Procurement is the process of obtaining something that enables a business to operate. From identifying the initial need, to placing the order and the eventual delivery of the goods, procurement describes the entire process. Each company requires some form of procurement, but done effectively, it will produce the best value for money.
Purchasing and procurement may sound similar, but they are distinctly different. Procurement is the strategic function of the business; it is the process from start to finish. Whereas purchasing is the process of acquiring products, for example, paying invoices. You can’t purchase something when you haven’t identified what is needed.
Below are the different steps to procurement:
Identify the products needing to be purchased
The first step in the process is to identify the products that need purchasing. What does the business need to operate?
Take a clothing shop for example. The company would need to identify which materials they would need in order to produce the clothing to sell. They’d also need to identify anything they may need to operate the business.
Selecting the best suppliers in the market
Next step to procuring a product is to find the best suppliers.
To manufacture good quality products, you need good quality suppliers. Before a business can being manufacturing, they will need to source the best quality materials.
Effective development routes for new products
Products aren’t simply made, sold and forgot about. Businesses spend a lot of time developing new products to make sure they are ready to be sold.
This is the third step in the procurement process; creating effective development routes for new products. Putting a process/route in place to be able to develop a product so that it fit for purpose as much as possible before it is sold.
Protect cost structure whilst maintaining best quality/value balance
Cost is a large part of developing new products. To maintain quality, some businesses look to increase the cost spent at the detriment of their end profit.
The procurement process prevents this from happening by protecting the cost structure whilst maintain a balance between best quality and best value for money.
Monitors market trends
Trends change all the time, and this can affect the end product.
As a further step of development if you will, the procurement process monitors trends to make sure that the business is providing the market with what is currently needed.
Negotiate effectively to seek a mutual benefit for the supplier and client
When a business hires a third party for the procurement process, this allows for effective negotiations.
Procurement companies often know the best suppliers and how best to negotiate to provide the client with the best possible deal.
Adopts environmentally responsible supply management
In recent years, more and more businesses are aware of the need to be environmentally responsible. The final step of the procurement process is adopting an environmentally responsible supply chain.
Managing the supply in an ethical manner not only benefits the environment, but has benefits to the business such as, improved business image, reducing the risk of any legal issues and, in many cases, improving quality.
