Procurement

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

Procurement is the method of identifying and negotiating terms and purchasing goods and services from outside sources, often through a tendering or competitive tendering process. Procurement, generally, involves making decisions regarding transactions under inadequate conditions.

When colossal data is available, the use of methods of economic analysis such as cost-benefit analysis or cost-utility analysis is good practice. Procurement is used to ensure that the customer purchases goods, services, or works at the best available price by comparing factors such as quality, quantity, time, and location.

Procurement and Purchasing

Procurement focuses on the strategic process of product or service sourcing, such as analysis, negotiation, and preparation. In contrast, the purchasing process focuses on how to buy and order products and services, such as raising purchase orders and coordinating payment.

How does it work?

Procurement can be an easy purchasing deal with a manufacturer. It may also entail a more complicated agreement with the supplier or a group of suppliers that ties the amount, quality, and delivery needed into a production process.

Procurement processes include gathering information about potential suppliers, communication with the potential suppliers, background checks (for example, testing, screening, and verification of potential suppliers references), negotiations (i.e. setting price and terms), distribution (i.e. delivery and installation), use, repair and disposal (i.e. m) ), and renewal (i.e. continuing relationship with the supplier).

Importance

A procurement process mainly ensures the company's acquisition is competitive, fair, and offers the best available market prices. Procurement is an important process within the overall management structure of an organization because of the efficiencies obtained through a structured procurement process.

Many difficulties on a company's cash flow and balance sheet can be traced to procurement problems, including holding products and inventory for a long period and failing to adjust the terms of supply payable to their respective receivables.