For a business in any industry, of any size, smart procurement techniques are essential for ensuring efficient operations. So what is the procurement process? Well, put simply, Procurement involves all activities that are carried out in acquiring the resources a company needs, from external suppliers.
This may include anything from office supplies, heavy equipment, training services, or provision of raw materials and services needed to make a finished product. Managing procurement activities is crucial to keep all business operations running and helps the company save a lot of time and money.
Optimizing the procurement process establishes a set standard of acquiring all items and services across the company, so that projects can proceed with maximum efficiency, without facing any challenges.
How is Procurement Defined?
For those unfamiliar with this process, questions like what is procurement process or how is it different from purchasing commonly arise. Let’s discuss this in detail:
Procurement can be defined as the act of acquiring goods and services through means such as tenders or competitive bids. The buyer releases a contract notice through an electronic portal, referred to as e-tendering or e-procurement software. The contract notice includes details such as:
- The contract title and description of goods required
- A Scope of Works
- The approximate value for the goods.
- Approximate of the delivery time
- Location of delivery
- The timetable for the tendering process, with details like submission date, site visit dates, and so on.
- Important documents like SQ, PQQ documents, ITT documents, and more.
- The length of delivery required.
Once the contract notice has been set, suppliers will put together a tender response in compliance with any provided guidance, and submit it to the medium involved. The buyer then assesses all of the responses and a supplier will be selected based on how they meet the required criteria.
How is Procurement different from Purchasing?
Procurement is a different process from purchasing, but are quite similar to each other. Procurement is an umbrella term for the entire process of buying products, from sourcing, selecting to quiring the required goods.
Purchasing, on the other hand, is a small part of the procurement process which involves just the actual part of purchasing a product or service. Purchasing does not involve the creation of the specification of works, management of the process, bidding, evaluation, and even vetting of the supplier.
Why is Procurement Necessary?
Procurement is an essential process that needs to be managed right to ensure proper functioning in the company. When done wrong, it can cost you a lot of money and delay important projects from being completed on time. When optimized correctly, however, procurement can have these benefits:
- Cost-effective: Procurement management allows you to find the best options and best prices, allowing you to choose between multiple suppliers who can match your needs and requirements. You can also find the best offer with the most value for money.
The buyer can evaluate all tenders, scoring the cost each supplier provides, their quality response, and other criteria. Then conflating the scores, the buyer can choose the most economical supplier.
- Beneficial Tender: Proper procurement management widens the scope of your option and lets you buy from the most economical buyer, but apart from that, it also broadens the pool of suppliers you’re buying from.
Buyers can send and receive tenders from suppliers across the country, who can meet your criteria at a much-improved percentage and offer more value than local suppliers may be able to. This is also vital because you can build long-term relationships with your suppliers and ensure the best quality and price for your acquired goods, long-term.
So if your question of what the procurement process is has been answered, the next logical step for you is to study how to properly manage your company’s procurement process!