Procurement

Process &
Policy

Written by
Eng. Hassan Al Heliel
Procurement

• Procurement is the act of sourcing and obtaining goods and services for a
business. The procurement process is most associated with business because a
company needs to purchase goods and solicit services to grow.
• The term “procurement” usually refers to the final act of purchasing, but it can
also include the overall procurement process, from new supplier onboarding to
contract management and invoice approval.
Procurement Policies

• A purchasing policy is a collection of rules that control the requisition process.

Purchasing policies help procurement administrators implement their
procurement strategy by creating a policy structure that is aligned with the
organization’s strategic purchasing requirements.
• A purchasing policy consists of a set of policy rules. When you define a policy
rule, you first select a rule type. You then create a rule for the rule type by
defining the settings, the start date, and the end date for the rule.
 Before a policy can take effect, it must be
associated with an organization. Purchasing
policies are associated with the Procurement
Assigning policies internal control hierarchy purpose. Therefore,
purchasing policies apply only to organizations
to organizations in hierarchies that have a hierarchy purpose
of Procurement internal control. You can also
select organizations from the flat list of legal
entities in the Company Info table. These legal
entities are designated in the policy framework
as “Companies.”
Policy rules

Category access policy Re-approval rule for

Catalog policy rule Category policy rule
rule purchase orders

Replenishment
Purchase requisition Purchase requisition Requisition purpose
category access policy
RFQ rule control rule rule
rule

Purchase order
Replenishment control
creation and demand
rule
consolidation rule
Procurement Process

The procurement process is a structured method of procuring goods and services needed for an organization. This
process saves cost, reduces time, and builds win-win supplier relationships.

The procurement process is the series of processes that are essential to get products or services from requisition
to purchase order and invoice approval. Although we use procurement and purchasing interchangeably, they differ
slightly.
While purchasing is the overarching process of obtaining necessary goods and services on behalf of an
organization, procurement describes the activities involved in getting process comprises the steps that must be
followed while reviewing, ordering, obtaining, and paying for goods/services them. The procurement process in an
organization is unique to its context and operations.
Regardless of the uniqueness, every procurement management process consists of 3 Ps’, namely Process, People,
and Paperwork.
Procurement management process

2. People
These are stakeholders, 3. Paper
1. Process and their specific
This is the paperwork and
responsibility in the
Process comprises the documentation involved in
procurement cycle is to
steps that must be every stage of the
initiate or authorize every
followed while reviewing, procurement process – all
stage of the process. The
ordering, obtaining, and of which are collected and
number of stakeholders
paying for goods/services. stored for reference and
involved is directly
auditing reasons.
proportional to the risk
and value of the purchase.
1- Purchase
Requisition
and policy
What is a purchase requisition?

A purchase requisition is a document issued internally by an employee in a

company, business, or organization concerning purchasing of goods, services, or
raw materials. Purchase requisitions are submitted to the purchasing
department, which must be approved for the purchase order to be issued.
The first step in purchasing begins with purchase requisitions. When an employee
or department need any product, item, or service for daily operations or project-
specific requirement, purchase requisitions are submitted on behalf of the firm/
company/ organization respective to the requirements.
Why are purchase requisitions needed when orders could be placed directly with
the supplier? The reason why purchase requisitions are relevant is due to the
following:

1) To prevent fraud from

taking place in the form of:
Employees misusing the 2) To establish a 3) For direct control of
company's fund. transparent procurement finance over purchasing and
Duplicate orders created on process. procurement process.
purpose.
Cost-efficient vender
selection is not considered.
Types of Purchase requisitions
Service Capitals
Service

Capital Goods Subcontracting

Engineering IT

Office item IT Contract

VB Item
PR Stock transfer
Purchase requisition workflow/Process

Plant need it.

Material code creation .

PR form Submission.

PR approval as per company release strategy .

Stock checking by inventory system.

Purchase Requisition information
Send the PR to
Description of the authorized persons
Department name Select the priority.
required job/ area . for approval / Release
.

Approved budget Recommendation to

Dep. Cost center. Item code selection.
availability . the OEM if available.

Verifying the level of

stock and the need for Verify the technical Select the delivery
Purchase requestion
the item by the specifications of the date as per the end
type.
competent item. user requirement .
department.

Approval from the

Issuing the purchase Determine the
store after updating Select the item unit .
requestion . approved quantity .
the available stock.
How to automate Purchase Requisition Workflow?

Map the process

Some companies or organization don't document their purchase requisition process. The first step toward automating purchase
requisitions is to map out the entire process in a detailed and elaborative manner. Then, create a process flow depicting the conditions,
checkpoints, and dependencies of the purchase request process. Take out the redundant steps and make a simple and clear process flow

Create digital forms

The next step is to digitize the mapped-out purchase requisition process flow. Create a digital version of the requisition procedure
using any purchase requisition software or tool. You could also take inspiration from the pre-existing templates to create your own.

Customize the app

Now organization or company-based customization could be made in the digital form. The company-specific rules, approvals,
additional workflow steps, unique processes, exceptions, etc., could be crafted into the application.

Automate workflows
Choosing any purchase requisition system will enable you to automate business processes like approval, rejection, and process
purchase requests seamlessly. Every step of the purchase requisition procedure could be defined, and limitations, and accountability,
could be set with the right purchase requisition software or tool.

Publish, integrate and measure

Once the purchase requisition tool or application is customized according to the organizational needs, policy and process, it's all set to
launch. Run the application and assess how the requisition process flow and time consumption have been impacted by automation.
 • Catalog policy rule
The catalog policy rule determines which
procurement catalog users see when they
create purchase requisitions. If a user has been
granted permission to order products on
Purchase behalf of another user, the requisition uses the
catalog policy rule that is defined for the
Requisition Policy requester’s legal entity and operating unit to
determine which catalog to display. Before you
can define a catalog policy rule, you must
create and publish a procurement catalog.
 • The category access policy rule determines which
categories users have access to when they create
purchase requisitions. If no rule is specified, all the
procurement categories can be added to the
purchase requisition.

Category access 1. Select the Include parent rule option to apply the
category access policy rule of the parent
organization to the category.
policy rule 2. In the Available categories pane, select the
categories that the rule applies to. When you select
a category, all categories that are higher in the
hierarchy are also added to the Selected
categories list.
3. Select the Include subcategories option to apply the
rule to all subcategories of the selected category.
Category policy • The category policy rule defines how users
rule can select vendors for each category. It also
defines requirements for the receiving and
invoicing processes.
 • The purchase requisition control rule for requisitions of
type consumption is an optional rule. When you create
rules of this type, you can set options on various tabs:
• On the Workflow submission tab, you can configure the
Purchase fields that must be entered on the requisition line for
the requisition to be submitted for approval.

requisition • On the Order quantities tab, you can configure the

fields that are required on the purchase requisition
under certain conditions. You can also enforce order
control rule quantities.
• On the Dates tab, you can configure whether the
accounting date is the same as the requested date
• On the Address tab, you can define whether the user is
allowed to create new addresses in the system to apply
to the purchase requisition.
 2- Request
for quotation
What Is a Request for Quote (RFQ)?

A request for quotation (RFQ) involves inviting vendors to submit pricing quotes based on a specific brief. Learn how to
write the perfect RFQ with this guide.
Outsourcing work to another company is common in the field service industry, but it can be a task that is mired in
miscommunication when managed incorrectly.
Requests for quotation (RFQs) aim to make the process of hiring vendors and suppliers easier for all parties. In this guide,
we’ll go through what the difference is between an RFQ and a request for proposal (RFP), what the RFQ process looks like,
and what to include in any future RFQ you put together.
Request for quotation (RFQ) vs. request for proposal (RFP):
What’s the difference?

• A request for proposal (RFP) is a document used by companies to procure a vendor or supplier when they aren’t quite at the
stage of knowing exactly what they want.
• In terms of RFQ vs. RFP, an RFQ is compiled when a company knows what deliverables they need and simply want pricing
estimates, while an RFP is used to collect information on services from potential companies. RFPs will contain information other
than just pricing quotations, including:
• The goal of the project or service to be undertaken
• The qualifications the vendors should have
• The scope of the project
• The deliverables schedule
• Just like the RFQ process, companies will send out RFPs to companies with which they’re interested in working. The receiving
companies can then respond to the RFP in detail, usually in the form of bid proposals that describe how they will complete the
project and how much they estimate it would cost.
How the request for quotation (RFQ) process
works

3. Send out the RFQ

1. Prepare the RFQ 2. Create a vendor document
document list

4. Receive responses 5. Select the chosen 6. Close the final

from vendors vendor contract
1. Prepare the RFQ document

• This step is when you present your requirements and conditions in full; the document will likely include many of the following factors:
• Company name.
• Item code and description.
• Quantities of goods
• Payment terms.
• Vendor details.
• Estimated hours of labor
• Project length
• Contract terms
• Quotation submission requirements_ deadline .
• Invest time in this part of the process. The quotes you receive will only be as good as your RFQ, and being clear on exactly what you
require will mitigate the need for you to repeat certain steps of the process.
• We recommend using a document management tool to help you manage all iterations of the RFQ document and allow all stakeholders
to have easy input into its creation.
2. Create a vendor list

• You’ll likely have certain vendors or suppliers in mind, but it’s also important to do some research into other companies
to which you can send your RFQ document. Gather all the necessary contact details and create a vendor list.
8 types of sourcing

Single Near
Outsourcing Insourcing
sourcing sourcing

Vertical Joint
Recruiting Wholesale
integration venture

Online
market
3. Send out the RFQ document

• This step sounds easy, but make sure you have consistent processes in place to support it.
• For example, before sending out the RFQ, make sure it includes clear instructions for how it is
meant to be completed and the due date for submissions. Plus, creating an FAQ ahead of time
will save you time when potential bidders come back with questions.
What should you include in a request for
quotation (RFQ)?
3. Pricing details
1. Executive summary and project
requirements 2. Submission dates and contract Despite the type of service or goods you
requirements want to procure, you’ll want your bidders to
Provide background information about your
get as granular as possible with their pricing
company and an overview of the services or Be clear about the submission deadline,
quotations. For example, ask bidders to
goods you are looking to procure. Be as what should be included in each submission,
break down labor costs and equipment
detailed as possible about your and the details of the contract.
costs so that you can pinpoint these
requirements.
expenses during the review process.

6. Selection criteria
4. Project timelines
5. Contact details Be open about how you will select the
If you’re procuring a service, be clear about
Clearly identify the relevant contact details successful bidder. More often than not, the
the length of the contract and include
that bidders can use when requesting more winning bidder will be chosen based on
specific dates. If you’re looking to acquire
information. If you’ve created one, also pricing, but if there are other criteria that
goods, be upfront about when you expect
attach your FAQ document to the RFQ. you will apply to the decision-making
the company to fulfill the order.
process, let the bidders know in advance.
RFQ advantages and disadvantages

Advantages
• Procurement lead-time is significantly reduced given that there’s no need to prepare solicitation documents, or to advertise requirements. And the period for quotations
submission is also equally reduced.
• The number of quotations received is limited to the number of bidders quotations were requested from, so the selection process time is also reduced.
• The procuring and/or requesting entities would usually have a pretty good idea of where and from whom the goods, services or works can be procured, so there’s a higher
probability of response to the request for quotations.

Disadvantages
• Lends itself to irregularities because the procuring entity decides which suppliers, contractors or service providers to send request for quotations to, and competition is very
limited cheska-lekarna.com.
• Could be abused because of the breaking of requirements into smaller sizes to apply this method of procurement.
• Could easily lead to requesting quotes from a limited number of firms even if the goods, services or works are available from a greater number.
4. Receive responses from vendors

• Again, this step sounds easy, but you’ll need organized processes in place to help you manage a fair and
structured RFQ process.
• Make sure you keep track of all responses and submissions, acknowledge receipt of them, and remind
respondents of your timeline for notifying the selected vendor.
 Purchase
requisition RFQ • The purchase requisition RFQ rule defines
criteria for requiring a request for quotation
rule (RFQ) for a purchase requisition line. If a line
meets the conditions, the "informal RFQ" or
"formal RFQ" stamp appears on the
requisition line.
 • The requisition purpose rule is an optional
Requisition rule that determines the type of requisition
purpose that is allowed for a specific legal
purpose rule entity. Unless another purpose is indicated
in this rule, requisitions automatically have a
purpose of Consumption when they are
created.
3- Quotation
Evaluation
What is quotation?

• A quotation is a document that a seller provides to a buyer to offer goods or

services at a stated price, under specified conditions.
• Also known as quotes, sales quotes or sales quotations, quotations are used to
let a potential buyer know how much goods or services will cost before they
commit to the purchase.
• Quotations are usually not legally binding unless they’re part of an official
contract. However, it’s generally accepted that a customer has committed to a
sale, and a specific price, if they accept the quote.
Types of quotation
There are two main types of quotes: direct and indirect
In-text quotes Indirect quotes
An in-text quote is a short quote An indirect quote is when you
that fits into and completes a paraphrase ideas from a source.
sentence you've written. It's great They're useful when the main idea
for introducing ‘scare quotes' and is important, but the quote itself is
short phrases that add interest to too long or complex. You don't use
your writing. quotation marks for these.

Direct quotes
A direct quote is when you take
text directly from a source without
changing anything. Direct quotes
often sum up exactly the point
you're trying to make and need no
further explanation.
5. Select the chosen vendor

• Your review committee will now need to choose a vendor to award the contract to. Make sure to review the
submissions carefully and be especially sure that contenders meet the necessary requirements for the job.
• If you’ve used a consistent template, it should be more than easy to compare vendor pricing quotations to select the
cheapest or best option.
• Many field service management solutions offer capabilities that enable you to create RFQs and allow vendors to
respond.
What is the Supplier Selection Process?

The supplier selection process is a systematic approach used by companies in identifying,

evaluating, and choosing third-party product vendors or service providers. It involves
seven main stages, starting from determining the needs of the organizations and ending
with managing the relationship with the supplier. The entire process ensures that
suppliers meet the organization’s specific needs and requirements for their operations.
This methodology is commonly employed in manufacturing, retail, construction,
automotive, and healthcare.
Importance

Cost efficiency – With this process, Quality assurance – Finding the

Risk mitigation – One of the steps
companies can compare the offers most appropriate suppliers
in the procedure identifying
from various third-party vendors or through this meticulous system
threats in quality, finances, and
service providers and pick the one ensures high-quality goods and
ethics, and ensuring that are
offering the most competitive services without worrying about
measures to mitigate these risks.
pricing. defects or rejects.

Supply chain reliability –

Disruptions in the supply chain, Long-term collaboration –
such as late deliveries or materials Compatibility, shared values, and
scarcity, could impede operations. mutual goals are factors companies
By reviewing suppliers through this often look for in their suppliers,
process, companies can assess resulting in enduring partnerships.
their dependability.
4- Purchase
order
What is a Purchase Order?

A purchase order is a legal document form used by a buyer and sent to a supplier for an order. A
purchase order specifies items, quantities, prices, and credit terms for a purchase from the
vendor. A PO becomes a legally binding contract when a vendor accepts the purchase order.
What is the Main Purpose of a Purchase Order?

• The main purpose of a purchase order from a buyer is to initiate a business

order for specific goods or services with a vendor. An approved purchase order
states the agreed terms and offers legal protection for both the customer and
the vendor selling the ordered items.
• Purchase order items, quantity, and prices (and receiving information) are
matched with an invoice by the customer to ensure that the items have been
ordered and billing is correct before paying the vendor.
• Purchase orders are sequentially numbered and provide an audit trail in the
system.
Why Do You Need a Purchase Order?

Issuing a purchase order results in better approval processes, spend

management, and internal control over purchases. Purchase orders are
numerically controlled with a sequential PO number on each form for internal
control.
The purchase order process
Purchasing approves
Negotiation process Create a purchase The item description
Technical Evaluation Select the order the PO as per
with vendor to reach order for the should match with
from End user . type. authority matrix on
the best terms . selected vendor. technical approval .
the organization .

Vendor invoices
Vendor confirms Customer receives
Send approved PO to Delivery the items to Store check the customer for
acceptance of the ordered goods or
the vendor. store / end user . items condition . products shipped or
received PO . services.
services delivered.

Customer completes Customer pays the

Customer approves
3-way matching of approved vendor Close PO .
the invoice.
documents. invoice.
Purchase Orders Types
Digital purchase
orders (DPO) Capitals Service
Contract
purchase orders Capitals Goods
(CPO)

Blanket
purchase orders
(BPO) IT

Planned
purchase orders
(PPO) Spare Part

Standard
purchase orders
(PO) PO Emergency
Purchase Order Forms

A purchase order, prepared by Procurement, is usually supported by an approved

purchase requisition to purchase goods or services.
The purchase order includes billing and contact information, shipping address
and other shipping information, delivery date, payment terms, line items with
description, part number, quantity, pricing, and totals.
Purchase order details include
Product or
service Product numbers
Legal and descriptions or SKUs for retail
payment terms and eCommerce
businesses
Shipping address
Pricing

Billing address Quantity

Customer and
vendor company
Subtotal
name and contact
information

Date – of the
purchase order Any sales tax due
and delivery date for non-resale
items

PO number
(purchase order
number) PO Invoice Total
 • The purchase order creation and demand
consolidation rule defines the policy rules to
use when a purchase order is generated
Purchase order from an approved purchase requisition.
When you create rules of this type, you can
creation and set options on various tabs:
demand • On the Purchase order split tab, you can
define criteria for splitting purchase
consolidation rule requisition lines onto separate purchase
orders.
 • On the Price/discount transfer tab, you can define when to recalculate the price agreement when a purchase
order is created:

• Only if no trade agreement – Prices and discounts are transferred from the purchase requisition only if there is
no applicable trade agreement or base price. If a trade agreement or base price exists for the item or vendor,
the prices and discounts are recalculated based on the trade agreement or the base price, and are applied to
the purchase order. Unless otherwise specified, this is the default behavior.

• Always – Prices and discounts are always transferred from the purchase requisition.

• You can also allow the requester to change the method of price and discount transfer for individual purchase
requisition lines, regardless of the price/discount transfer rule that is defined. Select the Allow manual override

Purchase order •
per purchase requisition line option to enable this capability.

On the Item description transfer tab, you can transfer the item description from the requisition when it
originates from an RFQ.

• On the Price Tolerance tab, you can define rules to route approved purchase requisitions back through the
review process when the price of a procurement catalog item increases. Set the maximum amount that the net
amount on a line item on a purchase requisition can increase between the time when the purchase requisition
is approved and the time when the purchase order is created. The net amount is calculated by using the
following formula: ([Quantity × (Unit price – Discount) ÷ Price unit] + Purchase miscellaneous charges) × (100 –
Discount percent) ÷ 100 Purchase requisition lines that exceed the price tolerance that you set are held for
manual processing. The rules that you configure on the Error processing tab determine how the purchase
requisition lines are processed.
 • On the Error processing tab, you can configure the processing rule that is applied to a purchase
requisition if it fails validation during purchase order creation because of a vendor error or a price
tolerance error. Select one of the following options:
• No action – The purchase requisition lines remain on the Release approved purchase
requisitions page. The status of the purchase requisition lines remains Approved. However,
the errors must be resolved before a purchase order can be generated for the purchase
requisition lines.
• Cancel the purchase requisition line – The purchase requisition lines are canceled. The

Purchase order •
requester can create a new purchase requisition for the canceled lines if they still want to
request the line items.
Create a new purchase requisition line – The purchase requisition lines are canceled. New
purchase requisitions are then generated that contain only the purchase requisition lines
that failed validation. The new purchase requisitions that are generated have a status
of Draft. These purchase requisitions can be resubmitted for review after the validation
errors have been resolved. The preparer of the purchase requisition lines is notified that
the lines were canceled, and that new purchase requisitions were generated for the
purchase requisition lines that failed.
 • On the Manual purchase order creation tab, you can define the parameters that determine whether a
purchase requisition must be manually processed, or whether it can be automatically converted to a
purchase order. The parameters can apply to internal catalog items, external catalog items, or non-
catalog items. Select one of the following options:
• Manually create purchase orders – Manually create purchase orders for all purchase requisitions.
• Automatically create purchase orders – Automatically create purchase orders for all approved
purchase requisitions. No purchase requisitions are held for manual purchase order creation.

Purchase order • Automatically create purchase orders except under these conditions – Manually create purchase
orders for purchase requisitions that match the criteria that you define. All other purchase
requisitions that are approved are automatically converted to purchase orders. If you
select Automatically create purchase orders except under these conditions, you can add procurement
categories and vendors to specify which approved purchase requisition lines are held for manual
processing. This option can apply to internal catalog items, external catalog items, and non-catalog
items. When you select a procurement category, any subcategories for that procurement category
are also selected. Select the All option for a specific type of purchase requisition line to hold all lines
of that line type for manual processing.
 • If you want purchase orders to be generated automatically from
approved purchase requisitions when the batch job for purchase
order generation runs, select the Run automatic purchase order
creation as a batch job option. This option applies only to purchase
requisitions that don't require manual processing. By running
automatic purchase order generation as a batch job, you can
schedule this activity at a time when resources are less constrained. If
Purchase order the Prepayment required option is selected on the purchase
requisition lines, select the When the requisition is set up for
prepayment option to hold approved purchase requisitions for
manual processing. Purchase requisitions that are held for manual
processing can be filtered so that you can view only those purchase
requisition lines that require prepayment.
 • On the Demand consolidation tab, you can define the parameters that determine whether purchase
requisitions that are manually processed can be considered for purchase requisition consolidation. The
parameters can apply to internal catalog items, external catalog items, or non-catalog items. Select one of
the following options:
• Do not allow demand consolidation – No approved purchase requisition lines are eligible for
demand consolidation. This option is selected by default and applies only to purchase requisition
lines that require manual processing for purchase order creation.
• Always allow demand consolidation – All approved purchase requisition lines are eligible for
demand consolidation. Note: If you select the Always allow demand consolidation option on

Purchase order •
the Demand consolidation tab, but you select the Automatically create purchase orders option on
the Manual purchase order creation tab, all purchase requisitions are held for manual processing.
Allow demand consolidation under these conditions – Define the criteria that determine whether
approved purchase requisition lines are eligible for demand consolidation. For each type of
purchase requisition line, you can set the criteria by procurement category and vendor. If you
select Allow demand consolidation under these conditions, you can set the criteria by procurement
category and vendor for each type of purchase requisition line. When you select a procurement
category, any subcategories for that procurement category are also selected. If you select
the All option for a specific line type, all purchase requisition lines of that line type are eligible for
demand consolidation.
 THE END

If you have any questions or consultations regarding supply chains and development.
Eng. Hassan Al Heliel
[email protected]
Mobile:+966504813276