Delivery timelines and capabilities
  • Quality control processes
  • Compliance with regulations and certifications
  • Case studies or references from previous clients

A Request for Proposal (RFP) is used when an organization needs detailed solutions, expertise, and innovation from suppliers, typically for complex projects or services. In contrast, a Request for Quotation (RFQ) is used when the requirements are well-defined and the primary focus is on pricing and terms for standardized goods or services.

Supplier Evaluation and Shortlisting

After receiving proposals, businesses compare suppliers based on:

  • Total cost of ownership (TCO) – Considering price, logistics, warranty, and long-term costs.
  • Scalability – Ability to meet future business needs.
  • Cultural and operational fit – Compatibility with company values and work culture.

Contract Negotiation and Agreement

Once a supplier is selected, businesses negotiate:

  • Price and volume discounts
  • Delivery schedules and penalties for delays
  • Warranty terms and service agreements
  • Performance metrics and review periods

Procurement professionals can improve contracting by ensuring clarity, fairness, and efficiency in the process. They should use standardized contract templates to streamline negotiations while allowing flexibility for supplier-specific adjustments. Clear terms and expectations—covering pricing, service levels, delivery timelines, and penalties for non-compliance—help prevent disputes. Leveraging contract management software can automate workflows, track obligations, and manage renewals efficiently. Engaging legal teams early ensures compliance and mitigates risks.

Also, fostering collaborative negotiations rather than adversarial ones builds trust, leading to mutually beneficial agreements that support long-term supplier relationships.

Supplier Onboarding and Relationship Management

After selection, the supplier is integrated into procurement systems, given clear expectations, and monitored to ensure smooth operations.

Ensuring a High-Quality Procurement Process

A high-quality procurement process ensures cost efficiency, risk mitigation, and optimal supplier performance. Here’s how to achieve it:

1. Develop Clear Procurement Policies

Document and enforce standardized policies, including supplier requirements, approval workflows, and compliance checks.

2. Use Procurement Technology

Leverage tools like:

  • e-Procurement platforms – SAP Ariba, Coupa, Oracle Procurement Cloud.
  • Supplier management software – To track performance and automate evaluations.
  • Spend analytics tools – To gain visibility into procurement costs and trends.

3. Implement Strong Internal Controls

  • Enforce approval hierarchies to prevent unauthorized spending.
  • Conduct regular audits to identify inefficiencies and fraud risks.
  • Use purchase order tracking to ensure accurate documentation.

4. Prioritize Supplier Performance Management

  • Set KPIs for on-time delivery, defect rates, and cost savings.
  • Establish quarterly or annual supplier evaluations to review performance.
  • Maintain an approved supplier list to ensure only high-performing vendors are used.

5. Focus on Risk Management

  • Diversify suppliers to reduce dependency on a single source.
  • Monitor geopolitical, financial, and compliance risks in the supply chain.
  • Establish contingency plans for supplier disruptions.

6. Align Procurement with Business Goals

  • Ensure purchases align with company objectives and budget constraints.
  • Involve key stakeholders (finance, operations, legal) in procurement decisions.
  • Maintain flexibility to adapt to changing business needs.

7. Train Procurement Teams

Invest in ongoing training to ensure teams are skilled in negotiation, supplier evaluation, and procurement best practices.