We all know what procurement is but have you ever thought of its importance? The importance of procurement revolves around the supply chain. Procurement is one of the keys to understanding the supply chain. It entails finding the best supplier in the market that will match their requirements in terms of quality and price.
Furthermore, without procurement, it will be hard for companies to acquire goods and services that will provide a competitive advantage. This will also decrease the productivity rate and incur more losses. This is due to the fact that goods and services that are acquired by the company do not meet the requirements.
Types of Procurement
There are various types of procurement and if you’re curious to know what they are, we’ve compiled this list specially for you!
1. Direct Procurement
This type of procurement refers to anything that is required to produce an end product. To simplify, it is the direct purchases of raw materials that contribute to the company’s end product.
From the retailer’s perspective, it is any item or materials that are purchased from a wholesaler to resell to customers or end consumers.
The following are the examples of a direct procurement:
Raw materials
Components and parts
Machinery
Items purchased to resell
2. Indirect Procurement
Indirect procurement involves the materials significant to aid the day-to-day operation without a direct contribution to the company’s product. In simple terms, it is the materials that support the operation of an organization.
Additionally, the task officers are the ones who handle it in small companies. On the other hand, large corporations utilize facilities management to handle indirect procurement. Below are some examples of indirect procurement:
Marketing supplies
Equipment maintenance
Office suppliers
Marketing services
Consulting services
3. Goods Procurement
Goods procurement clearly talks about the good itself or the physical items. Although it refers to physical items, it also includes software subscriptions. The success of goods procurement relies heavily on the efficiency of your supply chain.
Goods procurement may also include indirect and direct procurement. An example of these are:
Raw materials
Equipment maintenance
Items
Office supplies
4. Services Procurement
Service procurement involves hiring third parties, leasing software, and contractors or vendors to work for you. To put it simply, it is sourcing people-based services. Service procurement may also include direct and indirect procurement in its process.
Elements of Procurement
Here are essential elements of procurement that you should know about.
1. People
The people that constitute the organization are the ones responsible to initiate every step of the procurement process. Without them, the organization cannot develop as they are essential for the everyday operation of the business.
2. Process
The processes in procurement are what aid the company to develop and succeed. An efficient procurement process will lower the costs and will ensure that the supplies will arrive on time. It allows the accuracy of materials, orders, and payments which results in optimum performance of the organization.
3. Documents
Documents are important to make sure that all the processes are accurate. It is important to keep these records so that they can be accessed easily when the need arises. Documents act as proof that transactions happened and that they are known by the organization.
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Conclusion
In mastering the basics of procurement, understanding diverse types, recognizing its pivotal role, and focusing on essential elements are crucial for professional success in this field.
If you want to know more about procurement be sure to look around on our website at our other articles, or better yet, buy procurement course as an investment for you and your company’s future!
Direct procurement. Direct procurement is the obtainment of goods, materials or services a business can use to generate profit through the production of an end-product or resale. ...
There are three Ps in the procurement management process; people, process, and paper. The people aspect refers to the people who are responsible at different stages of the procurement process. The process refers to the instructions and rules concerning the procurement process.
Tier 1 Suppliers: These are direct suppliers of the final product. Tier 2 suppliers: These are suppliers or subcontractors for your tier 1 suppliers. Tier 3 suppliers: These are suppliers or subcontractors for your tier 2 suppliers.
You can choose from various strategies, such as risk management, global sourcing, total quality management, or supplier management and optimization. You can also develop a hybrid plan that combines two or more approaches.
The procurement life cycle encompasses all the steps involved in obtaining goods and services, from defining your business needs to soliciting bids, awarding contracts and managing supplier relationships. At many companies this is a dynamic, continuous cycle.
What is the procurement life cycle? The procurement cycle is the process businesses use to find and obtain goods. It involves multiple steps, including identifying the need for a good or service, finding the right supplier, negotiating terms, creating a purchase order, and receiving the delivery.
Project management for procurement is usually divided into four major processes: planning, selection, administering and closing procurements. The first part, planning, involves the creation of the official procurement management plan.
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