For those who think that procurement is just about purchasing supplies and stationary, it really is time to think again! Procurement is in fact an absolutely essential function within any business and is vital if a business is to succeed, especially in the light of economic downturns and the recession.
What Does Procurement Mean?
Procurement is about acquiring goods, not just at the right price, but also in the right quality. The goods acquired also have to be acquired in the right quantity; too many and there are storage implications as well as an interruption to cash flow. Too few goods acquired and there is an interruption to production and also day to day running of a business.
Procurement also involves working in partnership with suppliers, establishing relationships and making sure that there can be a long term working relationship.
Historically procurement meant purchasing goods in a manner that was hard line in the sense that the buyer would try to knock down the supplier in terms of cost and the relationship was pretty uneven – the buyer had the power, the supplier had to agree to pretty harsh conditions at times.
This has now changed and suppliers are seen as partners, with the view being held that procurement is a relationship which can be mutually beneficial and that keeping suppliers content and happy in the relationship can bring about greater flexibility, the ability to negotiate and a very productive working arrangement.
7 Steps To Procurement
1. Gathering information about suppliers and who can supply what.
2. Contacting suppliers and asking for quotes or tenders.
3. Ensuring the suppliers are capable of supplying what is required, usually through background checks or using quality management tools.
4. Negotiations, not just on the price that is being offered, but also about the delivery of goods, availability of supplies and whether these supplies can be offered on a ‘just in time’ basis, meaning that there is no surplus of goods at any given point.
5. Drawing up and awarding the contract, then the contract being fulfilled, with the goods and services being delivered by the supplier.
6. The goods and services that have been delivered are used by the buyer. The efficacy of the goods and services, as well as the performance of the supplier are then assessed.
7. The cycle starts again with the same supplier being used for the delivery of goods and services or the selection process for new suppliers is undertaken once again.
Why Is Procurement So Important?
Procurement is a complex process that can help businesses to become more efficient because all goods and services that they buy will be of the right quality, quantity, price and they will be delivered ‘just in time’, thereby reducing the need to stockpile goods and parts.
Reducing the amount of goods that are stored reduces the amount of resources used to store them. It also ensures that they are not overly transported, which means there is less risk of them being damaged and no resources are required to transport them.
Buying goods that are of the right quality means that they are not too good for the role that they have to fulfil, so they will be the right price. But they will also not be sub-standard, so there is less chance of the parts and goods causing defects.
Creating good relationships with suppliers also mean that they will be flexible and help out if a sudden increase in volume of goods is required.
So procurement really is vital and can really transform companies when it is done right, so although procurement may not actually produce the goods that are sold it can actually help to increase profits, often quite dramatically.
