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Procurement
Procurement is the process of obtaining goods, services, or works from an external source. It’s a critical function in organizations because it helps ensure that the right goods or services are acquired in the right quantity, quality, and cost, at the right time. Procurement can vary in complexity, ranging from simple purchases like office supplies to more strategic, complex acquisitions like raw materials for manufacturing or outsourcing specialized services.
Types of Procurement
- Direct Procurement: Acquiring materials directly involved in production (e.g., raw materials, components).
- Indirect Procurement: Purchasing goods and services that support operations but aren’t part of the end product (e.g., office supplies, consulting services).
Procurement Process
- Need Identification: Recognizing and defining the need for a product or service.
- Supplier Research & Selection: Finding suppliers who can meet quality, pricing, and delivery requirements.
- Negotiation & Contracting: Securing favorable terms for cost, quality, and delivery.
- Purchase Order & Approval: Formalizing the order and obtaining internal approvals.
- Delivery & Quality Control: Ensuring the goods or services meet specified standards.
- Invoice & Payment: Managing billing and making payments to suppliers.
Strategies in Procurement
- Cost Savings: Negotiating prices, seeking bulk discounts, or sourcing from low-cost regions.
- Supplier Relationships: Developing strong relationships to ensure reliable supply and collaboration.
- Risk Management: Diversifying suppliers to minimize disruptions in supply.
Types of Procurement Agreements
- Fixed-Price Contracts: Set price agreements for the scope of work or goods.
- Cost-Reimbursable Contracts: The buyer covers actual costs plus an additional fee.
- Time and Materials Contracts: Often used when scope is uncertain, charging based on labor and material costs.
Technology in Procurement
- e-Procurement Systems: Digital tools to manage procurement processes, often featuring supplier portals, automated purchase orders, and analytics for better decision-making.
- Supplier Relationship Management (SRM): Tools for assessing and managing supplier performance and risk.
