Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
5 Popular Procurement Methods in 2024
Key takeaways
- The five procurement methods allow companies to streamline the acquisition of goods and services.
- Knowing different procurement methods equips you with the flexibility to adapt your approach to specific needs.
- A negotiated procurement method allows closer collaboration with a qualified supplier to ensure successful project completion.
In this article, we will explore the different types that the procurement department or manager uses in their operation, which are the following:
- Open tendering: A method that allows companies to bid in an open competition
- Closed tendering: A technique where only invited suppliers can bid.
- Two-staged tendering: A process where bidders submit proposals in two stages.
- Request for X: A method encompassing various requesting methods such as RFI, RFQ, and RP.
- Single source: A technique where a business chooses to work with only one supplier.
Before you continue reading this article, I want to share with you that I have created a free-to-download editable procurement process: 7 steps template. It’s a PowerPoint file, together with an Excel file, that can help you streamline your procurement process. I even created a video where I’ll explain how you can use this template.
5 Types of Procurement Method
There are five procurement methods used by procurement teams or departments of an organization. Below is the list of the 5 types of procurement methods:
1. Open Tendering
Open tendering is also called competitive bidding. It allows companies to bid on goods in an open solicitation or competition. Open tendering entails the company the following:
- Locally advertise
- Be unbiased and consistent with technical specifications
- Be objective with the evaluation measures
- Open to all qualified bidders
- Be granted to the least-cost provider
The open tendering method encourages effective competition to acquire goods that emphasize value for money. Even so, many procurement experts think this is unsuitable for the large or complex acquisition of goods or services. This is because it requires great focus on the output process rather than strictly following the standards.
2. Closed Tendering
Closed tendering is the opposite of open tendering. It limits the number of requests for tenders sent to suppliers or service providers. It is also called selective bidding because of its selective process nature.
Closed tendering is a competitive method limited to suppliers or service providers the procurement team invited. The procurement team should establish guidelines to effectively select the suppliers or service providers on the invitation list.
Having a random selection will not work for closed tendering. It is selective to get the best and most qualified entities to acquire the needed supplies or services.
Closed tendering is also done for the procurement team or manager to save time and money. It saves the organization time and money due to the limited invitation list in the procurement process.
If you want to learn more about open and closed tendering, including my experience as a procurement manager in this area, please refer to the article on open and closed tendering.
3. Two-Stage Tendering
As the name suggests, two-stage tendering has two procedures under it. Each of the procedures also has two-stage processes.
The first procedure is similar to the request for proposal method. The procurement department receives a proposal with two envelopes. The first one contains the proposal and the second one contains the financial component.
The difference is that the bidder needs to submit a technical proposal highlighting their solutions. This is necessary to fulfill the requirements specified by the procurement team. The proposal is scored based on the relevance of the solution the procurement team needs.
Once an agreement is reached, the bidder is invited to submit their financial proposal for further discussion. After the terms have been discussed, the procurement team may now negotiate the contract.
The second procedure is similar to the first procedure. However, a partial proposal will be submitted instead of the full technical proposal. The methodology and technical specifications will be included but not to their full extent which allows room for customization.
Once a bidder is selected, they will be required to submit the complete technical proposal together with the financial component. The financial proposal will be opened only if the technical proposal is evaluated. The combined evaluated score of the technical and financial proposal will be the deciding factor if the bidder is chosen.
4. Request for X (RFx)
Request for X or “RFx” is a term that encompasses all requesting processes that happen in the procurement process. You may be familiar with the terms Request for Quotation (RFQ), Request for Information (RFI), and Request for Proposal (RFP). Don’t get them all confused. These are simply part of the RFx process.
To help you differentiate the three terms and identify which ones your company needs, let’s discuss each of these here.
1. Request for Information (RFI)
A request for information or RFI, is a request to gather existing data regarding a potential supplier before formally sourcing products or services. Its main goal is to help procurement teams with their purchasing decisions.
With that said, the RFI has the following characteristics:
- The first step taken in the supplier selection
- Mainly used for evaluating potential supplier’s capabilities
- Gathers information about a potential supplier
- Gives the organization to see if suppliers align with their business
- Helps avoid non-compliance issues
2. Request for Quotation (RFQ)
Request for Quotation, or RFQ, is the solicitation of products or services for a company. In other words, it’s a request asking the supplier to give an estimate regarding the costs for the completion of a product or service.
The RFQ has the following characteristics:
- Asks for a comprehensive price quote of products or services you want to procure
- Includes bid selection, submission deadline, and payment terms
- Mostly used for products wherein quantity is known
- Helps companies know where goods are coming from and going to
3. Request for Proposals (RFP)
Request for proposals or RFP, is also sometimes called Request for Procurement. In this part of the process, the procurement manager will announce their intentions of creating a project that needs important products or services.
The RFP has the following characteristics:
- Provides a comprehensive overview of the project intended to be created
- Describes the requirements needed for the projects
- Solicits supplier bids
- Helps an organization see its options
5. Single-Source
Single sourcing is a non-competitive method that is only used in specific circumstances. Single sourcing occurs when the organization only wants to acquire materials or services from a single source although there are several suppliers available.
Choosing single-sourcing can be a deliberate and beneficial decision. The main reason is its efficiency, which presumably saves costs. Additionally, it can lead to better conditions when bundling certain items and volumes.
This method is carefully evaluated by the management team as many factors might affect single sourcing. Read more about this in sole sourcing vs single sourcing.
The Differences Between the 5 Procurement Methods
Now that you know the 5 procurement methods, we will now discuss the difference between the 5 procurement methods in the table below:
Procurement Expert’s Advice on Procurement Methods
For this article, we asked a seasoned procurement professional to share his insights regarding procurement methods.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example of procurement methods? What can readers learn from this?
“As a purchaser of high-rotation, low-value food products, my experience lies primarily with RFQs. Participants in the tender were selectively invited based on their ability to meet specifications, ensuring efficient procurement.”
2. What should readers know about procurement methods?
“The procurement method is the process that streamlines the acquisition of goods or services. There are 6 types of procurement processes and the best type of procurement method to be used depends on your company’s needs, type, and size of the company.”
Follow-up Question: Are there any factors or considerations that commonly influence the choice of procurement method, regardless of company size or industry?
“Certainly, various factors influence the choice of procurement method across industries and company sizes. These include the type of product or goods, company size, and specific procurement needs.”
3. What is the biggest misconception about procurement methods? What do most people get wrong about this topic?
“There is no ‘one-size-fits-all’ tender. Variations could be determined by industry, product or service required from the supplier, requirements, and scope of services, duration of the agreement.
One misconception is the perception that SMEs have little chance of winning public tenders.
Another misconception concerns the prejudice that existing suppliers have a preference and advantage in retendering a contract.”
4. How can companies evaluate and select the most effective procurement method for their operations?
“To evaluate and select the most effective procurement method, companies should implement various strategies first.
Once executed, they can analyze data, assess supplier performance, identify gaps, benchmark best practices, and compare results to make informed decisions.”
Follow-up Question: Could you elaborate on how companies can identify and address gaps in their procurement processes?
“The key aspect is evaluation. In every tender or operational process, it is crucial to assess the outcomes and draw insights for continuous improvement.
Applying a one-size-fits-all approach from product H to product I is not feasible, given the unique dynamics and specifics of each process.
However, what often seems lacking in many businesses is a commitment to thorough evaluation and learning from each experience.”
5. Is there a single procurement method that suits all companies?
“No, there is no single method. The selection of the method depends on the type of goods, the role, and importance of the goods for the company, and the type, and size of the company.”
6. Is it okay for procurement professionals to adopt their own methods, or should their strategies always align with the organization’s principles?
“He or she should always align the strategy with the organization’s principles but it should also fit the objectives of the tender.”
Conclusion
Procurement methods are important aspects of procurement. Knowing the different procurement methods can help an organization choose the best approach that aligns with their company’s style.
This article took a glimpse at the five procurement methods, which were open and closed tendering, two-stage tendering, RFx, and single-source.
Frequentlyasked questions
What are the 5 procurement methods?
The five procurement methods are open tendering, closed tendering, two-stage tendering, request for x, and single sourcing. These five methods help companies to streamline the purchasing of goods or services.
Is this significant in the procurement process?
Yes. The procurement method is essentially part of the procurement process. The procurement process cannot work without this.
What is the best type of procurement method?
The best type of procurement method to be used is dependent on your company’s needs, kind, and size.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
