Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

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 because the goods and services the company acquires do not meet the requirements. 

Types of Procurement

There are various types of procurement and if you’re curious to know what they are, we’ve compiled this list specially for you!

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
• Machinery
• 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 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
• Items
• 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. 

At Procurement Tactics, we have experience in all types of procurement. If, after reading this article, you would like to learn more about the various forms of procurement, we would be delighted to assist you further.

Elements of Procurement

Here are essential elements of procurement that you should know about.

1. People

The people who constitute the organization are the ones responsible for initiating every step of the procurement process. Without them, the organization cannot develop as they are essential for the everyday operation of the business. 

That people are important, nobody needs to explain. The question is how your company trains its people so they can perform optimally in their procurement field. In companies where I have worked, I am accustomed to people being optimally trained. Whether you are purchasing raw materials or finished products ready for sale, it remains true that well-trained individuals will undoubtedly be able to achieve better results.

2. Process

The processes in procurement are what aid the company to develop and succeed. An efficient procurement process will lower 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. 

The second element, which is also a no-brainer, is the process. In addition to having good, motivated, and well-trained people, there must also be a process in place that empowers these people and contributes to the right outcome. I have seen several companies where this was not the case. 

Tasks and responsibilities are often placed too high up in the company, or the process relies heavily on Excel documents, involving a lot of manual work, which can also lead to input errors. The best course of action is to document the various processes within procurement and carefully consider which steps can be improved and who should perform each step.

3. Documents

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. 

When we talk about documents, it can refer to various types of documents. One that I want to mention here is the addition of EDI (electronic data interchange). Adding EDI to your business processes ensures that important documents such as invoices and orders can be sent electronically and automatically. This increases efficiency and reduces the chance of errors.

Conclusion

Mastering procurement, understanding diverse types, recognizing its pivotal role, and focusing on essential elements are crucial for professional success in this field.

If you want to know more about procurement be sure to look around on our website at our other articles, or better yet, buy a procurement course as an investment for you and your company’s future!