Procurement is defined as the sourcing and purchasing of goods and services from an external source to address business requirements in the most suitable time frame. It also involves negotiations with potential suppliers, and strategically selecting goods and services that are important to the company.
Learn its benefits to your business and its difference to purchasing.
The procurement process
Procurement also involves communicating with customers and suppliers, evaluating proposals and creating policies for proposals, quotes and suppliers. Businesses must be careful in selecting the right suppliers, as the procurement process is related to the company’s identity and brand.
Reputable procurement services help businesses achieve greater control over the businesses and reduce risks in the buying process. Certain businesses also streamline the procurement process by digitising the buying process, keeping records for spend analysis and maintain compliance across the board. Streamlining procurement or taking advantage of procurement services enables your business to spend wisely and save money. The savings generated by procurement have a direct effect on bottom-line profits. In fact, it is one of the best models for driving profitability and increasing shareholder value.
Procurement involves several business functions and should be considered a core part of a company’s corporate strategy. Following are four aspects of corporate strategy that any business must be aware of:
- Company identity – what companies stand for, and the values that inform their business model
- Market placement – who the customers are, what they want and what they believe in
- Company capabilities – the company’s strengths, weaknesses and potential areas for growth
- Management issues – involves hiring and developing talent and determining if the company has the resources to achieve their goals
Procurement vs. Purchasing
Purchasing is just one part of procurement, as it refers to buying goods and services only. Purchasing is mainly the transactional function of procurement. Several steps in the process should have taken place by the time a business reaches the purchasing stage.
These two terms are often used interchangeably in business. However, organisations must keep in mind that purchasing is different from procurement. Procurement involves more than just steps, but an overall strategy.