What Is Procurement?

Procurement is the process of buying or otherwise obtaining goods or services, typically for𒐪 business or government purposes and usually on a relatively large scale. Often confused with purchasing, p🌳rocurement represents a more strategic and less purely transactional process.

How Procurement Works

In business, the procurement process can be a vital part of a company's strategy because the ability to obtain sufficient quantities of materials or services at an acceptable price can determine if operations will be profitable. Similarly, government agencies must pay close attention to procurement in order to remain within budget. Procurement budgets t♏ypically allot a specific amount that managers can spend to procure the goods or services they need.

Broadly viewed, the procurement process entails every step from the preparation and processing of a request for certain items to the receipt of the good or service and approval of payment. On a more detailed level, this can involve establishing standards and specifications for goods and services, forecasting the organization's needs, researching and selecting suppliers, arranging for 澳洲幸运5官方开奖结果体彩网:financing, negotiating prices and contracts, finalizing the transaction, making payments, and 澳洲幸运5官方开奖结果体彩网:managing inventory. ไAs such, companies often require support from several different int🐎ernal departments, and coordination among them, for successful procurement.

Depending on their expertise, tho🉐se departments꧙ might divide up such tasks as:

• Choosing the goods and services required based on the organization's strategic needs
• Soliciting quotes from suitable suppliers
• Working out a price and contract terms
• Receiving the shipment and submitting payment for it

Procurement is considered an integral part of 澳洲幸运5官方开奖结果体彩网:supply chain management.

Competitive Bidding and Procurement

Different businesses and government agencies will have their own processes for choosing suppliers. This often involves multiple potential suppliers and some form of 澳洲幸运5官方开奖结果体彩网:competitive bidding.

Competitive bidding for goods generally requires that suppliers submit proposals that detail the per-unit price of the item, along with shipping and delivery terms. In the case of services, proposals can involve the numbers of individuals who would work on a project, the type of technical support that is required, and other matters. To initiate this process, businesses and especially government agencies will often issue a formal 澳洲幸运5官方开奖结果体彩网:request for proposals (RFP), spelling out their needs.

Ultimately, the organization that solicited the bids will choose one or more suppliers, based on cost and other factors. The lowest bidder won't necessarily get the business.

Types of Procurement

Pro꧂curement can be divided into four basic types, with some overlap between them. These include:

• Direct procurement: This kind of procurement involves any goods or services that are directly involved in the production process. For a manufacturer, for example, that can include raw materials and component parts made by others.
• Indirect procurement: The obtaining of goods and services that are required to meet the operational needs of a business but that are not directly involved in the production process is referred to as indirect procurement. Examples can include office equipment and supplies, furnishings, and services such as marketing or advertising.
• Goods procurement: Any physical goods that businesses acquire through the procurement process fall into this category. They can involve either direct procurement (as in raw materials) or indirect procurement (as in office supplies).
• Services procurement: Like goods procurement, services procurement can be either direct or indirect. Direct services procurement may refer to labor directly involved in the production process, while indirect services procurement can include things like on-site security to guard the premises.
  

Procurement vs. Purchasing

Procurement and purchasing both result in the acquisition of goods and services, so it's easy to confuse the two. But there are some key distinctions between them.

Purchasing is largely a transactional process involving the buying of certain goods and services, usually to satisfy an immediate need. Purchasing tends to be heavily focused on obtaining the best price rather than on other factors. It can be thought of as part of the procurement process, rather than being synonymous with it.

Procurement is more of a strategic p🏅rocess, often involving a series of steps (as outlined above), only one of which might involve the actual purchase. Procurement tends to focus more on long-term value to the bu♊siness than on price and also to foster more enduring supplier relationships than simply one-off transactions.

The table below highlights those key differences:

Accounting for Procurement

Procurement costs are generally integrated into the 澳洲幸运5官方开奖结果体彩网:financial accounting of a company, since procurement involves acquiring good𝕴s and/or services for the revenue goals of the business🦄.

Depending on their size and needs, some companies may also employ a dedicated procurement manager or procurement specialist to lead these efforts. Increasingly, larger companies are adding executive-level chief procurement officers (CPOs for short) to assume responsibility and give procurement a greater voice in their strategic planning. The CPO typically:

• Oversees procurement standards
• Works with 澳洲幸运5官方开奖结果体彩网:accounts payable to ensure efficient payment
• Serves on procurement teams making procurement decisions when there are multiple competitive bids

The Bottom Line

Procurement is a strategic process that involves the acquisition of goods a𝔍nd services. Properly executed, procurement performs a critical function that can make the difference between a profit and a loss or staying within a budget or exceeding it.