What is Procurement?
-
Definition: Procurement is the strategic process of acquiring goods and services from external sources. It's more than just purchasing; it encompasses:
- Sourcing
- Supplier selection
- Negotiation
- Contract management
- Payment processing
- Supplier relationship management
-
Why is it important?
- Cost reduction: Procurement aims to get the best value for money.
- Risk mitigation: It involves identifying and managing potential risks in the supply chain.
- Improved efficiency: Streamlined processes and efficient supplier management.
- Enhanced quality: Ensuring that goods and services meet required standards.
- Strategic alignment: Aligning procurement decisions with the organization's overall goals.
The Procurement Process
- Requirement identification: Determine what needs to be procured.
- Supplier selection: Identify and evaluate potential suppliers.
- Request for Proposal (RFP) or Request for Quotation (RFQ): Send out requests to qualified suppliers.
- Evaluation and selection: Assess proposals based on criteria like price, quality, and delivery time.
- Contract negotiation: Finalize terms and conditions with the selected supplier.
- Order placement and fulfillment: Issue purchase orders and track delivery.
- Payment and invoice processing: Ensure timely payment to suppliers.
- Performance evaluation: Assess supplier performance and identify areas for improvement.
Types of Procurement
- Direct procurement: Purchasing raw materials or components for production.
- Indirect procurement: Acquiring goods and services used for internal operations (e.g., office supplies, IT services).
- Capital expenditure procurement: Purchasing long-term assets (e.g., machinery, equipment).
Key Procurement Challenges
- Supply chain complexity: Managing a diverse and global supply chain.
- Price volatility: Fluctuating commodity prices.
- Risk management: Identifying and mitigating risks like supplier failure or natural disasters.
- Supplier performance management: Ensuring suppliers meet quality and delivery standards.
- Regulatory compliance: Adhering to procurement regulations and ethical standards.
Resources
- Teacher: Kwesi Peter