Every purchasing process uses four basic steps: determination of need, bidding, purchase and evaluation. Each step can have several components, some of which may not apply to every purchase. Often, the steps are completed casually and in a very short time period. In others, each step is formalized and may take considerable time.
In the determination of need stage of the purchasing process, the potential buyer evaluates his needs. This includes identifying what he wants to accomplish, what his spending budget will be and what features are needed and wanted. This step may also include product research to uncover possibilities and options that the buyer may not realize are available.
Determination of need occurs whether the decision is as simple as a man who wants to buy lunch or as complex as an IT manager evaluating a new integrated accounting management system. The man looking for lunch will very quickly determine his needs. He may know that he needs food, wants to spend a specific amount, has only 30 minutes for lunch and is in the mood for salad. The IT manager may need to confer with a number of parties to determine needs and restraints before he can move to the next phase.
In the bidding phase of the purchasing process, the buyer researches available vendors and requests pricing. This may be as simple as the luncher who uses his budget to determine that he needs to patronize a fast food restaurant and then runs through a mental list of such establishments close to his place of business. The IT manager will probably research available software and providers, issue a request for proposal and then evaluate the bids to determine which best fits his company’s needs.
The third phase of the purchasing process is the actual purchase. For the man buying lunch, this is as simple as ordering his food, paying at the window and driving away. For the IT manager, this may include negotiating pricing, obtaining purchase approval, signing contracts, taking delivery of the product and paying the invoice.
The purchasing process usually ends with the evaluation phase. This is where the buyer determines whether he made a good purchase and whether he will keep the product or do business with the vendor again. For the luncher, this means eating his meal and deciding if it was good. For the IT manager, this means evaluating the effectiveness of the system over time. In some cases, this phase of the process may entail invoking warranties or guarantees and may even lead to a return of product or request for refund.