What is procurement?

Procurement, also known as purchasing, is the process by which an organization acquires goods and services from external suppliers. This process includes everything from identifying a need, selecting suppliers, negotiating contracts, to managing those contracts after purchase. Procurement plays a crucial role in any organization because it directly affects operational efficiency, cost control and the quality of products or services provided.

The procurement process explained

The procurement process consists of several stages that must be carefully managed to ensure efficient and cost-effective procurement. Here are the main steps of the procurement process:

1. Need identification: The first step in procurement is to identify what the organization needs. This can range from office supplies to complex IT services or large infrastructure projects.
2. Supplier Selection: After the need is identified, the search for suitable suppliers begins. This can be through tenders, tenders or direct negotiations. The goal is to find suppliers who offer the best value for money.
3. Negotiation and contract management: Once a suitable supplier is selected, negotiations begin on price, delivery terms and contractual obligations. The goal is to secure the best deal that meets the organization's needs.
4. Order and delivery: After a contract is concluded, the order is placed. Delivery is then closely monitored to ensure it is made on time and according to the agreed terms.
5. Management of contracts and supplier relationships: Procurement does not end with the delivery of goods or services. Managing contracts and relationships with suppliers is essential to ensure continuity of supply and to resolve any problems in a timely manner.

Why is procurement important?

Procurement is a strategic function within organizations because it directly affects the cost structure, quality and efficiency of operations. Proper management of the procurement process allows organizations to benefit from:

• Cost control: By properly negotiating contracts and selecting the right suppliers, organizations can significantly reduce their costs.
• Risk management: Selecting reliable suppliers and carefully managing contracts helps minimize risks such as delivery delays or quality problems.
• Efficiency improvement: A streamlined procurement process ensures that goods and services are delivered on time, contributing to business continuity.
• Quality improvement: By carefully selecting suppliers based on quality, organizations can improve the standards of their own products and services.

Types of procurement

Procurement can be divided into several categories, depending on the nature of the procurement and the purpose of the goods or services. Some major types are:

Direct procurement:

This type of procurement involves the purchase of raw materials, parts or products that are directly used in the production of goods or provision of services. For example, an automobile manufacturer purchasing parts for the production of automobiles.

Indirect procurement:

Indirect procurement refers to the purchase of goods and services that are not directly related to production but are necessary for business operations. Think office supplies, IT services or marketing expenses.

Strategic procurement:

Here the focus is on building long-term relationships with suppliers and integrating procurement into the strategic goals of the organization. This type of procurement focuses not only on cost savings, but also on innovation and sustainable procurement.

What is the difference between procurement and purchasing?

Although the terms procurement and purchasing are often used interchangeably, there is a subtle difference. Procurement is part of the broader procurement process and refers specifically to the act of buying goods and services. Procurement, on the other hand, encompasses the entire process, from strategic planning and supplier selection to contract management and supplier relations.

Procurement in the public sector

In the public sector, procurement is often regulated by strict laws and regulations to ensure fairness and transparency. Government agencies use tenders as a form of procurement to select the best suppliers for their projects, with an emphasis on meeting specific legal requirements such as the Procurement Act.

Sustainable procurement

Sustainable procurement is becoming increasingly important, with organizations looking not only at price and quality, but also at environmental and social impact. Sustainable procurement focuses on purchasing products and services that have minimal impact on the environment and contribute to corporate social responsibility.

Conclusion: What is procurement and why is it essential?

Procurement is an essential process that manages the procurement of goods and services to ensure operational efficiency and cost control. By implementing a well-organized procurement process, organizations can make better business decisions, improve the quality of their products and services and minimize risks. Whether in the private or public sector, procurement plays a critical role in the success and sustainability of organizations.