Why procurement management

Negotiate the best price and terms for the product through competitive bidding from suppliers with their quotes and then direct negotiations to clearly communicate requirements and set expectations. With all terms agreed upon, finalize and sign the supplier contract. Expediting the product order is sometimes necessary i. Examining the timeliness of deliveries during this step can reveal underlying issues to address, such as lack of clarity on payment dates, delivery times and completion of work.

If what was delivered does not meet the standards specified, completing a receiving discrepancy report may be part of this step. Retain all proper records in the case of an audit, for tax information, to confirm product warranty and for ease of product re-ordering. In overseeing this process, procurement managers locate the best quality materials at the lowest possible cost from the most reliable suppliers and cultivate positive, long-term relationships to establish preferred suppliers.

In directing procurement processes, procurement managers coordinate the activities of purchasing agents or buyers and ensure that different departments i. For those procurement professionals holding a degree outside of a supply chain major, additional or advanced education, such as specialized certificate programs , can complement their professional experience while helping to hone skills specific to sourcing and procurement.

Information provided is not intended to represent a complete list of hiring companies or job titles, and degree program options do not guarantee career or salary outcomes. Students should conduct independent research on specific employment information. In establishing smart procurement processes, companies can avoid costly downtime while boosting their bottom lines. As technology continues to advance, digital procurement management techniques are becoming increasingly popular, cutting down on delays and errors while helping skilled buyers do their jobs more efficiently.

Low-cost computing and data storage systems are reshaping the way companies handle purchasing and procurement, allowing for more advanced cloud and mobile capabilities, while the Internet of Things IoT is rapidly changing the way all company operations are conducted. Guides Helen Carey Share:. Procurement What is Smart Procurement? It is unusual for a development project to be handed over without any defects at all. If you have not outlined who should respond to such issues and what action should be taken from the offset, you will find yourself in a difficult predicament.

You also need to plan for phased completion and arrange an insurance strategy from the offset. Insurance policies for development projects can include the likes of insurance for latent defects, ensuring you are fully covered. Finally, you need to make sure you take third party needs into consideration, you must also select an appropriate procurement strategy and project team, and you definitely need to factor in the wider constraints of your project.

Team AlexGPR. Why Is Procurement Planning Important? The procurement team endeavors to create and sustain a good relationship with the direct procurement vendors. The day-to-day operations of an organization also require goods and services that are procured for internal use and this process is called indirect procurement.

They are usually obtained through short term contracts with suppliers. Services procurement in IT could be for software licenses.

This type of procurement i s called services procurement and is usually a one-time short term contract. So what is the procurement process? The procurement process refers to the identification and implementation of certain steps by businesses to ensure they can acquire goods and services to meet their requirements and achieve their objectives.

A procurement process is important because it has a direct impact on how much a business can save. When businesses assess the procurement process regularly, then it ensures their goals are being met. Changes can be made to the process when it is not working as planned or when problems crop up for the business.

Each business has its own set of needs and so it will have a different procurement process compared to another business which has different requirements. Every organization has a unique procurement process flow. In a purchase where there is already an approved supplier for the requirement, the purchase order will be sent for approval by the designated procurement or finance team.

If it is rejected, it will be sent back with the reason for it being rejected. On approval, the purchase order becomes a purchase requisition. For a purchase that does not have a pre-approved supplier or vendor, the procurement team sends out multiple RFQs Request for Quotations detailing the requirements as specified in the purchase order.

The quotations that are received are analyzed, and a suitable vendor is selected. The procurement team then negotiates a satisfactory contract with the chosen vendor and sends a purchase order. This step is to verify if indeed, the organization had placed the said order with the specified vendor and if the vendor has supplied and invoiced the order as per the purchase order.

This is then compared with the receipt of the goods to see if the order was received as requested and as invoiced. The payment is accounted for by the financial department. The first step in buying something is recognizing that there is a need for it. This could be identifying the need to buy a new item or reordering something when it is required or falls below a certain threshold of stock. This might involve a requisition process in most businesses. It is important that all the stakeholders be consulted at this stage to prevent issues later on in the procurement process.

When it has been identified that there is a need, the exact specifics of the product or service that is required is to be decided upon. This would include technical specifications or part numbers. If the item is not one that has been previously procured this list of specifics is generated with concurrence from all the technical people involved.

Detailed specifics with proper consultation with all the departments involved will prevent expensive mistakes from happening further down the procurement process. Once it is determined that a specific item or service is to be bought, the procurement team has to then do the research required to determine the various sources that supply it.

For repeat orders, there will usually be a pre-existing vendor list. For a new item, the process of identifying and then vetting vendors is longer. It is faster to work with a pre-existing vendor who has already been determined to be a good supplier. New suppliers will need to be thoroughly investigated to determine their reputation, speed, quality, reliability, and prices. Next, the procurement department needs to investigate vendors, request quotes for the item needed, and then select a vendor.

This is an important part of the process because reputation, cost, speed of service, and dependability all need to be investigated before making a final decision. Approval from the relevant levels of management will have to be obtained based on the sourcing options and costs involved.

If there is a bidding or tendering process involved for the order, the request for proposal, bids or tenders will have to be published. For direct purchases, requests for quotes will be sent to the shortlisted vendors. The usual practice is to get a minimum of at least three quotes before making a selection.

The quote will be examined for price and speed competitiveness. The company to procure from will be selected not only on price but also based on their promptness, reliability, and quality. If there is a bidding or tendering process for the procurement, the selection of the qualifying bids will be as per the terms and conditions set. The selected supplier will be chosen and announced as per the set process preferably in a highly transparent manner.

Selecting from the various bidders is a process that should be fair and transparent to ensure that the buyer gets the best value and quality of supply. When the selection process is compromised, it might also compromise the value of the goods or services supplied. At this point, the buyer has to decide between the merits of having a single high-volume supplier or choosing multiple suppliers. When choosing to have a single supplier, the higher volume of orders gives better bargaining power when negotiating rates.

However, if a single supplier is unable to fulfill an order it will affect the entire manufacturing process. Having more than one supplier for an item reduces the risks while giving one less room to negotiate rates. Sometimes, multiple suppliers help to build competition with regard to rates and quality.

A purchase requisition generated within the company will be approved by the appropriate authority. This will then lead to the generation of a purchase order with all the specifics of the order as well as the terms and conditions.

Some companies involve the buyer in the process of generating the specifics of the order so that both the buyer and seller understand the specifics of the order. The specifications have to be carefully compared with the purchase requisition as well as the supplier quote to prevent any mistakes from being made. The shipment notice is sent to the buyer wherever applicable.

The delivery of the purchase order depends on the practices of the buyer and the seller. It can be in person or by fax or email. This is also as per the specifications agreed upon by both the buyer and the seller. This involves creating the timeline for the prompt delivery of the requested goods or services after factoring any unforeseen delays.

It may also include information on the payment as well as delivery schedules. When the product or service is ready, it is supplied to the buyer. It is the responsibility of the buyer to thoroughly inspect the supplied items and if they match the agreed upon purchase order. The buyer can either approve or reject it. Both of the options will trigger actions as per the agreed-upon terms and conditions. If the buyer takes delivery of the items it is implied that they are accepted and the payment process starts.

For the payment to be made, the documents relating to the order are studied. All the specifics of the original purchase order, receipt of items and the payment request invoice are compared.

If there are any mismatches they are resolved before payment. Once payment is approved the payment is made as per the agreed-upon modes of payment. Both the companies, the buyer and seller maintain their records for their auditing and taxation processes. The entire process should be under continual review in order to improve as well as settle any disputes that might have arisen.

Reevaluation makes the procurement process more efficient and prevents the recurrence of disputes. The steps of procurement detailed above vary from business to business but the logical flow remains the same. Efficient procurement practices keep the flow of purchased goods and services prompt and delay-free. It is also the responsibility of the people involved in the process to continually keep up with negotiations at the relevant steps to ensure that the goods and services that are procured are of the exact requirement, highest standards and most competitive price.

Excellent record-keeping not only helps in the auditing of the records but also in the case of reordering the same items. The ethical selection of vendors ensures the fair supply of high-quality items.

The number of people involved in the procurement process depends on the sale of the manufacture and procurement orders. For a small company, procurement personnel are few in number. For larger companies, each stage of the procurement process has an entire team managing it. Also, when the items that are being ordered are small value, the number of approval is smaller. But for high value or very important procurements, the level of approval for the purchase requisition goes higher in the management order.

The procurement process should be well designed and organized in order for it to function efficiently. When there is a disorganized procurement department, it leads to inefficiencies and inconsistencies in the entire process that can cause delays and problems with the purchases as well as the payments for the same. Transparency in the process ensures that there is no corruption or manipulation at any stage. Record keeping at every step of the process of procurement is very important. Though almost all the steps of the process are digitized, the efficient recording of all information at each stage and the coordination and comparison of all the relevant records at each stage is important for both the buyer as well as the seller.

Most organizations use the terms procurement, purchase, and supply chain interchangeably. However, the supply chain is the largest process of the three. Procurement is a step in the entire supply chain. Purchasing is, in turn, a step in the larger process of procurement. Procurement is the entire process of identifying a need within the organization, obtaining the requirements and maintaining a good relationship with the vendors. When a need is confirmed, procurement research identifies likely suppliers.

Purchasing, on the other hand, is a sub-function in the process of procurement. While procurement and purchasing overlap in certain instances, they are often thought to be the same by many people. This is not the case because their goals, what they define, their processes, and what they focus on is entirely different from one another. Let us take a look at the key differences between procurement and purchasing. On one hand, procurement is defined as the set of processes such as selection, identification, and acquiring of goods and services from vendors through a range of different processes.

These processes for acquiring include the tendering process and direct purchase. The procurement process involves ensuring that the goods and services are received on or before time and that the correct amount of goods and services has been delivered to the business as specified in the PO.

Procurement is a larger term that encompasses purchasing. That is, purchasing is a part of procurement. The steps involved in both of these processes differ from each other. Procurement involves first identifying the business requirement, then authorizing purchase request, approving the request, and then identifying vendors.

Then making inquiries and finding out about the quotations specified by the supplier and negotiating. Procurement also involves selecting the supplier carefully and then receiving goods to ensure they are of the quality expected and storing invoices for future reference after three-way matching.

Purchasing is much simpler as it involves less number of steps. The steps include PO acknowledgment, receiving goods and inspecting them, invoice storing, ensuring the invoice is legitimate and paying the supplier. Procurement is considered a strategic function whereas purchasing is called a tactical function. This is because procurement starts from the moment a need is identified by the business and ends when the supplier has been paid for the delivery of goods.

It involves steps such as taking the time and evaluating the various suppliers before ordering from that supplier. Moreover, it involves ensuring the maximum value comes from the contracts that have been created.

Purchasing, on the other hand, consists of only the transactional aspect because it only focuses on the purchase of the goods and services required by the business. It does not involve complexities like procurement which is thorough in its function. The procurement function is required to fulfill the needs of a business. It involves first spotting that there is a need and then ensuring that those needs are fulfilled in the best way possible. It takes into account the entire picture from start to finish so those needs are fulfilled.

Hence, procurement can be defined as a function that takes the proactive approach because it ensures that problems are avoided from the start. Purchasing is quite different in this regard because it takes a reactive approach. When there is a need then it satisfies those requirements of the business. It can be said that purchasing is about activities and tasks that are accomplished to commit expenditure for a business. Procurement focuses on evaluating risks before they become bigger and cause problems to the supply chain and the rest of the business functions.

This risk mitigation ensures that potential problems are resolved before they get worse. For example, when choosing vendors in procurement, the risks associated with the various vendors, and proper evaluation is done.

Moreover, procurement involves assessing various risks such as data security risks and operational risks. Purchasing does not focus on risks or elimination of risks like procurement and so it differs from it in this area too. Purchasing takes a transactional approach and so it does not focus on risk evaluation and mitigation. The goals of each function are different and what they accomplish is different as a result. The goal of procurement is to ensure that value is created in the process and the total cost of ownership is thought about.

On the other hand, purchasing is more basic in nature because it focuses on the cost of the order and how to get the best price. It can be said that procurement is ongoing because the people associated with it focus on ensuring the proper supplier relationships are maintained and other processes are continually assessed. However, the purchase is not ongoing like procurement because once the goods and services are acquired, that is the end of procurement. In short, procurement is about the long-term while purchasing focuses on the short-term.

Maintaining proper supplier relationships is vital for any business because it can ensure long term savings and benefits for the business. Procurement places emphasis on ensuring care is taken to find the best suppliers who can meet those requirements and when a relationship is built, procurement emphasizes ensuring it is maintained. The purchasing function deals with the supplier base that already exists in a business. Hence, procurement delves deeper into ensuring they are dealing with the right suppliers who provide excellent services and deliver goods on time.

Procurement is the entire end-to-end process of identifying a need, identifying the best supplier, placing an order, receiving it, paying for it and then documenting it. Since it needs to identify the need for an item, it also includes a part of inventory and storage. It involves the negotiation and planning that are required to make sure that the buyer gets the best deal. Ideally, procurement should also include relationship management with the vendors to ensure that they continue to maintain quality supply at preferential rates and terms.

It includes a lot of follow up to confirm and ensure that each stage of the procurement process is as per the schedule and the requirement specification. Once the material is dispatched and received, the buyer checks if it satisfies the requirement before approving it and then releasing payment.

The record-keeping process of the entire purchase right from the requisition request and through to the release of payment is a part of procurement. Procurement is also the first stage in the entire supply chain as it is usually the procured items that are used by the business to manufacture the items that they, in turn, sell to others. It is a vital process in every manufacturing company as a shortage or delay in procurement can bring the entire operations of the company to a grinding halt.

If the items procured by the company are not of the correct specification or of poor quality it will in turn, have a detrimental effect on the quality of their own manufacturing process. So, the quality and time-bound manufacture of any good in a company are very sensitive to any irregularities in the procurement process. Sourcing, on the other hand, is just one step in the overall process of procurement.

Sourcing is the process by which the buyer company does its research through experts and market reports to determine probable sources of what they require to buy. If the items that are being procured are repeat orders, it is simple enough to place an order with a vetted supplier. But it always pays for the buyer to stay informed as to any new entrants into the market. Awareness gives the buyer opportunities to take advantage of any changes in the market dynamics.

A business should not become over-reliant on a single supplier in case unforeseen circumstances cause the procurement to be disrupted. It is always advisable to have more than one supplier to ensure that there is always a pre-approved supplier in place.

The monopoly of one supplier also makes it harder to negotiate for competitive rates. When the item that is required by the buyer is new, the sourcing process is much longer. At the outset, it has to be determined if there are suppliers for the item that is requested.

If there are no existing suppliers for the exact item, businesses that take custom orders have to be identified. Once the probable sources for the item have been identified they have to be thoroughly investigated and vetted. Once a few businesses have been identified and shortlisted, they have to be contacted with specifics of the requirement. The next most important step in sourcing is the negotiation of the rate at which the item is to be supplied without compromising on the quality.

If one buys the cheapest items available with no regard for the quality, it will cause the product from which the raw material is manufactured from to be of poor quality. However, if the cost of procurement is too high, it will eat into the profit margin of the buyer who will be manufacturing goods from the procured items. If the procurement is at a price that is too high, it will make the final goods manufactured cost more, thereby impacting their price competitiveness.

So, sourcing has to maintain the fine balance between keeping the procured items at the best possible quality while also being at the lowest possible cost. Every small saving that is made when buying raw material has a positive impact on the profit margins of the company.

The high standard of every manufacturing company is also dependent on the quality of the raw materials that are used. Reliability is another important factor in choosing a source of raw material. Delays by the supplier can delay or even stop the entire manufacturing process. Sometimes, suppliers are chosen even if they cost a little more on account of their reliability and promptness in supply.

Mitigating the risk is worth the extra cost when the item that is being sourced is vital to the manufacturing process. Procurement is the process that starts from the identification of the need to purchase the item right up to the actual purchase, delivery, and payment for the same. It does not extend beyond obtaining and paying for the items received.

The supply chain starts with procurement as the first process.