Procurement Overview

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Table of Contents

• What is procurement?
• What are the 3 main types of procurement?
• Why is procurement important?
• What are the steps involved in procurement?
• What is the difference between procurement and purchasing?

What is procurement?

Procurement is the process of acquiring goods and services from external sources. It involves the whole process of finding, acquiring, and managing the resources needed to complete a project or fulfill an organization's needs. Procurement is a critical function in any organization as it directly affects the organization's bottom line by managing costs, quality, and delivery times.

What are the 3 main types of procurement?

The three main types of procurement are:

1. Direct Procurement: This type of procurement involves acquiring goods and services that are directly related to the production of goods or services that an organization offers. For example, raw materials, machinery, and equipment
2. Indirect Procurement: This type of procurement involves acquiring goods and services that are not directly related to the production of goods or services but are required to run an organization. For example, office supplies, IT services, and maintenance services.
3. Services Procurement: This type of procurement involves acquiring services from external sources, such as consulting services, legal services, and transportation services.

Why is procurement important?

Effective procurement is critical to the success of any organization. Here are some reasons why procurement is important:

• Cost Management: Procurement helps organizations manage their costs by finding the best deals and negotiating prices with suppliers.
• Quality Control: Procurement ensures that the goods and services acquired meet the organization's quality standards.
• Supplier Management: Procurement helps organizations manage their relationships with suppliers to ensure that they are meeting their needs and delivering on time.
• Risk Management: Procurement helps organizations manage risks associated with acquiring goods and services from external sources, such as supplier bankruptcy, material shortages, or quality issues.

What are the steps involved in procurement?

The procurement process involves the following steps:

1. Identifying the need for goods or services
2. Developing a procurement plan
3. Identifying potential suppliers
4. Evaluating suppliers and selecting the best one
5. Negotiating contracts and terms of service
6. Managing the relationship with the supplier
7. Monitoring supplier performance and resolving any issues that arise
8. Reviewing and improving the procurement process

What is the difference between procurement and purchasing?

Procurement and purchasing are often used interchangeably, but there is a difference between the two. Purchasing is a subset of procurement and refers specifically to the process of acquiring goods or services from a supplier. Procurement, on the other hand, is a broader term that includes all the activities involved in acquiring goods and services, from identifying the need to managing the supplier relationship.

Conclusion

Procurement is a critical function in any organization as it directly affects the organization's bottom line by managing costs, quality, and delivery times. The three main types of procurement are direct, indirect, and services procurement. Effective procurement helps organizations manage costs, quality, supplier relationships, and risks associated with acquiring goods and services from external sources. The procurement process involves identifying the need for goods or services, developing a procurement plan, identifying potential suppliers, evaluating suppliers and selecting the best one, negotiating contracts and terms of service, managing the relationship with the supplier, monitoring supplier performance, and reviewing and improving the procurement process. While purchasing is a subset of procurement, procurement is a broader term that includes all the activities involved in acquiring goods and services.