Business
Procurement
Procurement refers to the process of acquiring goods, services, or works from an external source. It involves activities such as sourcing, negotiation, purchasing, and contract management. The goal of procurement is to obtain the necessary resources at the best possible value in terms of cost, quality, and delivery.
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12 Key excerpts on "Procurement"
eBook - ePub- Badenhorst-Weiss JA, Cilliers JO, Dlamini W, Ambe IM(Authors)
- 2018(Publication Date)
- Van Schaik Publishers(Publisher)
Purchasing can have a short-term transactional approach to buying standard, often-used products or services. However, purchasing also has a strategic focus, one that takes the long-term goals of the organisation as a whole into consideration in decisions, and thereby, in a very real sense, contributes to the future direction that the organisation will take.Purchasing and Procurement are often used interchangeably. However, there is a distinction, albeit academic. According to Boateng (2016: 439), Procurement represents purchasing in the wider and more modern concept of supply chain management, and he defines it as “one of the elements of supply chain management primarily focusing on the sourcing and purchasing of goods and services within the supply value chain”.Procurement refers to the process of managing a broad range of activities that are associated with satisfying the organisation’s need for goods and services to keep the organisation going, for example parts or raw materials for the production process; thus, it focuses on the more strategic products and services.What, then, is sourcing? Boateng’s (2016: 513) definition of it as “the process of identifying, conducting negotiations with and forming supply agreements with suppliers of goods and services” makes it clear that sourcing represents the activity of purchasing in the wider and more modern concepts of supply management and supply chain management. These concepts will be explored further later in this chapter.The term strategic sourcing is also often used in purchasing and supply chain management circles. The strategic sourcing process is broader and more comprehensive than the Procurement process. It is a result of the strategic development of the purchasing function in an 5 organisation that is managed according to the modern, integrated supply chain management approach. The principle of this approach will be explored in Chapter 4 .There are different views on what is meant by “strategic sourcing”. One view is that it is the application of certain supply strategies (Wisner, Tan & Leong, 2016: 105):
- Mbanje S, Lunga J (Editors)(Authors)
- 2016(Publication Date)
- Van Schaik Publishers(Publisher)
DISTRIBUTION PROHIBITED TRACKED BY CUSTOS MEDIA TECHNOLOGIES 19 THE ROLE AND FUNCTION OF Procurement AND SUPPLY MANAGEMENT IN A SUPPLY CHAIN 2 2.7 Procurement CONCEPT DEFINED Prior to World War I, purchasing was considered to be an extension of the administrative func-tion. However, during the World Wars the importance of ensuring continuity of supply for production elevated the concept to Procurement. The focus of the profession became more strategic, exploring ways to achieve cost-effective Procurement. The function also moved from being a transaction-based activity to a strategic one with its integration with IT systems, sup-plier relationships, managing contracts and building relationships. The name then changed from purchasing to Procurement or supply management. Procurement is the acquisition of goods, services or works from an external source. It is favourable that the goods, services or works are appropriate and that they procure at the best possible cost to meet the needs of the purchaser in terms of quality, quantity, time and location ( http://en.wikipedia.org/wiki/Procurement ). Procurement can also be defined as the process of acquiring goods, works and services, covering both acquisitions from third parties and from in-house providers. The process spans the whole life cycle from the identification of needs, through to the end of the useful life of an asset (Lysons & Farrington 2012: 6). 2.7.1 Procurement objectives The objectives of a world-class Procurement organisation are to move beyond the traditional belief that the primary role of Procurement is to obtain goods and services in response to inter-nal needs.
- Sachin K. Mangla, Sunil Luthra, Suresh Kumar Jakhar, Anil Kumar, Nripendra P. Rana, Sachin K. Mangla, Sunil Luthra, Suresh Kumar Jakhar, Anil Kumar, Nripendra P. Rana(Authors)
- 2019(Publication Date)
- CRC Press(Publisher)
Procurement aligns with the business strategy and, therefore, it cannot work in isolation. The procure- ment policy for an organization must be made in conjunction with the corporate strat- egy (Watts et al., 1995). In larger organizations, the Procurement function is branched into two halves; direct and indirect Procurement. Products that are consumed directly in the manufacturing processing form the part of direct Procurement, while products supporting the manufacturing operations form a part of the indirect Procurement. Products such as consumables that are not processed in the manufacturing operations directly are bought as a part of indirect Procurement (Gebauer & Segev, 2001). The Procurement function is also classified on the basis of its reach. Long-term procure- ment and short-term Procurement types are defined based on the reach. Generally, when the strategic part of buying is discussed, it qualifies to be long-term including sourcing, selection of supplier, negotiation, and contracting with the overall gov- ernance definition. It also encompasses designing of the entire engagement model for better supplier relationship management. Short-term includes requisition driven transactions where activities such as one-time negotiation of rates, raising purchase order and receiving delivery of goods, completing the payment process, etc. are undertaken. It also comprises of purchase arrangements, such as Just-in-Time (JIT), 42 Sustainable Procurement in Supply Chain Operations wherein goods are received as and when required. It aids monetary benefits such as improved cash flows due to negligible inventory holding costs (Gebauer & Segev, 2001). Significant benefits in the area of Procurement are promised with the imple- mentation of new technologies (Neef, 2001). Significant new wealth creation oppor- tunities are created with a complete transformation of business (Amit & Zott, 2001).
No longer available |Learn moreLogistics with SAP S/4HANA
An Introduction
- Deb Bhattacharjee, Vadhi Narasimhamurti, Chaitanaya Desai, Guillermo B. Vazquez, Tom Walsh(Authors)
- 2019(Publication Date)
- SAP PRESS(Publisher)
Section 3.7 ).3.1 Sourcing and Procurement Basics
Planning and scheduling for customer demand results in requirements for products and services. An organization can fulfill these requirements by manufacturing the products using its core competencies. However, in some cases, materials or services will need to be procured from external sources to fulfill customer demand. The sourcing and Procurement business function caters to this need within the organization. Sourcing and Procurement are often used in association with the overall supply chain processes due to their close interrelation.Sourcing , as the name suggests, is the process of identifying and selecting the correct sources of supply (suppliers) that can provide the required services and products for the organization. There are several subprocesses within the sourcing process, including the following key activities:- Evaluation of the company’s current purchasing cycles and what is currently available in the supply market
- Analysis of benefits and cost saving of using other suppliers
- Evaluation of potential suppliers after the RFx process
- Selection and implementation of new supplier relationships
Too often, sourcing has been thought of as a tactical exercise of choosing the suppliers with the lowest price quote. However, this can come with many negative trade-offs, such as lower product quality, longer lead times, and so on. As a result, many companies have started to realize the true values sourcing can bring, including better product/service quality and shorter fulfillment lead times.Procurement
eBook - PDF- (Author)
- 2021(Publication Date)
- Cuvillier Verlag(Publisher)
11 CHAPTER ONE WHAT IS Procurement? Because it will provide a thorough knowledge of Procurement and supply procedures, it is essential first to understand Procurement. The word “pro -curement” refers to the process or action to source or acquire services or prod -ucts for a company. Depending on the company, Procurement may refer to simply the act of purchasing, or it may include the whole process leading up to the acquisition of goods and services. Procurement is a term that refers to large-scale purchases made for a com-pany. In the Procurement process, there are two parties involved: the buyer and the supplier. However, Procurement refers to the act of purchasing rather than the actions of the seller. When a business utilizes the products or services it procures to create its end product, Procurement is part of the input. As a result, it’s a critical part of every company’s operations. In addition, procuring high-quality products or services at competitive prices is crucial to the buyer’s company’s success. Procurement seems to be a straightforward procedure at first glance. While this may be fun, it’s frequently very competitive, with considerable attention given to every detail along the way. The following are examples of procure-ment-related activities: Selecting a Vendor Negotiation of the Amount Owed Vetting in the Long Term Negotiation of a Contract Making the Big Purchase Direct vs. Indirect Procurement: What’s the Difference? Sourcing the products, resources, or services used as inputs in the company’s production process is known as direct Procurement. Purchasing immediate-Dieses Werk ist copyrightgeschützt und darf in keiner Form vervielfältigt werden noch an Dritte weitergegeben werden. Es gilt nur für den persönlichen Gebrauch. 12 ly affects the company’s production of products and services; therefore, it’s critical. As a result, the direct buying approach significantly impacts the end product’s quality and cost.
eBook - PDF- Jane M. Wiggins(Author)
- 2010(Publication Date)
- Wiley-Blackwell(Publisher)
It is essential to determine the most appropriate policies, procedures and processes for acquiring the various categories of supplies on a day-to-day basis – which may involve call-off contracts, E-Procurement, purchasing cards, or framework contracts as appropri- ate to the category of services or goods being procured. Plans also need to be developed for managing key suppliers; this might include partnering, joint ventures or strategic alli- ances. It is also the responsibility of the FM to ensure that benefits that are expected are monitored, measured and acted upon. The supply matrix as illustrated in Figure 13.1 is a useful tool to determine the effort that must be afforded to the Procurement for any particular item or service required by the business. Those items in the top right box will require most effort and resources. It is important to analyse the current purchasing position – this may involve identi- fying the changing patterns of buying behaviour, marketplace trends (such as mergers reducing the number of suppliers) and the sources and types of funding (e.g. PFI). The options for the supply requirements with recommendations can then be generated. 13.6 Procurement stages The typical stages of Procurement are: Specification of requirements. Procurement strategy. Contract versus in-house option. Type of contract. Assessment of risks. Tender process. Contract duration and award. 13.7 Strategic sourcing Strategic sourcing is a core activity in purchasing and supply management. The Chartered Institute of Purchasing and Supply Management (CIPS) define this activity as ‘satisfying an organisation’s needs from markets via the proactive and planned analysis of supply markets and the selection of suppliers with the objective of delivering solutions to meet predetermined and agreed organisational needs’. It is important to identify the current purchasing position, which can be used as a starting point, or base line, for developing the strategic sourcing activity.
eBook - PDF- Richard E. Crandall, William R. Crandall, Charlie C. Chen(Authors)
- 2014(Publication Date)
- CRC Press(Publisher)
While the transition is far from complete, it is gaining momentum in the purchasing practices of many companies. The purchasing organization is a key member of the team that identifies, evaluates, and selects new suppliers. They participate in multifunctional teams that perform due dili-gence and risk assessment visits to potential suppliers. Purchasing, more than any of the other functions, wants to select vendors that have not only the capability to perform as a dependable supplier but also the willingness to work through the problems and changes that are sure to occur during a long-term relationship. This has become such an important area that many companies, especially larger ones, are using third-party application suites to assure an objective and integrated approach. The applications suites are a set of related solutions that support upstream Procurement activities, including identifying suitable suppliers, finding savings opportunities, quan-tifying and reducing supply risk, negotiating and managing contracts, tracking ongoing 268 Principles of Supply Chain Management supplier and category-level performance, and monitoring the overall success of the pro-curement team (Wilson et al. 2013). Strategic sourcing implies building relationships with suppliers, which takes time to develop and a higher level of transparency on both sides. When done successfully, there are a number of benefits, including • A more cost-efficient supply chain • Better supply chain partners • Improved service levels and coordination • Improved partner network capabilities • Enhanced flexibility and responsiveness • Increased revenue While cost reductions may be the primary driver, other gains may be in gaining innova-tive ideas from suppliers and new products that generate added sales (Zubko 2008). Strategic sourcing usually involves strategic negotiating of contracts. Negotiating is a core requirement, especially as purchasing evolves into a high-level strategic function.
eBook - ePubThe Procurement Game Plan
Winning Strategies and Techniques for Supply Management Professionals
- Charles Dominick, Sohelia Lunney, Soheila Lunney(Authors)
- 2012(Publication Date)
- J. Ross Publishing(Publisher)
Why is Model 4 controversial? First of all, organizations have been following a trend to focus on core competencies and divest the rest. Therefore, if a pharmaceutical company wants to focus on selling medications, it may choose to abandon the selling of Procurement software. Second, if your responsibilities are split between executing the Procurement function and developing and selling services, your interest in doing an excellent job at Procurement may be diluted to the point of being dispensable. Third, can you imagine the result if you taught your suppliers your own negotiating secrets?Model 4 may work for some. Our advice? Don’t try Model 4 at home unless you have an inseparable relationship with your organization’s top management.Procurement’S PIECE OF THE SUPPLY CHAINWe get asked the following question a lot. “What is the difference between Procurement and supply chain management?” Though many different and conflicting definitions of supply chain management abound, in our definition, Procurement is a subset of supply chain management. Procurement deals primarily with managing all aspects related to the inputs to an organization (i.e., purchased goods, materials, and services), while supply chain management deals with inputs, conversion, and outputs.A supply chain consists of three types of entities: customers, a producer, and the producer’s suppliers. The extended supply chain includes customers’ customers and suppliers’ suppliers (Figure 1.4 ). Supply chain management oversees and optimizes the processes of acquiring inputs from suppliers (Procurement), converting inputs into a finished product (production), and delivering those products—or outputs—to customers (fulfillment).Under this definition, supply chain managers decide where to locate manufacturing and distribution facilities, how to route goods and materials among those facilities, and from which parts of the world to source the inputs. Supply chain management organizations unite disparate functions that historically reported to different executive positions with different, and sometimes conflicting, priorities.What does this mean for individuals who have a Procurement-related title? One myth is that Procurement will become less important. To the contrary, analyzing spend information for cost savings opportunities, negotiating, and selecting reliable sources of supply will always be critical. These functions fuel profit and provide competitive advantage for the organization.
eBook - PDFPMP Project Management Professional Exam Study Guide
2021 Exam Update
- Kim Heldman(Author)
- 2020(Publication Date)
- Sybex(Publisher)
Be certain to check with your Procurement department. You’ve been duly warned! Procurement Strategy Procurement strategy involves determining the contract type that will be used to procure the goods or services, the delivery methods to use, and the Procurement phases you’ll use on the project. Procurement Planning 437 The delivery methods for a services contract may include either using or restricting the use of subcontractors, coming to an understanding of what services the vendor will provide versus the organization procuring the services, and whether the seller can act as a represen- tative of the buyer. It is common practice to engage professional services from a consultant who will act as a representative for your organization. Their job is to put the best interest of your organization first. They will help direct the work of the vendor that is performing the services requested in the contract and ensure that your organization is getting its money’s worth and that the requirements in the statement of work are being fulfilled. The organization’s representative and the vendor performing the work should not be employed by the same outside firm. Delivery methods for construction or industrial projects may use industry-specific tech- niques such as design build, design bid operate, build own operate, and turnkey.
eBook - ePubThe Procurement Game Plan
Winning Strategies and Techniques for Supply Management Professionals
- Charles Dominick, Soheila Lunney(Authors)
- 2022(Publication Date)
- J. Ross Publishing(Publisher)
6CHAPTER
STRATEGIC SOURCING FOR MORE EFFECTIVE Procurement: MARCHING TOWARD THE GOAL LINE
Cost savings is the most common Procurement goal, and strategic sourcing is arguably the most comprehensive method for achieving savings. Just as the American football field has the 50, 40, 30, 20, and 10 yard lines for a runner to cover on the way to the end zone, strategic sourcing has a similar step-by-step path toward the goal. In this chapter we will cover the basics of strategic sourcing.WHAT STRATEGIC SOURCING IS
Strategic sourcing is generally defined as a rigorous process of identifying the right supplier. Not necessarily the cheapest or highest quality supplier, but the supplier that offers the greatest overall net benefit to the organization, all things considered.Because strategic sourcing typically culminates in a contract with a term of at least three to five years, and sometimes longer, strategic sourcing should be perceived as the first step in a long-term relationship. By consummating this relationship in the form of a contract with a supplier, strategic sourcing aims to reduce the cost of doing business. A reduced cost of doing business includes not just a lower price, but also other efficiencies that will positively impact the organization’s bottom line.REASONS FOR ADOPTING STRATEGIC SOURCING
Companies generally like strategic sourcing for three reasons:- Strategic sourcing is based on repeatable best practices. Instead of each department trying to figure out how to go about conducting competitive bidding for its own categories, strategic sourcing is a formalized process with a defined sequence of steps that have taken into consideration the most effective methods of competitive bidding. This maximizes both the efficiency and the effectiveness of the sourcing process.
- Strategic sourcing is led by experts in the sourcing process. There are many challenges to strategic sourcing. Many mistakes can be made if the process is managed by someone without deep experience. When the strategic sourcing process is led by someone who has experienced all of the veritable land mines of sourcing, the quality of the results is much better.
eBook - ePubThe Technology Procurement Handbook
A Practical Guide to Digital Buying
- Sergii Dovgalenko(Author)
- 2020(Publication Date)
- Kogan Page(Publisher)
05Deep dive into the Procurement process
Having laid all the appropriate technology foundations and considering the supply base management strategy, we can fully dedicate ourselves to studying the Procurement process. We will dive deep into each of the seven steps outlined in Chapter 2 and refer to the mapping provided for critical roles and artefacts.Step 1: Initiate a sourcing project
In this stage, the scope and timeline of the project require assessment. Procurement (PROC), Business (BUS), Finance (FIN), Technology (TECH) and Project Management (PM) representatives will form a cross-functional team. The PM member could come from the Business, Technology, or PMO office, but we will mark her/him as a separate function.In the corresponding Project Initiation stage (Project Management Lifecycle), the PM will start creating the Project Charter and Stakeholder Register, which will form the basis for sub-processes 1.1 and 1.2.Figure 5.1 Step 1: Initiate a sourcing projectFigure 5.1 details The activities and the person responsible are as follows.- Define project scope and develop project plan (PM)
- Identify internal stakeholders and sources of information (PM).
Step 2: Identify business needs and study the market
Technology takes the leading role in this stage by conducting Service Strategy (ITIL Service Lifecycle) processes, of which two of the most important are Demand Management and Financial Management.Demand Management objectives are to understand, anticipate, and influence
eBook - PDFThe Green Multiplier
A Study of Environmental Protection and the Supply Chain
- L. Preuss(Author)
- 2005(Publication Date)
- Palgrave Macmillan(Publisher)
The debate regarding the future of A Strategic Role for Purchasing and Supply 33 supply chain management cannot be settled here. It is beyond doubt, however, that the remit of the function has expanded in four directions more or less simultaneously. Its handling of supply markets has evolved from a reactive into a proactive outlook. An awareness of the strategic importance of supply has superseded the former operational and tactical outlook. In terms of the geographical spread of its activities, supply chain management has moved from exploiting local, regional or national markets to tapping into the advantages of global sourcing. Its former clerical support role has given way to increasing co-operation with other corporate functions, such as production, research and development, marketing and finance. Supply chain management and the bottom line The evolution of supply chain management leads to a closer examination of the function’s importance in manufacturing companies at the start of the twenty-first century. It is a banal, yet rarely expressed, observation that acquiring external input is one of the most basic functions of any organisation. Hence managing supply is as fundamental a business function as are designing products, financing operations, converting input into output, and marketing and selling its products. More specifically, the purchasing and supply chain management function has a direct impact on the two aspects that determine the profitability of a company – namely, sales and costs. Today the supply chain already represents the largest budget share in most manufacturing companies. By the year 2000, the average North American manufacturing company spent over 65 per cent of its total expenditure on incoming goods and components (Burt et al., 2003), and similar percentages have been reported for Europe. Given the magnitude of expenditure on materials and components in manufacturing, there is a tremendous leverage effect in reducing material costs.
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