What Are The Three Types Of Procurement?

Procurement is an important process in the business world, and it’s one that can be easily misunderstood. It involves the purchasing of goods and services, but there are three distinct types of procurement that can be used – direct, indirect and strategic. Each type of procurement has its own particular advantages and disadvantages, so it’s important to understand them. In this blog post, we’ll explore the three types of procurement in detail so that you can make an informed decision about each type.

What is procurement?

Procurement is the process of acquiring goods or services. It includes all activities from the identification of needs to the acquisition and management of both contracts and suppliers.

There are three types: direct, indirect, and strategic. Direct procurement is when a company buys goods or services directly from a supplier. Indirect procurement is when a company buys goods or services from an intermediary, such as a wholesaler or distributor. Strategic procurement is when a company carefully plans its purchases in-line with other company-wide strategies to get the best value for its money.

The three types of procurement

There are three types of procurement: direct, indirect, and services. Direct procurement is the process of acquiring goods or services from a supplier through a purchase order or contract. Indirect procurement is the process of acquiring goods or services from a supplier through a middleman such as an agent or distributor. Services procurement is the process of acquiring services from a service provider.

What is indirect procurement?

Indirect procurement is the process of procuring goods and services that are not directly related to the organization’s core business. Indirect includes items such as office supplies, janitorial services, and IT equipment.
It is typically managed by a separate team from the direct procurement team, and it involves a different set of processes and criteria for selecting suppliers. The goal of indirect procurement is to reduce costs and increase efficiency without compromising quality.

What is direct procurement

Direct procurement, also known as first-tier procurement, is the process of buying goods and services from suppliers who are part of your company’s supply chain. In other words, direct procurement is when you buy products or services directly from the manufacturer or supplier, usually without going through a middleman.

There are many advantages to direct procurement, such as getting better prices and having more control over quality. In addition, direct procurement can help build relationships with suppliers, which can lead to better terms and conditions in the future.

However, there are also some disadvantages to direct, such as longer lead times and less flexibility. In addition, it can be more difficult to find suppliers for specific products or services, and you may have to pay higher prices for shipping and customs fees.

What is strategic procurement?

Strategic Procurement is the process of acquiring services from an external source. The main difference between services and goods is that with services, you are procuring a specific outcome or result, rather than a physical product.

When procuring services, it is important to first identify what exactly it is you need from the service provider. Once you have a clear understanding of your needs, you can then begin to develop criteria for assessing potential service providers. When evaluating proposals from service providers, it is important to consider not only cost, but also quality and experience.

Once you have selected a service provider, it is important to establish clear lines of communication and expectations for deliverables. A contract should be put in place that outlines the scope of work, timelines, and payment terms.

Managing the relationship with your service provider is key to ensuring a successful outcome. Regular check-ins should be scheduled to assess progress and address any issues that may arise. At the end of the project, it is important to take some time to debrief and reflect on lessons learned.

What are the benefits of each type of procurement?

Direct procurement is the process of purchasing goods or services directly from the supplier. This type of procurement is often used for high-value items or when there is a specific item that you need. Direct procurement can save your organization time and money by eliminating the need for middlemen.

Indirect procurement is the process of purchasing goods or services from an intermediary. Indirect procurement is often used for lower-value items or when you need a wide variety of items. Indirect procurement can save your organization time and money by simplifying the purchase process.

Services procurement is the process of contracting with a service provider to perform a specific task or provide a service. Services procurement is often used for complex projects or when you need specialized expertise. Services procurement can save your organization time and money by ensuring that you get the right skills and experience for your project.

Which type of procurement is best for your business?

Direct procurement is when you buy goods or services directly from the supplier. This is the simplest and most common type of procurement. The main advantage of direct procurement is that it’s quick and easy. You don’t need to go through a middleman, so you can get the goods or services you need quickly and at a lower cost. The downside of direct procurement is that you may not get the best possible price, because you’re not shopping around.

Indirect procurement is when you buy goods or services through a middleman. The middleman could be a wholesaler, distributor, agent, or any other type of third party. The advantage of indirect is that you can get better prices by shopping around. The downside is that it takes longer to get the goods or services you need, because you have to go through the middleman.

Reverse procurement is when the supplier pays you to use their products or services. This type of procurement is often used in marketing campaigns, where businesses will offer free products or services in exchange for exposure. The advantage of reverse procurement is that you can get free or reduced-cost goods or services. The downside is that there’s no guarantee the supplier will actually follow through on their promise to pay you.

Conclusion

Procurement is an essential element of any business, and understanding the different types of procurement can make it easier to select the right approach for your organization. The three main types of procurement are direct goods or services, indirect goods or services, and professional services. Each type provides its own benefits depending on the needs of your company so be sure to consider each one carefully when making a decision about which is best for you.