Types of Procurement – The Ultimate Guide of 2023

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
  • 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 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:

1. Raw Materials
2. Equipment maintenance
3. Items
4. 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

1. People

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. 

2. Process

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. 

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.