Procurement

Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. Procurement is used to ensure the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing risks such as exposure to fraud and collusion.

Overview

Procurement generally involves making buying decisions under conditions of scarcity. If good data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

Procurement processes

Procurement processes are often categorized into three types:

• Direct procurement which is the purchase of materials that are directly incorporated into the product.
• Indirect procurement which is the purchase of goods and services used in the day-to-day operations of the company.
• Services procurement which is the purchase of all services used by a company.

Procurement activities

Procurement activities are often split into two distinct categories, direct and indirect spend. Direct spend refers to the production-related procurement that encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect procurement activities concern “operating resources” that a company purchases to enable its operations.

See also

• Supply chain management
• Tendering
• Cost-benefit analysis
• Cost-utility analysis

References

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Procurement

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  Classification of categories by central procurement strategies