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If you’ve outgrown your purchasing process you probably notice unnecessary delays, friction, and clunky approvals. Not only does it hold back your daily purchasing efforts, but it creates more work overall for AP. By streamlining your purchasing process you can overcome the messy approvals, bottlenecks, and limited visibility that come with an outdated process. It also means AP can say goodbye to surprise invoices and late payments. Download the eBook and discover:
- How to recognize the signs you’ve outgrown your purchasing process
- How to design a modern purchasing process that allows AP to get involved earlier in purchasing decisions
- How to launch this process quickly and seamlessly
Procurement is the comprehensive activity of sourcing, acquiring, and paying for all the goods and services required for business operations. You might often hear the term “purchasing,” which generally points to the more immediate act of buying.
Procurement, however, covers a wider, more strategic sequence of events that starts well before an order is placed and extends long after payment has been settled.
Procurement ranges from identifying your company’s needs and conducting strategic sourcing of suppliers, through managing contracts, to handling supplier payments and maintaining ongoing supplier relationship management (SRM).
Whether your Canadian business is a small to medium-sized enterprise (SME) or a larger corporation, a clearly defined procurement process is foundational to your strategic decision-making, operational stability, and success.
Key Takeaways
- Procurement is strategic, not just transactional: Canadian businesses benefit from viewing procurement as a comprehensive process, from identifying needs and issuing purchase orders, to managing supplier relationships and ensuring audit compliance.
- A clear, step-by-step process drives operational control: Following structured procurement stages, including requisitions, supplier evaluation, contract negotiation, and invoice matching, helps reduce risk, prevent overspending, and improve efficiency.
- Technology enhances transparency and compliance: Embracing e-procurement and integrated P2P platforms enables automation, enforces internal controls, ensures GST/HST tracking, and supports compliance with trade laws and ESG standards.
- Procurement optimization is continuous: Ongoing improvement through spend analysis, KPI tracking, supplier performance management, and ethical sourcing practices helps Canadian businesses boost cost savings and supply chain resilience.
Core Procurement Process Steps for Canadian Businesses
While the specific path might have slight variations, a modern and effective procurement process for your Canadian business typically moves through several stages.
Progressing through these stages with care not only helps you obtain the goods and services your business needs but also creates opportunities for substantial operational improvements and cost savings. Below, we have outlined 11 core procurement steps for your Canadian business.
1. Identify what your business truly needs
The very first action in any sound procurement process involves clearly figuring out what your business genuinely needs. This should extend beyond merely reacting when someone flags an empty shelf. For your operations to run smoothly, this initial stage should incorporate proactive demand management, ideally informed by good spend analysis.
Strategic planning, not just ordering
What specific goods or services are essential for your day-to-day functions or an upcoming project? This requires looking ahead through careful forecasting. Your team will need to define clear specifications: expected quality, necessary quantity, and critical functionalities.
Budget alignment from the start
At this early stage, ensuring that these identified needs align with your overall company budget is fundamental. This helps prevent overspending and later operational disruptions.
2. Submit a purchase request
Once a specific need is clearly identified, the next formal step is to create a purchase requisition. You can think of this as an internal “permission slip” that initiates an expenditure. It’s a document used by an employee or manager to formally request goods or services.
Why this formality matters
A well-prepared purchase requisition provides essential data for your procurement team or finance team. It also serves as an important initial point of record to make sure that all purchases are properly authorized.
The internal go-ahead
The purchase requisition formally kicks off the internal process for approval. It contains details such as the item, quantity, and estimated cost. This structured request is then routed for approvals before moving further.
3. Review the requisition package
Once a purchase requisition is submitted, it undergoes a vital review before any action is taken or costs are committed.
Key checks
Reviewers scrutinize the request for clear specifications and accurate quantities. They also check cost estimates and adherence to internal purchasing guidelines, so unauthorized spending is prevented.
Approval or feedback
A satisfactory review leads to approval, converting the requisition into an actionable purchase order. If issues arise, the requisition is returned to the requisitioner with clear feedback.
4. Solicit the best suppliers
With an approved purchase requisition, your procurement process moves to identifying and formally inviting suitable suppliers. This might involve consulting existing vendor lists for your Canadian business or conducting market research.
Formalizing the request to suppliers
You’ll then typically issue a formal solicitation document. For straightforward purchases, a request for quotation (RFQ) focusing on price is often used. For more complex needs, a request for proposal (RFP) invites suppliers to offer more details about their solutions and pricing.
Clear and fair communication is key
Your solicitation document must be clear and issued fairly. It should detail needs, specifications, timelines, and evaluation criteria. Many Canadian businesses use e-procurement platforms to manage this, which helps ensure transparency.
5. Review and evaluate the top suppliers’ performance
After bid submissions, your procurement process enters a critical evaluation stage. Here, your Canadian business systematically assesses responses to determine which supplier offers the best overall value. An objective approach, using pre-defined criteria, is key.
Applying your criteria
Your evaluation should cover price, quality, technical compliance, delivery capability, and supplier stability. This often involves a scoring matrix for complex purchases and may involve both procurement and technical teams.
From shortlist to selection
Based on this evaluation, you’ll narrow the field to top contenders, potentially conducting further due diligence. The final selection chooses the supplier that best balances all critical evaluation factors. Both successful and unsuccessful suppliers should then be formally notified.
6. Negotiate a contract
Once your Canadian business has selected your preferred supplier, negotiation is the next pivotal stage. The goal is to arrive at mutually agreeable terms so both parties can provide the best long-term value to each other.
Key points for discussion
Your negotiation should cover pricing, payment terms (e.g., net 30, early payment discounts), delivery schedules, and quality standards. Don’t forget to discuss recourse for missed deadlines or quality shortfalls.
Formalizing the understanding into a binding document
Following successful contract negotiations, the agreement needs to be formally documented. This is typically through a contract, master service agreement (MSA), scope of work (SOW), or terms embedded within your purchase order. This contract management step ensures all conditions are clearly recorded.
7. Creating a purchase order
With agreed terms in place, your Canadian business issues a formal purchase order. This document confirms your intent to buy specific goods or services. Sending the PO to your supplier effectively greenlights their work.
Strategic supplier onboarding
This stage is critical for streamlined downstream accounting processes, especially supplier payments. Effective onboarding of new suppliers involves systematically collecting precise legal names, contact details, validated banking information (for Canadian EFT or international needs), and relevant tax information like GST/HST numbers or W-8 forms for international vendors.
Modern systems often use a supplier portal for self-service onboarding, improving accuracy.
8. Receiving what you ordered
Once your purchase order is with the supplier, the focus shifts to order fulfillment. Effective order management involves monitoring expected delivery timelines. When goods arrive or services are completed, the formal receipt process begins.
The importance of documenting what arrives
This usually involves creating a Goods Receipt Note (GRN) within your accounting system. This document formally acknowledges receipt, detailing what was received and when. The GRN is crucial for later three-way matching.
Checking for quality, quantity, and compliance
Beyond just noting arrival, this stage demands careful inspection. Does the quantity match the PO? Is the quality up to standard? Any discrepancies should be documented and communicated to the supplier immediately.
9. Conduct two and three-way PO. matching
The cornerstone of efficient invoice processing is automated matching. Three-way matching compares the invoice against the PO and GRN.
For services, two-way matching (PO vs. invoice) is used. This flags discrepancies immediately, allowing AP to focus on exceptions.
10. Approving or disputing invoices
After an invoice from your supplier is entered into your accounting system and matched, it faces a decisive moment. Before supplier payments are issued, the invoice requires a definite “yes” or “no.” This approval stage acts as a key internal control.
Why this decision matters
Approvers confirm the charge is legitimate and goods/services were received as expected. They also check that the invoice matches agreed terms to ensure spending authorization by the correct manager.
The path to payment or query
If the approver finds everything in order, they authorize the invoice for payment. Should the review identify problems, the invoice is not sent for payment; instead, your team should start a dispute, documenting reasons and communicating with the supplier to resolve the issue.
11. Keeping records
After payment, maintaining a complete audit trail is essential. This means systematically storing all procurement documents in a centralized digital system.
This supports audits and tax compliance, like tracking GST and Input Tax Credits (ITCs).
You’ll also want to regularly track supplier performance metrics against KPIs as part of ongoing Supplier Relationship Management (SRM). The financial data gathered throughout your P2P cycle provides rich information for continuous improvement and spend analysis.
Understanding Procurement Categories and Strategic Sourcing
As your Canadian business refines its procurement process, it’s helpful to recognize that not all purchasing is the same. Different types of goods and services often benefit from different purchasing approaches.
Understanding these categories, alongside strategic sourcing principles, allows you to tailor efforts for maximum impact.
Key Procurement Categories
Procurement activities can generally be grouped into a few main types. For your Canadian business, clearly categorizing spend helps apply the right strategic focus. The following table breaks down common procurement types:
| Procurement Type | Definition | Examples for a Canadian Business | Key Strategic Focus |
|---|---|---|---|
| Direct Procurement | Sourcing goods, materials, or services directly incorporated into your company’s final product or service offering. | Raw lumber for a Quebec furniture maker, electronic components for an Ontario tech hardware producer, direct labour for a BC software development project. | Assuring supply continuity, stringent quality control, optimizing cost of goods sold (COGS). |
| Indirect Procurement | Sourcing goods and services necessary for day-to-day operations, but not directly part of the end product. | Office supplies for a Calgary energy firm, marketing agency services for a Toronto retailer, and SaaS subscriptions for departments. | Attaining operational efficiency, controlling overhead costs, and user satisfaction. |
| Goods Procurement | The acquisition of tangible, physical items, falling under either direct or indirect procurement. | Machinery for a Manitoba manufacturer (direct), computers for any business (indirect). | Managing inventory, logistics, quality, and supplier reliability. |
| Services Procurement | The acquisition of people-based services, which can also be categorized as either direct or indirect. | Consulting assistance (indirect), contracted assembly workers (direct), and legal services. | Clearly defining scope (SOW), contract management, and performance metrics (SLAs). |
Recognizing whether a purchase is direct or indirect, or for goods versus services, helps your accounting team and procurement specialists apply appropriate levels of scrutiny, sourcing strategies, and internal controls.
The advantage of strategic sourcing
Beyond categorizing purchases, adopting a strategic sourcing mindset can noticeably improve profitability and the bottom line. For your Canadian business, it’s a systematic, long-term method for developing supply channels for the best value.
It involves thorough market analysis, spend analysis, rigorous supplier evaluation (using RFQ/RFP), skilled negotiation on total cost of ownership (TCO), and building strong supplier relationships. The impact includes improved cost savings (through procurement) and enhanced supply chain management resilience.
Technology in procurement
For Canadian businesses aiming to optimize their procurement process, embracing technology is essential. The days of paper-based requisitions and manual PO tracking are giving way to sophisticated digital solutions. These tools bring speed, transparency, and budget control to the P2P cycle.
The shift to e-procurement and integrated P2P platforms
The journey begins with e-procurement, using digital-based solutions for procurement activities. However, real power for your Canadian business lies in comprehensive digital spend management platforms or integrated P2P cycle solutions. These platforms, like Tipalti, connect and automate the entire sequence from need identification to supplier payments.
Instead of disparate systems, these integrated platforms create a unified environment.
Key advantages for your Canadian operations
Investing in these technologies offers tangible advantages. You’ll see enhanced speed and efficiency, as repetitive tasks are automated, leading to greater transparency and spend visibility.
Another automation benefit is improved cost savings and budget control, helping enforce policies and reducing maverick spend.
Critically, these systems lead to fewer errors and stronger compliance that simplify adherence to regulations, including handling GST/HST.
AI-Driven insights and advanced automation
Procurement technology continues to evolve, particularly with artificial intelligence in AP and procurement. Imagine AI tools providing predictive insights for spend analysis or flagging supplier risks in real-time, moving beyond historical reporting to predictive guidance.
These digital transformation finance trends point towards a future where procurement is even more data-driven.
Tired of manual purchase orders and slow approvals?
Streamline your entire requisition-to-PO process with smart automation. Gain control and visibility over your company’s spend before it happens.
Optimizing the Procurement Process
Simply following the steps of the procurement process is one thing, but optimizing it for efficiency, cost savings, and strategic value is another.
It involves an ongoing commitment and a blend of strategic thinking, process design, and the application of technology, especially within your accounts payable automation and broader P2P cycle.
Defining a clear procurement strategy
With new tools, regularly revisit your procurement strategy. Are your goals aligned with the company’s financial objectives? Has data revealed opportunities to enhance your approach to cost savings or supply chain resilience? Your strategy should remain a living document.
Deepening spend analysis with better data
Procurement technology provides clean, structured data, elevating spend analysis capabilities. Systematically examining data from AP automation solutions offers deep spend visibility. This enhanced analysis helps pinpoint further cost savings opportunities.
Beyond basic automation
While your AP automation software streamlines tasks, explore its advanced features. Are you fully utilizing the capabilities for three-way matching or managing complex GST scenarios? Are you optimizing global supplier payments with its Foreign Exchange (FX) Management tools?
Look for opportunities to further automate workflows, guided by the goal of using technology to enable smarter accounting processes.
Advanced supplier relationship management (SRM)
Technology improves SRM, but optimization also involves the human element. With AP automation, you can build trust by ensuring on-time supplier payments, allowing you to focus on leveraging the relationship for deeper collaboration.
Use performance data for constructive discussions with key suppliers and explore opportunities for joint cost-reduction or co-innovation. This transforms relationships into strategic partnerships.
Embedding a culture of continuous enhancement
True procurement optimization is an ongoing journey. For your Canadian business, establish mechanisms for regularly reviewing procurement KPIs, such as soliciting feedback from internal stakeholders and suppliers.
You can also use insights from spend analysis and performance metrics to adjust processes.
Regulatory compliance and fair competition
While optimizing your procurement process is vital, it’s equally important for your Canadian business to operate within a framework of strong ethical standards. This means adhering to relevant regulations that protect your company and foster trust.
A well-managed P2P cycle, supported by robust internal controls, plays a key part.
Ensuring ethical sourcing and fair business dealings
Responsible procurement means conducting business with integrity. This involves ensuring fairness in supplier selection and negotiation, while maintaining transparency with potential suppliers to foster better long-term supplier relationships.
Avoiding anti-competitive practices and reinforcing strong ethical guidelines, which are clearly communicated and reflected in your procurement process, are both fundamental.
Guarding against unfair practices and handling disagreements
While your procurement process aims for the best value, be aware of unfair practices that inflate costs and negate any benefit from a competitive bidding process. Bid-rigging is an illegal arrangement where suppliers secretly agree on who wins a contract. Similarly, cartels involve businesses colluding to fix prices.
Should disagreements arise with a supplier, perhaps over contract terms, delivery quality, or an invoice approval, your first port of call in a B2B context is typically direct discussion and negotiation.
Clear contract clauses outlining how disputes will be handled, such as mediation, are very important.
International trade laws and sanctions compliance
For Canadian businesses engaging in global payments and sourcing internationally, compliance extends to various areas. This includes adhering to international trade laws and sanctions that require your supplier onboarding and payment processes to include due diligence.
As environmental, social and governance (ESG) criteria become prominent, demonstrating compliance with environmental or labour standards, like maintaining accounting records and a clear audit, may be necessary.
Measuring Procurement Success
To understand the impact of your procurement process and identify areas for refinement, you need to measure its performance. For your Canadian business, tracking relevant KPIs provides data-driven spend visibility that helps gauge efficiency and control costs.
Key indicators for procurement performance
Common metrics offer valuable information about your P2P cycle. Consider tracking cost savings achieved through strategic sourcing and negotiation. Procurement management ROI can also provide a higher-level view of value delivered.
Operational efficiency metrics are also key. Purchase Order Cycle Time and Invoice Processing Cost / Cycle Time highlight process speed.
For businesses focused on AP Automation, the Early Payment Discount Capture Rate indicates the efficiency of supplier payments.
Gauging supplier performance and relationship health
Procurement success also depends on external supplier performance. Key metrics include On-Time Delivery Rate and Supplier Defect Rate, while Monitoring Spend Under Management helps ensure purchases are made through preferred suppliers.
These supplier performance metrics, when regularly reviewed, allow for objective conversations.
Frequently Asked Questions (FAQs)
How does e-procurement work for a Canadian business?
E-procurement means using digital tools for any stage of the procurement process. Instead of paper requisitions, you might use a centralized accounting system or software. This can involve electronic purchase requisitions, digital POs, and e-invoicing for faster AP automation.
The goal is to streamline accounting tasks and reduce manual effort so you can improve spend visibility and create an efficient flow.
What’s the purpose of a procurement audit?
A procurement audit in your Canadian business systematically reviews your procurement process and policies.
It’s a proactive way to ensure compliance, identify inefficiencies, and potential weaknesses in internal controls. It also involves assessing if supplier contract terms are met.
What are some common issues in the procurement process?
A frequent issue for Canadian SMEs is manual overload, where existing staff can’t handle increasing volumes efficiently. This often leads to a lack of spend visibility and control.
Inefficient supplier onboarding and management can also become a bottleneck. For companies expanding internationally, the complexities of global supplier payments quickly become apparent. Processes that worked for a small startup usually don’t scale.
Ready to Modernize Your Canadian Procurement Process?
An optimized procurement process is undeniably a strategic asset for Canadian businesses of all sizes. It directly influences efficiency, cost savings, and the strength of supplier relationships.
The journey from manual, often cumbersome accounting tasks to a streamlined, technology-driven P2P cycle is not just an improvement; it’s a necessary evolution in today’s competitive environment.
Modern procurement, infused with automation and data-driven insights, is about much more than just buying. It’s about smart spend management and proactive risk mitigation. It involves using technology to gain a distinct advantage.
For Canadian businesses looking to move beyond manual procurement and unlock new levels of efficiency and control, learn more about how Tipalti’s procurement software solution can help you streamline your entire Procure-to-Pay cycle.
