Procurement Process Cycle | Procure to Pay process

Procurement Process (Procure to Pay process): – Every organisation that operates a business has to purchase materials such as raw materials, services etc. The procurement process has become part of today’s efficient business operation. The Company can procure those materials as in-house production or external procurement.

Procurement Process Cycle

Procure to pay Process consists the following processes.

  1. Material requirement planning
  2. Vendor Selection
  3. Request for Quotation
  4. Purchase Requisition
  5. Purchase Order
  6. Goods Receipt
  7. Goods Receipt Invoice
  8. Invoice Verification
  9. Payment to Vendors

1. Material requirement planning (MRP) :-

Materials requirements planning (MRP) refers to the technique of using a projected manufacturing production schedule to figure out what supplied materials you will need, and when you will need them. Materials requirements planning (MRP) type controls the MRP procedure, pricing, material valuation. Material requirement planning carried out by MRP controller in production department.

2. Vendor selection :- 

Vendor selection is one of the important step in procurement process. With the help of obtained quotations from sources and by comparing them, vendors are selected

3. Request for Quotation :-

Requesting potential vendors to submit a quotation for a material or services. Quatation contains the vendor’s terms and conditions and constitutes the basis for vendor selection

4. Purchase Requisition :- 

A purchase requisition is an internal request to purchasing.  You ask the buyer to provide a certain quantity of a material or service on a certain date.A purchase requisition can be created automatically by Material Requirement Planning (MRP) or manually created. PR converts to RFQ, PO or outline agreement. Purchase Requisition forms include the following information

  • Material Qty, description of goods & service and total value.
  • Department Account number.
  • Signature by an Authorized Department.
  • Attached Quote from the vendor.
  • Delivery instructions.
  • Attach Quote from the suggested vendor.

5. Purchase Order :-

Purchase Order  (PO) is a formal request to a vendor to supply certain materials or services under the certain conditions. A Purchase Order (PO) can be created with reference, or without reference to a purchase requisition, a request for quotation, or another purchase order.

POs usually specify terms of payment, incoterms, delivery date, specifications, material qty, price and reference or part numbers.

Types of purchase orders in procurement process:- Standard PO, Planned PO, Contract PO.

6.  Goods Receipt :-

Goods Receipts (GR) is created to reflect the Goods Receipts for the specified material ordered from a vendor using Purchase Order process. After receiving the goods the company can record the following information, this information can be used for accounting, stock check and rotation, to return any goods if there is a problem
  • What goods were delivered,
  • Which vendor delivered the goods.
  • Who, how, when goods were delivered and received the goods.

7. Goods Receipt Invoice (GRIN) :- 

Goods receipt Invoice process is one of the important process in procurement process cycle. It is matching the  goods that a company receives with the company PO (purchase order). It involves checking the goods are not damaged and fit for use, verifying the price, quantity, payment terms. Goods movement are entered in to the system with reference of Purchase order and goods receipt material documents are posted, automatically appropriate general ledgers are posted and stock accounts are updated.

8. Invoice Verification :-

After GRIN process, next process of procurement to pay is invoice verification. It plays an important role in procurement process and Materials Management Module which performs the following tasks

  • A Vendor Invoice can be created with reference to a Purchase Order, a Goods Receipt, a Delivery Note..
  • Invoice is verified in-terms of prices, quantity,
  • Necessary approvals by project managers

After verifying all the data, the invoice is posted and the data is saved in the system. The system updates the invoice data in Materials Management and Financial Accounting.

9. Payment to Vendors:-
The last step in procurement process cycle is payment to vendors and it is also known procure to payprocess. Vendors are get paid as per payment terms. In this fast technology world, comanies can pay through many methods to vendors. For example – through Net banking,Check payment etc

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