Procurement Definition — Everything You Should Know
We know that you have come here in hopes of finding the official definition of procurement. Do not worry because we are here for you to tell the official procurement definition.
For this article, we will discuss the common procurement definition from each organization. Also, we will explore the world of procurement thoroughly.
After you finish reading this article, you will be guided by the definition of procurement in your field. Additionally, you will have an in-depth knowledge of procurement that you can apply in your business or profession. So without further ado, let’s now define what procurement is.
According to the Oxford learner’s dictionary, procurement is the possession of obtaining suppliers, especially the government and private organizations.
As we know it, procurement is the overall process of acquisition of needed goods or services for it to operate. To simplify, it is what makes the organization move.
For some, procurement is the act of obtaining goods or services, commonly for business purposes. Basically, many people associate it with business matters as it is crucial for its profitability.
Nonetheless, we can get the very essence of procurement with these definitions which is the acquisition of goods or services.
The procurement definition of an organization is linked with how they do its procurement processes.
How Does Procurement Work?
Procurement and its process require a substantial portion of the organization’s resources to manage.
Procurement usually has a specific budget they can spend to procure the goods or services. This allows the organization to cut unnecessary costs.
Usually, the procurement process is dictated by the organization’s standards typically centralized by controls of the accounting department.
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Difference Between Procurement and Purchasing
Many people use procurement and purchasing synonymously without them knowing that it is different from one another.
Many people use it interchangeably as both are associated with buying the supplies or services. That is probably the reason why no one bothers to define both terms properly.
The main difference between procurement and purchasing is that procurement is the whole process. Procurement includes the process of identifying, shortlisting, selecting, and acquiring the needed goods or services,
On the other hand, purchasing means a set of functions that are associated with buying goods or services that the organization requires. Furthermore, purchasing is just a part of the procurement process.
Below is the table that can give you a clearer view of their differences:
The Steps of the Procurement Process
Every organization has different processes in procurement. Some are oversimplified, while some are too complicated due to the abundance of procedures.
However, there are some processes in an organization that are similar to others. The following are the steps in the procurement process that are similar in each organization:
1. Market research
It is the procurement manager’s responsibility to recognize the need for supplies and develop market research for it.
The market research will allow the organization to forecast the needs of its departments’ supplies.
The market research should cover sourcing new potential suppliers. Sourcing specialists can greatly help the procurement department or manager to identify new sources of supply.
Furthermore, market research aids in finding the key information of the next steps in the procurement process.
2. Request for information
The second step is asking for information not just from suppliers but also from the departments that need the supplies.
Before you create a purchase order, you will need to know the exact number of supplies needed. Information such as the quantity and pricing per supply are some of the things you can ask when making requests.
This is why the first process is market research to give you information about the supplies that you need.
Once there is enough data a purchase request is sent to the higher management for approval. Usually, this is where the company decides how much budget will be given to the procurement manager or department.
3. Request for quotation
This is the process where the organization asks suppliers for their initial pricing for the supplies needed. This process is usually done by emails or letters
Once a reply from the supplier is received, the procurement manager should discuss the quotes given.
A detailed analysis of each pricing is considered. On the other hand, the market research that is conducted first will make them see the pricing in the market.
4. Negotiation phase
The negotiation phase is the most challenging yet fulfilling part of the procurement process.
This is where procurement managers try to acquire the goods at a reasonable price by negotiating.
In addition, it is where the talent in the negotiation of procurement managers shines. If the negotiation is successful, then they can call themselves a master negotiator.
During this phase, the information you have gathered must always be ready.
5. Contracting phase
Of course, this is where the procurement managers take care of all contracts, receipts, invoices, and documents.
The documents that were signed are needed before, during, and after the entire procurement process.
The contracting phase is important because it can be used for market research once more.
Types of Procurement Process
1. Direct procurement process
The direct procurement process refers to purchasing materials that are needed to create the end product of the organization.
2. Indirect procurement process
The indirect procurement process refers to the materials that are not directly part of the end product.
However, these materials are needed to manufacture the end product of the organization. This includes equipment, office supplier, and utilities.
3. Service procurement process
The service procurement process involves obtaining an outside workforce or consulting services. This includes professional services and software subscriptions.
Frequently Asked Questions
1. What is the procurement definition?
A procurement definition is how procurement is interpreted in an organization.
2. What is the difference between procurement and purchasing?
To simplify, procurement is the whole process while purchasing is just a part of it.
3. What are the types of procurement processes?
The types of procurement processes are direct, indirect, and service procurement processes.
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