Module 1: Procurement Foundations

The Procurement Cycle from Need to Payment

Every organisation buys things: stationery, fuel, laptops, cleaning services, building works, consultants. Procurement is the discipline of buying those things well, so that the organisation gets what it actually needs, at a fair total cost, from a reliable supplier, through a process that can be explained and checked later. When buying is done casually, you see the symptoms quickly: goods that do not match what users wanted, invoices paid twice, suppliers chosen because they are friends, and stock-outs because nobody ordered on time. Understanding the full procurement cycle is the first step to preventing these problems.

The stages of the cycle

Different organisations use slightly different names, but almost every procurement follows the same logical sequence:

1. Identify the need. A user department notices it needs something: a replacement printer, 200 reams of paper, a security guard service. The need should be genuine and linked to the organisation's plans and budget.
2. Plan and approve. The need is written up as a requisition (often called a purchase requisition) and approved by someone with budget authority. In larger organisations, most purchases should already appear in an annual procurement plan.
3. Specify. The user and procurement agree exactly what is needed: quantity, quality, delivery date and location. For services, this becomes terms of reference.
4. Choose a method and source suppliers. Depending on value and risk, you might ask three suppliers for quotations or run an open tender.
5. Evaluate and award. Offers are compared against criteria set in advance, and the best one is selected and approved.
6. Contract or order. A purchase order or contract is issued, setting out what was agreed.
7. Receive and inspect. Goods are checked against the order for quantity and quality, and a goods received note (GRN) is signed. For services, a completion certificate or acceptance report plays the same role.
8. Pay. The supplier's invoice is matched to the order and the receiving document before payment is approved.
9. Review and close. Supplier performance is recorded, files are completed and lessons are noted for next time.

Why the sequence matters: controls at each step

Each stage is a control point. The requisition stops people buying things nobody approved. The specification stops the supplier delivering something cheaper than intended. Competition protects value for money. The goods received note proves the organisation actually got what it is paying for. The matching step before payment is often called the three-way match: the purchase order, the goods received note and the supplier invoice must agree on item, quantity and price. If any one of them disagrees, payment should be held until the difference is explained.

A second important control is separation of duties. The person who requests a purchase should not be the same person who chooses the supplier, receives the goods and approves payment. In a small business you may not have enough staff to separate everything, but you can still have the owner approve orders and payments while someone else receives goods.

Worked example: a Nairobi school buys desks

Imagine a private school in Nairobi needs 60 student desks before the new term. The deputy head raises a requisition stating the need and the budget line. The bursar confirms that funds are available and the principal approves. The deputy head and the procurement officer write a short specification: solid hardwood top of a stated size, steel frame, a stated height for upper primary pupils, delivery to the school within four weeks. The procurement officer sends a request for quotation to four furniture workshops. Three respond. Using criteria agreed beforehand (price, compliance with the specification, delivery time and a sample desk), the evaluation committee recommends one workshop. A purchase order is issued for 60 desks at the quoted price, for example KES 4,500 each (a hypothetical figure). When the desks arrive, the storekeeper counts them, finds two with cracked tops, and records 58 accepted on the GRN. The supplier invoices for 60. Because of the three-way match, the bursar pays for 58 and the supplier replaces the two damaged desks before invoicing for them.

Notice how every document did a job. Without the GRN, the school would probably have paid for 60 desks and argued later.

Common mistakes to avoid

• Starting with a supplier instead of a need. "Call Mutua, he always supplies us" skips specification and competition.
• Raising the order after the goods arrive. Retrospective orders defeat the purpose of approval and are a common audit finding.
• Treating receiving as a formality. Signing a delivery note without counting or inspecting means you have accepted whatever came.
• Paying from the invoice alone. Always match the invoice to the order and the receiving record.
• Skipping the review. If you never record supplier performance, you will keep re-hiring poor suppliers.

As you go through this course, each of these stages will be covered in more depth. For now, make sure you can name the stages in order and explain what could go wrong if each one were skipped.