What is Procurement? Definition
The term “procurement” is one that you may have heard before, but what does it actually mean? In short, procurement is the process of obtaining goods or services. However, there is much more to it than that. There are different types of procurement, and the process can vary depending on the organization and the project. In this blog post, we will explore the definition of procurement and dive into the different types and processes involved.
What is procurement?
Procurement is the process of acquiring goods or services. It involves identifying and sourcing suppliers, negotiating contracts, and managing deliveries. Procurement is a critical function in any organization as it ensures that vital supplies are available when needed.
There are different types of procurement, including direct and indirect procurement. Direct procurement is the purchase of goods or services for use in the organization, while indirect procurement is the purchase of goods or services for use by suppliers or contractors.
Procurement can be a complex process, especially in large organizations. In order to streamline procurement, many organizations have established procurement departments or teams. These groups are responsible for managing the procure-to-pay process from beginning to end.
The procure-to-pay process includes the following steps:
1) identify what is needed;
2) find suppliers;
3) request quotes;
4) select supplier;
5) negotiate contract;
6) place order;
7) receive goods/services;
8) pay supplier.
The different types of procurement
1. Public procurement: This is the process of procuring goods and services on behalf of a government entity.
2. Private procurement: This is the process of procuring goods and services on behalf of a private company or individual.
4. International procurement: This is the process of procuring goods and services from suppliers in other countries.
The benefits of procurement
The benefits of procurement are many and varied, but can be broadly divided into four main categories: cost savings, improved quality, increased efficiency, and risk reduction.
1. Cost Savings: One of the most obvious benefits of procurement is that it can lead to significant cost savings. By working with suppliers to secure better prices for goods and services, businesses can reduce their overall expenditure. In addition, effective procurement can help businesses to avoid waste and unnecessary spending.
2. Improved Quality: Procurement can also lead to improved product or service quality. By carefully selecting suppliers and setting stringent quality standards, businesses can ensure that they receive high-quality goods and services. This can save money in the long run as well as improve customer satisfaction levels.
3. Increased Efficiency: Another benefit of procurement is that it can help businesses to increase their efficiency levels. By streamlining the purchasing process and automating certain tasks, businesses can free up time and resources which can be better spent on other areas of the business.
4. Risk Reduction: Finally, procurement can also help businesses to reduce their exposure to risk. By thoroughly vetting suppliers and assessing their financial stability, businesses can minimise the chances of suffering financial losses due to supplier defaults or bankruptcies.
The disadvantages of procurement
There are a few disadvantages to procurement that are important to consider. First, procurement can be time consuming. The process of finding and vetting suppliers can take weeks or even months. Second, there is always the risk that the supplier will not meet your expectations. This can result in delays and cost overruns. Finally, procurement can be complex and confusing. The legal documents and contracts associated with procurement can be difficult to understand.
The procurement process
1. Planning and requirements definition: This step involves understanding the company’s needs and defining the specifications for the required goods or services.
2. Supplier selection: Once the requirements are clear, companies can identify potential suppliers and assess their ability to meet the company’s needs.
3. Contract negotiation: Once a supplier has been selected, the company will negotiate the terms of the contract, including price, delivery schedule, and quality standards.
4. Order placement: The company places an order with the supplier according to the negotiated terms.
5. Delivery and receipt: The supplier delivers the goods or services to the company, and the company verifies that they meet the agreed-upon specifications.
6. Payment: The company pays the supplier according to the terms of the contract.
Procurement is the process of acquiring goods or services from an external source. It involves assessing the needs of the organization, identifying potential suppliers, negotiating contracts, and managing relationships with suppliers. Procurement is a complex process, but it is essential to businesses of all sizes. By definition, procurement is the act of obtaining something from another party.