Procurement

Procurement is the act of finding, acquiring, buying goods, services or works from an external source, often via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works the best possible price, when aspects such as quality, quantity, time, and location are compared. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing risk, such as exposure to fraud and collusion.

Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If good data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

An important distinction should be made between analyses without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of best value should be employed.

F E A T U R E S

Procurement activities are often split into two distinct categories, direct and indirect spend. Direct spend refers to production-related procurement that encompasses all items that are part of finished products, such as raw material, components and parts. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect procurement activities concern “operating resources” that a company purchases to enable its operations. Indirect procurement comprises a wide variety of goods and services, from standardized items like office supplies and machine lubricants to complex and costly products and services;, like heavy equipment, consulting services, and outsourcing services.

Procurement is one component of the broader concept of sourcing and acquisition. Typically procurement is viewed as more tactical in nature (the process of physically buying a product or service) and sourcing and acquisition are viewed as more strategic and encompassing.

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