Essentially as long as there have been businesses, business leaders have needed to procure the products they intend to sell, the equipment for creating those products, the services to keep their businesses operating and more. Today, procurement remains as vital to business success as ever.
Yet, as crucial as effective procurement is, managing procurement to ensure value for a company can be difficult. Many big-idea leaders struggle to grasp the intricacies of the procurement process. Here are a few of the most basic questions about procurement, answered.
What Is Procurement?
Procuring is the act of acquiring something. In a business context, procurement consists of any range of activities involved in obtaining goods or services that add value to an organization. Often, procurement teams work to source goods or services that fit company goals. For example, most procurement teams are focused on delivering goods and services at competitive prices, but procurement might also involve finding sustainable solutions or local options. When managed well, procurement increases a business’s profitability by reducing costs and fulfilling customer needs and wants.
What Is the Procurement Process?
There are eight steps commonly associated with procurement, which include:
- Identifying any needed goods and services.
- Submitting purchase requests.
- Researching and selecting vendors.
- Negotiating terms and pricing.
- Receiving, inspecting and verifying goods.
- Approving invoices and arranging payments.
- Recordkeeping.
Different companies tend to create more specific definitions of procurement for their own operations as a way of helping outline their unique processes and give their procurement teams more guidance regarding their responsibilities. One business might include every step of acquiring a good or service — from identifying business needs to updating payment terms and everything in between — while another business might restrict the procurement process to just a handful of tasks and assign other steps in the process to different departments. Business leaders need to decide what the procurement process will look like for their unique organization.
Is There a Difference Among Procurement, Purchasing, Sourcing and Supply Chain?
The procurement process is long and varied, so many companies use different terms to describe different phases of the process. Sometimes, organizations talk about “purchasing” and “sourcing” to be more accurate in describing the procurement phase they are referencing; other times, business leaders might use these terms when they lack dedicated procurement teams and instead divvy up the responsibilities of procurement to different departments.
Purchasing is the portion of the procurement process in which a business is actively buying a good or service. Usually, any activity related to the transaction of procurement — receiving goods, paying invoices — falls under the umbrella of purchasing.
Sourcing is the phase of the process in which the procurement team finds, assesses and chooses suppliers. This might involve developing strong relationships with vendors, negotiating and creating vendor contracts. For leaders wondering what is strategic sourcing in procurement, this generally refers to identifying suppliers based on maximized value, not just lowest price.
Finally, it is important to recognize the distinction between procurement and supply chain management. Though both are ostensibly associated with furnishing a business with the goods and services it needs to thrive, procurement is focused on acquiring supplies while supply chain management is about transforming those supplies into tools to deliver to end-users. Procurement is about input, and supply chain management is about output.
Are There Different Types of Procurement?
A company might employ different procurement processes in pursuit of different necessities. Classifying different types of procurement can help business leaders identify which processes need to be performed to ensure business success. The most common types of procurement include:
- Direct procurement, or procuring something for the production of an end-product
- Indirect procurement, or procuring something solely to contribute to business operations
- Goods procurement, or procuring items, such as supplies, raw materials or software
- Services procurement, or procuring people-based work, such as consulting or contractors
How Can You Make Procurement Easier?
If you are keen to make sure that the process of procurement is as easy as possible, then there are a few main ways you should be able to do that. For instance, you might find that having access to a purchasing marketplace is one really good way to make this happen, as it is going to mean that you are much more likely to actually find the products you need at the prices that you want to pay for them. So it is definitely worth looking into making use of one of those platforms. They are one of the most useful tools around when it comes to procurement, and will really make the whole process so much simpler and easier.
What Are the Benefits of a Procurement Team?
Some organizations rely on outside procurement teams to manage these processes. While some business leaders might be hesitant to outsource such a vital component of business strategy, procurement teams have their benefits. Though procurement specialists might not have intimate knowledge of a business’s industry, they have more knowledge and experience with procurement than any current in-house staff. Thus, businesses that use procurement services can gain significant value in the form of lower prices, easier supplier relationships, better goods and services and more.
