Procurement involves the purchasing of the materials needed for production or other operational purposes. Almost all organizations buy products and services and have staff dealing specifically with procurement. There is a strong relationship between purchasing and logistics. Especially the operational aspects of logistics operations.
The procurement process is divided into strategic, tactical and operational procurement. Purchasing is also divided into direct – everything related directly with the end product / service. Or indirectly (non product related, NPR) – supportive aspects, including maintenance, energy, agency, office, etc.
Strategic procurement entails making a choice on which supplier should deliver the goods or services, and at what terms. In this case, the buyer must also take into consideration the practices of the company in question. Besides the price, the choice is determined by the morality and professionalism of the other party’s organizational policies.
That is, the attitude of the supplier towards the environment, child labor and human rights, etc. In addition to the customer-supplier relationship in the long term. Reciprocal and friendly relations regularly play a gentle role in the choice of suppliers.
The relationship can be expressed in different ways. The buyer makes a choice depending on the product of a vendor or multiple vendors. The advantage of multiple suppliers is that if the preferred supplier falls into bankruptcy one can easily go to another supplier and the goods are not impeded.
With operational procurement orders are done for familiar products and services within a framework of a contract. The delivery and liaison with suppliers is monitored to ensure that the ordered goods are made available at exactly the right time, place and quantity.
The difference between expected and actual sales may cause the production to be adjusted. If the purchases does not meet the expected production orders they must be moved in time or canceled.
Depending on the size and professionalism of an organization there are different steps in the purchasing process, and these include:
– Requesting quotes from multiple vendors for goods and / or deliver services.
– Negotiating with suppliers
– Preparation of a (framework) contract with a supplier.
– Ordering from an authorized supplier.
– Confirmation with reference to the agreed terms.
– Invoice sent to customer with reference to the agreed terms.
– Payment of invoices to supplier.
Some of the above steps can also be outsourced to a professional purchasing organization, consultancy or intermediary if the organization does not have a purchasing department and/or requires specific knowledge.
The budget is the expected value of the purchases and sales for the coming year. The budget reflects the strategic choices and known facts for the coming period. It can make use of historical sales data and forecasts about the quality of the sales, as expected. The expectations are actually realized through orders and contracts.