What is Procurement?
Procurement is the process of acquiring goods or services, usually for business reasons. The goods or services are typically obtained from an external source and on a large scale, often through a competitive tendering or bidding process. The procurement process is intended to make sure that buyers receive the goods or services they purchased at the best possible price regarding quality, quantity, time of delivery, and location.
How does the procurement process work?
If you’re looking to start a business, the first step would be to open an online store. Next, you should consider the procurement process as it is usually a central part of a company's operational strategy. This is because the ability to purchase certain goods or services can impact and determine the level of profitability of business operations. Each company has a procurement budget for soliciting and acquiring needed goods or services. Almost all purchasing decisions involved in procurement include factors such as delivery, handling, price changes, the buyer’s marginal benefit, and price changes.
The procurement process can entail any or all of the following steps: purchase planning, preparation, setting standards, determining product or service specifications, supplier research and selection, financing, price negotiation, processing of the request for the specific good or service as well as the end receipt, approval of payment, and continued inventory control.
In general, the entire procurement process is intended to promote open and fair competition among businesses while minimizing the risk of exposure to fraud or collusion.
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Types of procurement
Procurement is often divided into two distinct categories:
Direct procurement is the acquisition of goods, raw materials, and/or services that are needed to manufacture finished products. The firms that purchase these goods are often involved in manufacturing and directly apply them to their own production of materials, goods or services. Some examples of direct procurement include:
components and parts
products for resale
Indirect procurement is the acquisition of materials, goods, or services that are needed for a company’s internal operations, like administrative functions, and non-production-related use. Some examples of indirect procurement include:
office supplies and technology (phones, computers, hardware and software, etc.)
facility management (food, toiletries, etc.)
utilities (gas, water, etc.)
staff management (HR, recruitment, training, etc.)
external professional services (consultants, speakers, advisers)