What is Procurement? Types, Processes & Technology

Procurement involves all functions that affect transactions of goods, works, and services with other sources. In other words, such acquisition is essential to the operations of an organisation, whether a startup or a giant corporation, since it largely depends on what successful procurement can do in relation to cost savings, quality, and overall success. Besides that, the role of procurement remains essential as it concerns supply chain management, mostly directed towards fulfilling direct or indirect needs of an organisation.

For a better understanding of Procurement, it is best to enroll in a International Procurement

course offered by the British Academy for Training and Development.  

What is Procurement?

Procurement is the process of locating, acquiring, and managing resources necessary to operate a business. Resources include raw materials, office supplies, equipment, services, or any other kind of goods needed to run the business. The primary objective of procurement is the acquisition of these resources under the best possible conditions and with the minimum risk as regards prices, quality, and delivery terms.

Types of Procurement

The different types of procurement are based on different factors such as the nature of goods, level of complexity, or method used to acquire it. 

Below are the most common types of procurement:

1. Direct Procurement

Direct procurement refers to the direct acquisition of goods or services used to manufacture a good or service. Direct procurement includes all activities performed in direct procuring, such as for example raw materials, components, and manufacturing supplies. This type of procuring is important to manufacturing industries and all those companies that rely heavily on raw materials to produce goods.

2. Indirect Procurement 

It covers the procurement of goods and services essential for everyday operations, but that are not core to the business. Office supplies, IT equipment, software, and maintenance and marketing services, for instance, are examples of indirect procurement. Indirect procurement is often given less attention but is one of the critical functions of an organisation.

3. Strategic Procurement 

Strategic procurement is about planning and developing long-term relationships with suppliers. This kind of procurement ensures reliable, cost-efficient supply chain management. It includes contract negotiation, performance evaluation, and risk management in most cases. Strategic procurement focuses on the total business goals of reducing costs, improving efficiency, and assuring quality.

4. Tactical Procurement 

Tactical procurement involves short-term needs in terms of purchases. It differs from strategic procurement, which is its long-term counterpart in terms of goal-setting. Tactical procurement usually covers day-to-day purchases necessary for running the business. Activities like replenishing inventory or responding to needs based on a special project fall under this category. Although tactical procurement describes need-based actions, it is an important task for mutual functioning.

5. Sustainable Procurement 

In this essence, sustainable procurement refers to the acquisition of goods and services which are economically viable, environmentally friendly and socially responsible. The practitioners of sustainable procurement thus find their organisations achieving less environmental footprint through the ethical source. This procurement is characterised by entities whose supplies have a manufacturing process founded on sustainability.

The Procurement Process

It's a process of steps that organisations create to get the necessary goods or services. The process changes with the size and needs of the organisation, but it generally follows the same basic process:

1. Identifying the Need 

The needs for goods and services come from the various divisions within the organisation and the commencement of the procurement cycle. The emergence of a new project, for example, could result in needing goods or services due to a shortage of materials or equipment breakdown. For example, a clear understanding of specification, quantity, and time frame is usually involved when identifying such a need.

2. Sourcing and Selecting Supplier 

After the identification of need, the next step is to identify probable suppliers. Organisations normally have many avenues of supplier source, including market survey, a Request For Quotation (RFQ), existing vendor lists, etc. Supplier selection involves evaluating potential suppliers based on several criteria, which mainly consist of cost, reliability, quality, and experience. Requests for Proposals (RFPs) may also be sent to suppliers when the goods or services are complex or involved.

3. Negotiating the Terms

One supplier is identified, procurement professionals enter negotiations with the chosen vendors. The main goal of this step is to create favorable conditions for the company, such as prices, delivery schedules, payment terms, warranties, etc. Other aspects to be highlighted in the negotiations may include service levels, quality standards, and penalties for late delivery.

4. Establishing the Contract 

After the successful termination of negotiations, the next step is to put the contract in place. The agreement describes terms and conditions for the negotiations such as price, delivery schedule, standards for the quality of the goods, and all other requirements agreed upon. The contract is to be signed by both parties to make it legally valid.

5. Supplier Relationship Management

The organisation should continue to manage its suppliers post-procurement. This is particularly relevant to the types of procurement and implements an effective partnership with suppliers in supply chain management. This also includes assessing supplier performance, addressing issues as they become apparent, and keeping the channels of communication open to accommodate future procurement needs. By strategic and tactical procurement, the alignment between supplier activities and business long-term goals and short-term requirements can be ensured.

The Role of Technology in Procurement

Technology has brought a profound impact in accordance with the styles of today and tomorrow for businesses regarding the procurement of goods and services. Replacement of the traditional purchase has become more efficient, transparent, and driven by data, by the innovations of increasingly high-quality digital tools. What follows are among the major technologies on procurement:

1. Procurement Software

Procurement  software hereinafter called e-tendering systems is a computer software that automates and streamlines the procurement process of an organisation. Here's everything-from supplier sourcing to invoice processing. It narrows down risks from errors, adds visibility into the procurement process, and enhances decision making.

2. Supplier Relationship Management Tools 

SRM tools are the business applications to manage and analyze supplier relationships. They give the insights to understand supplier performance and allow monitoring of contract compliance, as well as enhancing company-supplier exchanges. Good tools for SRM build a long-term mutually beneficial relationship between the supplier and the company.

Conclusion

In conclusion, procurement refers to the organisation's function wherein money is spent on the goods and services, proper strategic planning, the best processes, and supplier relationship management. Procurement has been revolutionised by technology to become much easier, transparent, and data driven. Using appropriate technology in procurement gives organisations the chance to increase their operational efficiency and achieve the best value for their money spent. 

For those looking to enhance their knowledge in procurement, the British Academy for Training and Development offers comprehensive courses on Procurement to help professionals master the procurement process.