What is Procurement
Procurement is process of acquiring goods and services. This is not simple buying. It is a complete process where emphasis is made on acquiring goods and services after systematic planning. Quality check and meeting specifications as per company’s standards are carried out as a part of procurement process.
Procurement includes taking cost- effective decisions too to meet the company requirements of material required for production. A lot of research and negotiation is required with available vendors to arrive at the best possible deal. Detailed homework is carried out by purchasing officer. This homework includes specifications development, value analysis, standards setting and research about suppliers before formally meeting the suppliers.
Procurement also involves checking levels of storage capacity. This is known as inventory control. Procuring should not be overdone or underdone. Over procuring may lead to the congestion in storehouses and under procuring may cause material deficit. Both the conditions are very unfavorable for the cost aspects of the production.
There are various types of procurement. Main objective of procurement is meeting long term business objectives. Strategic procurement involves long term planning of procuring goods and services that may be critical and less critical as well for smooth production process. This is achieved by chalking out a detailed plan about material, frequency of buying and logistics survey.
Single source procurement is choosing a single supplier for meeting demands of the production department of the company. This relationship arises due to uniqueness of the material available with that supplier. Also, previous knowledge about the supplier and its market reputation also help in going for single source procurement. Supplier may or may not have monopolistic approach. Specialized products require single source procurement policy.
Direct procurement is confined to manufacturing units only. Raw materials and parts of finished products are acquired in direct procurement. This directly affects the production process. Indirect procurement is related to operational issues that are required to ensure smooth functioning of production unit. This procurement may include office supplies or machine parts, lubricants etc. Indirect procurement may be single source procurement sometimes.
Strategic procurement is procurement of capital goods and services. These are required in low quantity, less often and are of great value. Procurement can be done by inviting bids also from the prospective vendors. Signing of contracts ensures safety of investment made and long term relationship is also guaranteed.
With the entire world going online, e-procurement has also come into existence. This is electronic procurement which involves services like supplier management and auction with the use of software. It can be a business- to- business arrangement taking place through online communication. Web-based ERPs, e-tendering, e- informing and e- marketsites are a few of the activities that surround e-procurement. Projects can be awarded by considering online requests for quote.