er the following Questio
1. What is 1-P-O Cycle? Explain
Answers
Explanation:
How much your company spends to do business, and how often, plays an important role in your overall success. Transforming cash into goods and services, the purchasing cycle is at the core of procurement and can have a major impact on your productivity, competitiveness, and profitability.
Understanding your company’s purchasing cycle is the first step toward optimizing it. With the help of technology and process improvements, you can ensure your purchasing department is building value for your company while reducing costs due to wasted time, energy, and resources.
What is the Purchasing Cycle?
The purchasing cycle—also called the procurement cycle or procure-to-pay (P2P)—is the process by which you order, obtain, and pay for the goods and services your business needs.
“For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. In between, they may generate a purchase order, pay for goods directly, or invite tenders (also known as bids) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need.”
The Purchasing Cycle, Step By Step
For companies of all sizes, from local small businesses to global megacorps, the purchasing cycle begins with needs analysis and ends with payment and record keeping. In between, they may generate a purchase order, pay for goods directly, or invite tenders (also known as bids) to encourage more aggressive and price-effective competition between suppliers wishing to fulfill a specific need. Most companies have a quirk or two, but in general the process follows a fairly straightforward series of events:
1. Needs Analysis
This stage of the purchase cycle is dedicated to identifying the need to be met, whether it’s a reorder, raw materials for a new product produced by the company, or office supplies.
2. Needs Clarification
Once the need’s been identified, the variety (e.g., brand), amount required, and delivery schedule need to be established.
3. Purchase Requisition and/or Purchase Order
With the details settled, the requesting party has a couple of options. Generally, those without the authority to approve direct purchase orders will first create and submit a purchase requisition, which is an internal document requesting that approved parties obtain goods and services. Upon approval, the purchase requisition is used to create a purchase order, which is the actual order sent to the supplier for the goods and services required.
4. Authorization
The purchase order (generated from a purchase requisition or not) must also be approved. The purchase order process benefits from automation and artificial intelligence (AI), usually through the use of purchase order software that’s part of a comprehensive procurement software package.
Not only does automation permit role assignments and automatic routing and tracking of all purchase orders and approvals/rejections/revisions, but it allows for real-time adjustments and transparent communication between all parties involved. In addition, automatic reminders can be created to ensure no PR or PO is left to languish.
5. Supplier Review
If you’ve already integrated an automated procurement solution into your workflow, chances are the list of approved and available suppliers will obviate this step in the process—especially for repeat orders. But if you’re adding new products, or new suppliers for existing products to the system, then each candidate must be reviewed for compliance, performance, and reliability.