Definition§
Procurement refers to the strategic process of discovering, sourcing, negotiating, and obtaining goods, services, or works from an external source. The process ensures that the materials, parts, supplies, and equipment needed for an enterprise’s operations are acquired in a cost-effective and timely manner. Procurement expenses can significantly impact the overall cost structure of a business, making efficient procurement practices crucial.
Examples§
- Manufacturing Industry: A car manufacturing company procures steel, aluminum, electronic components, and other materials needed to produce vehicles.
- Retail Sector: A retail chain procures inventory such as clothing, electronics, or groceries from various suppliers to maintain stock levels in stores.
- IT Sector: An IT services firm procures software licenses, hardware, and cloud services needed to provide its services to clients.
- Public Sector: Government agencies procure infrastructure services, office supplies, and public service equipment through public tenders.
Frequently Asked Questions (FAQs)§
What are the main steps involved in the procurement process?§
The primary steps in the procurement process include identifying needs, researching potential suppliers, negotiating terms, acquiring goods or services, and managing supplier relationships.
What is strategic procurement?§
Strategic procurement involves planning long-term purchasing strategies to optimize the operation’s efficiency, cost-effectiveness, and alignment with business goals, beyond mere transactional buying.
How does procurement differ from purchasing?§
Procurement refers to the entire process of identifying needs, sourcing, negotiating, and buying goods or services. At the same time, purchasing is specifically the act of ordering and paying for those goods or services.
What role does technology play in procurement?§
Technology plays a critical role in procurement by streamlining processes through automated systems like Enterprise Resource Planning (ERP) software and e-procurement solutions, enabling more efficient and transparent operations.
Why is supplier management significant in procurement?§
Effective supplier management ensures that an enterprise can maintain quality, timely delivery, and cost-effectiveness while minimizing risks associated with supply chain disruptions.
Related Terms§
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Supply Chain Management (SCM): The management of the flow of goods and services that includes all processes that transform raw materials into final products.
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Tendering: A formal process by which bids are invited from interested contractors to carry out specific packages of work.
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Enterprise Resource Planning (ERP): Integrated management of main business processes, often in real-time and mediated by software and technology.
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Vendor Management: The discipline of managing suppliers to derive maximum value from the supplier relationship.
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Outsourcing: Contracting out services or functions to external providers.
Online Resources§
- CIPS - The Chartered Institute of Procurement and Supply
- Procurement Academy - Providing Procurement Training
- Supply Chain Dive - Procurement
Suggested Books for Further Studies§
- “Procurement and Supply Chain Management” by Kenneth Lysons and Brian Farrington
- “Essentials of Supply Chain Management” by Michael H. Hugos
- “The Procurement and Supply Manager’s Desk Reference” by Fred Sollish and John Semanik
- “Supply Chain Management: Strategy, Planning, and Operation” by Sunil Chopra and Peter Meindl
Fundamentals of Procurement: Supply Chain Management Basics Quiz§
Thank you for learning about procurement and challenging yourself with our quiz questions. Continue honing your understanding to excel in supply chain management!
