What is Procurement?

At its core, procurement refers to the process of obtaining goods or services from external sources. This process includes a wide range of activities, from determining the need for a product or service to negotiating contracts with suppliers and managing the delivery of the purchased items.

Why is Procurement important for companies?

In the business world, procurement plays a critical role in ensuring that companies have access to the resources they need to operate efficiently and effectively. It involves strategic decision-making aimed at achieving the best value for money while respecting quality standards and legal and ethical considerations.

What are the differences between purchasing and procurement?

Purchasing is a subset of procurement and focuses specifically on the transactional activities associated with the procurement of goods and services, while procurement involves a more strategic and holistic approach to supply chain management.

Purchasing typically refers to the transactional aspect of purchasing goods or services. It involves the actual purchase of goods or services, including tasks such as issuing orders, receiving goods, managing supplier payments, and ensuring compliance with contracts and agreements.

Procurement, on the other hand, is a broader process that includes strategic decision-making and management of the entire supply chain. It involves planning, sourcing, negotiating, purchasing and managing suppliers to ensure that goods and services are procured in the right quantity, at the right time and at the right price to meet the company's needs.

Procurement includes analyzing market trends, identifying potential suppliers, negotiating contracts and managing supplier relationships to optimize value for the company.

What are the main types of Procurement?

• Direct procurement: This is the purchase of goods, services or raw materials that are used directly in the production process. This type of procurement is typically associated with manufacturing or production-oriented industries.
• Indirect procurement: Refers to the purchase of goods and services that are not directly involved in the production process but are necessary for the operation of an organization. These include, for example: Office supplies, utilities, maintenance services and IT services.
• Procurement of services: Focuses specifically on the procurement of services rather than material goods. This may include professional services such as consulting, legal advice, marketing services, or outsourcing certain business functions.
• Procurement of goods: is the process of acquiring the physical products a business needs to operate efficiently. This includes identifying suppliers, negotiating contracts, placing orders and managing inventory.
• Construction procurement: The procurement of goods and services related to construction projects. This includes materials, equipment, labor, subcontractors and construction management services.
• Public procurement: Refers to the procurement of goods, services or works by government agencies or public sector organizations. Public procurement is often associated with strict regulations, transparency requirements and competitive tendering processes to ensure fairness and accountability.
• Global sourcing: Involves sourcing goods and services from international suppliers or across multiple geographic regions. Global sourcing requires consideration of issues such as international trade regulations, cultural differences, logistics and currency fluctuations.
• Strategic procurement: Focuses on aligning procurement activities with the company's overall strategic goals. This includes strategic supplier relationship management, risk reduction, cost optimization and innovation through collaboration with key suppliers.
• Operational procurement: is the daily process of procuring goods and services needed for ongoing operations and includes tasks such as issuing orders, receiving goods and managing suppliers.
• E-Procurement: Leverages electronic systems and technology to automate and streamline the procurement process. E-procurement includes activities such as online sourcing, electronic tendering, order management and supplier collaboration platforms.

Each procurement type has its own challenges, considerations and best practices, and companies may use a combination of these types depending on their specific needs and goals.

What are the main responsibilities of a procurement manager?

• Supplier management: An important aspect of procurement is supplier management. This includes identifying potential suppliers, assessing their capabilities and reliability, and building mutually beneficial relationships. Effective supplier management is essential to minimize risks such as supply chain disruptions and ensure continuity of operations.
• Contract management: Another important component of procurement is contract management. After suppliers are selected, contracts are negotiated to formalize the terms of the agreement. Contract management includes monitoring supplier performance, resolving disputes and ensuring compliance with contractual obligations.  
• Cost management: Cost management is also an important aspect of procurement. Companies strive to minimize costs throughout the procurement process by negotiating favorable terms with suppliers, leveraging economies of scale and optimizing procurement strategies. This includes evaluating the total cost of ownership, not just the initial purchase price, taking into account factors such as maintenance, support and disposal costs.
• Quality and risk assessment: Procurement also includes the assessment of quality and risk. Companies must ensure that the goods or services they procure meet their requirements and standards. This may include conducting supplier audits, quality inspections or introducing quality management systems. Risk management is also critical, especially in industries where supply chain disruptions or product failures can have serious consequences. Procurement professionals must identify potential risks and develop strategies to mitigate them, e.g. diversifying suppliers or introducing emergency plans.

What role does sustainability play in Procurement?

Ethical and sustainable sourcing practices are increasingly becoming a priority for companies. This includes considerations of environmental impact, labor practices and social responsibility. Companies are under increasing pressure to make their supply chains ethical and sustainable, and procurement plays a central role in achieving these goals.

Procurement plays a central role in achieving these goals. This may include sourcing from suppliers that meet specific standards or certifications, implementing sustainability criteria in supplier selection, and actively monitoring and improving environmental and social performance throughout the supply chain.

What role does technology play in Procurement?  

Technology and procurement software are also changing the procurement landscape: e-procurement platforms, digital marketplaces, automation tools and artificial intelligence are on the rise. These technologies streamline the procurement process, improve transparency and efficiency, and enable companies to make data-driven decisions.

Artificial intelligence and machine learning algorithms can analyze massive amounts of data to identify cost savings opportunities, predict supplier performance, and optimize inventory management.  

Procurement: Conclusion:

Overall, procurement is a complex and dynamic function that is essential to the success of companies across all industries. By effectively managing the procurement, contract, cost, quality, risk and sustainability aspects of procurement, companies can achieve their strategic objectives and gain a competitive advantage in the market.