Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Procurement Models — Explanation and Examples
What are procurement models?
- Procurement models are considered the blueprints for the process of obtaining goods and services as they provide clear guidelines for it.
- Procurement models guide businesses in identifying and selecting the right suppliers and methods for the acquisition of necessary resources.
- Any of the 5 fundamental procurement models can be utilized to the benefit of the organization, depending on one that best aligns with their goals and requirements.
What are Procurement Models?
Procurement models are the set of procedures used to get goods and services from outside suppliers. It’s like an organized way of buying things from your suppliers. These models help make sure you get goods and services at a good price and top quality. They also make sure that you pick trustworthy suppliers and get what you need without any problems.
Think of it like a building puzzle. Each procurement model is like a different piece of the puzzle that helps businesses figure out the best way to buy things. Procurement models help you get a clear picture of what smart decisions to make in getting the goods and services you need.
Procurement models, by helping you find the right suppliers, can also help you choose the best way to get what they need. They simplify complex ideas in procurement. These models make it easier for you to keep your goals in focus and communicate your strategies more clearly and easily.
5 Basic Procurement Models
We have five basic models in procurement, the local, the central, the network, the federal, and the centrally-led network. Let’s go over them one by one:
1. Local Procurement Model
In this model, everything happens locally. Each place or team makes its own decisions and controls its activities without much outside influence.
Imagine a chain of small, independently owned coffee shops. Each shop decides which beans to buy, how much milk to order, and what pastries to stock. They run their operations without much interference from a central authority.
2. Central Procurement Model
In this model, most decisions and actions are controlled from one central place. However, some local activity might still happen, like ordering supplies based on a contract managed centrally.
Consider a large retail chain with stores in different cities. The head office negotiates contracts with suppliers for products like electronics. While individual stores might order these products, the central office ensures they all follow the same supplier agreements and pricing.
3. Networked Procurement Model
In this model, different local units work together like a team. They coordinate their actions, but there isn’t complete independence in decision-making. Instead, various nodes on the network have some control.
Think of a multinational hotel chain. Each hotel in different countries has some say in selecting suppliers for food, linens, and amenities. However, there’s a central network that coordinates the overall supply chain to ensure brand consistency and quality standards.
4. Federal Procurement Model
This model is kind of a mix between the central and local models. Some things are controlled locally, while others are controlled centrally. The term “federal” suggests some central authority. Whether local units have control is decided by rules or agreements, often from the center.
Picture a national government system. Some departments, like defense, might have centralized procurement, while others, like education, have more autonomy to choose suppliers based on their specific needs. This mix reflects a federal approach where some control is central, and some is local.
5. Centrally-led Network Procurement Model
In this model, all local units work together, but the center is the main boss, making most of the decisions.
Consider a global technology company. It has offices all around the world. While each office can have some local say in choosing IT suppliers, the company’s headquarters in Silicon Valley plays a dominant role in making major decisions about technology procurement for the entire organization.
Each procurement model has their own way of organizing and making decisions about procurement. The choice depends on what works best for the organization and how they want to balance local and central control.
Factors to Consider When Selecting a Procurement Model
Choosing the right procurement model for your business is very important. To make the best choice, you need to think about a few important factors:
1. Timeline
You need to consider the time; you need to know how long it will take to finish the project. If you need to finish quickly, you might choose a different way to buy things than if you have more time. An example of this would be the food industry.
If you have a restaurant, you want to serve fresh food to your customers every day. You can use a Just-in-time (JIT) procurement model which lets you order ingredients and supplies just in time for each day’s meals. It’s often the right procurement model for you if your business offers a fast-paced service.
2. Budget and Financing
You need to know your budget. You need to make sure you can afford what you’re buying. You can’t identify the right procurement model without having a fixed budget.
If your budget is limited, you might need to find a procurement model that fits your budget, like recycling your old materials. You might consider choosing something like a closed-loop procurement system.
3. Quality
It’s also important to know the quality of the goods you’re buying. You can’t have a successful procurement model if your goods break easily.
If your business prioritizes product quality, the supplier quality partnership procurement model might be the right choice for you. This procurement model ensures that the materials meet stringent quality standards.
4. Risk
You need to prepare your business for what could go wrong. If your business deals with an industry that is risk-prone, you can choose the dual-sourcing procurement model.
This procurement model purchases the same component from two different suppliers to ensure that if one faces issues, you can still continue production with the other.
5. Opportunities
This is about finding good chances to save money or do things better. You need to think of finding opportunities to get things cheaper or faster.
A good example of this is how most healthcare clinics join together to purchase medical supplies and equipment.
They use the group purchasing organization (GPO) system to pool their purchasing power. This leverages volume discounts and provides cost-saving opportunities that individual clinics wouldn’t have access to.
Conclusion
In short, having a good procurement model for your business is very important. They help you acquire the goods and services your business needs. Making smart decisions in procurement can lead to a strong foundation for your project. It plays an important part in helping you get a good view of the goods and services your business needs.
It’s very important to be knowledgeable about the different procurement models and understand how they work to help your business. By carefully considering factors such as time, budget, quality, risks, and opportunities, you can choose the right procurement model for your business. This choice can greatly impact how well your project turns out.
So, having a good knowledge of what a procurement model is, and having a well-thought-out procurement strategy can lead to success and ensure that everything in your business comes together smoothly.
Frequentlyasked questions
What is a procurement model?
Procurement Models are the methods and techniques used to get products and services from outside suppliers. They guarantee that you get products and services in the best possible price and quality.
Why are procurement models important?
Having a procurement model for your business makes it easier to understand complicated and confusing concepts within procurement. These models help you to focus on your goals and explain your tactics more effectively.
What is an example of a procurement model?
An example of a procurement model would be the local procurement model. In this model, each place or team makes its own decisions and controls its activities without much outside influence.
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.
