Types of Procurement – The Ultimate Guide of 2022
There are many types of procurement used in every business but what are they?
In this article, we will analyze the different types of procurement a company uses in its daily transactions.
Once you finish this article, you will have a deeper understanding of the different types of procurement. This will allow you to master the basics of procurement that will surely help you in your journey in this field. So without any delay, let us now begin by learning its different types.
What is Procurement?
We all know what procurement means in the supply chain. But let’s consider the beginners in their journey. To give you a brief explanation, it is the process that encompasses the activities involved in acquiring the goods or services.
Although we must take note that not all companies define procurement the same as the others. Some companies define it as the overall process while others narrow it down to the issuance of orders and payments.
Procurement is often used interchangeably with purchasing. However, it is not the case. Some regard purchasing as one part of the large process of procurement. Click here to find out more about the difference between procurement and purchasing.
Going back, procurement involves every activity in acquiring the goods and services the company needs to operate. It includes sourcing, negotiating agreements, purchasing items, inspecting all delivered items, and keeping the records of each process in procurement.
How Does Procurement Work?
The procurement works through its various processes. It involves steps to follow in order for businesses to acquire their goods with ease. Procurement does not consist of isolated steps rather it is an ongoing process that jumps from one to another.
Generally, businesses desire to build a strong relationship with their potential suppliers. Businesses do this to gain the best possible services or goods at a reasonable price. To know the different steps to utilize procurement, click here.
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Why is Procurement Important?
We all know what procurement is but have you ever thought of its importance? The importance of procurement revolves around the supply chain. Procurement is one of the keys to understanding the supply chain. It entails finding the best supplier in the market that will match their requirements in terms of quality and price.
Furthermore, without procurement, it will be hard for companies to acquire goods and services that will provide a competitive advantage. This will also decrease the productivity rate and incur more losses. This is due to the fact that goods and services that are acquired by the company do not meet the requirements.
Types of Procurement
1. Direct procurement
This type of procurement refers to anything that is required to produce an end product. To simplify, it is the direct purchases of raw materials that contribute to the company’s end product.
From the retailer’s perspective, it is any item or materials that are purchased from a wholesaler to resell to customers or end consumers.
The following are the examples of a direct procurement:
- Raw materials
- Components and parts
- Items purchased to resell
2. Indirect Procurement
Indirect procurement involves the materials significant to aid the day-to-day operation without a direct contribution to the company’s product. In simple terms, it is the materials that support the operation of an organization.
Additionally, the task officers are the ones who handle it in small companies. On the other hand, large corporations utilize facilities management to handle indirect procurement. Below are some examples of indirect procurement:
- Marketing supplies
- Equipment maintenance
- Office suppliers
- Marketing services
- Consulting services
3. Goods procurement
Goods procurement clearly talks about the good itself or the physical items. Although it refers to physical items, it also includes software subscriptions. The success of goods procurement relies heavily on the efficiency of your supply chain.
Goods procurement may also include indirect and direct procurement. An example of these are:
- Raw Materials
- Equipment maintenance
- Office supplies
4. Services Procurement
Service procurement involves hiring third parties, leasing software, and contractors or vendors to work for you. To put it simply, it is sourcing people-based services. Service procurement may also include direct and indirect procurement in its process.
Elements of Procurement
The people that constitute the organization are the ones responsible to initiate every step of the procurement process. Without them, the organization cannot develop as they are essential for the everyday operation of the business.
The processes in procurement are what aid the company to develop and succeed. An efficient procurement process will lower the costs and will ensure that the supplies will arrive on time. It allows the accuracy of materials, orders, and payments which results in optimum performance of the organization.
Documents are important to make sure that all the processes are accurate. It is important to keep these records so that they can be accessed easily when the need arises. Documents act as proof that transactions happened and that they are known by the organization.
Frequently asked questions
1. What is procurement?
Procurement is the process that encompasses all the activities involved to acquire the goods or services needed by an organization.
2. Why is procurement important?
Procurement is important to understand the supply chain.
3. What type of procurement is mostly used?
All types of procurement coincide with one another but it really depends on the kind of your business.
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