Procurement
Procurement is the process of obtaining the right goods or services at the right time at the right price. Procurement is usually carried out by organisations as a contract, and can be for small items that are bought regularly, such as stationery, or for long term partnerships such as a building project, or to implement a government policy.
Many large organisations and government departments use procurement so that common and regularly purchased goods and services are obtained to provide the best value for money. If every department of a large company used a different supplier for stationery, IT equipment, furniture, or raw materials, it would be very difficult to keep track of what was spent, and delivery times. In addition identifying errors and discrepancies would be more complex. By using a procurement system, keeping track of what is spent, with which suppliers and how often items are purchased, is much easier. By using the same suppliers, there may be volume or early settlement discounts. In addition, some suppliers may also provide products, goods or services which are used by different departments. A stationery company may also provide IT equipment, office furniture and an installation service. This could mean that a company only needs to deal with one supplier instead of four or five.
As well as price, the availability of products and speed of delivery need to be taken into account. It wouldn’t be cost effective to secure the lowest prices, if the suppliers can’t guarantee the goods available for immediate dispatch. It is more cost effective to pay more and have the items available when they are needed. Ordering too far in advance has storage implications, and also means that more capital is tied up in stock. Using the Just In Time principle means that goods and services are ordered as they are needed rather than far in advance. This removes the need to keep money tied up in stock or spares. For smaller companies means that office or factory space is not tied up with products that will not be needed in the near future. Using a Just In Time system can dramatically improve the return on investment for a company. Whereas shops will need to have a large amount of stock to meet customers’ needs, the money tied up in stock can’t be spent on anything else until the stock is sold.
Procurement can be as simple as looking through a catalogue or website, choosing the appropriate products, ordering them and receiving them the next day. Alternatively the procurement process can involve months or years of investigation, research and testing to find the right products, services and suppliers. The process of ordering more photocopying paper, or booking a hotel room would involve less research than ordering a new fleet of trains, building a new hospital, or implementing new banking technology.
As technology has improved, and the internet has become such an important business tool, traditional procurement methods using the phone and paper purchase orders are rapidly being replaced with eProcurement. Buyers and suppliers are using dedicated procurement software to communicate and carry out transactions electronically. This saves both time and money and can help streamline the procurement process for buyers and suppliers. With less administration, and paper and printing costs all but eliminated, it is clear to see that electronic procurement is the way forward.
Whatever you use the procurement process for, and whether you are a buyer or a supplier, let ProcServe help you get the most out of procurement.
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