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CHAPTER 2
THE PROCUREMENT PROCESS
Buyers use competitive bidding when price is the dominant decision driver and
the required item has relatively straightforward specifications, including items
which are, for example, low cost and low risk to the buying firm and where many
potential suppliers exist. Competitive bidding is often used for large projects,
including construction projects. It is also sometimes used to narrow the number
of suppliers down to the few suppliers with whom the buyer will negotiate.
Negotiation is used when items purchased are new and/or complex and where
specifications may not be well defined. It is often also used for the purchase of
high-cost and high-risk items to the firm.
After bids have been received and/or the negotiation process has taken place,
the buyer will select the supplier and then progress to authorising the purchase
through a purchase approval process [1].
2.3.4 PURCHASING APPROVAL
Once the supplier or suppliers have been selected, approval is granted by
procurement to procure the product or service. Several different means for
this exist, depending on the system in place within procurement, including the
drafting of a purchase order and the issue of a blanket purchase order/material
purchase release.
The development/drafting of a purchase order is an important step. Almost all
purchase orders include standard legal conditions that the order is subject to,
including:
• Item description.
• Material specifications.
• Quantity required.
• Quality requirements.
• Price.
• Delivery date and method.
• Ship-to address.
• Purchase Order (PO) number.
• Order due date.
• Name and address of purchasing firm.
Each time an item is required, procurement will issue a purchase order for that
item. This may or may not require negotiation around that item, depending on
the nature or price of the item and so on.
In the case of a blanket PO, an open order is typically issued which covers
repeated purchases for an item or items and is issued for a period of time over
which the items are required by the buying firm (often a period of one year). A
blanket purchase order eliminates the need to issue a PO each time there is a
requirement for goods or services. Once a blanket purchase order is established
between a supplier and buyer, the ordering of an item simply requires an order