Procurement is a strategy in supply chain management for acquiring goods and services for a company from a vendor or external source. The process involves requesting bids or receiving tender invitations from vendors and finding the appropriate product for the company.
How is procurement different from purchasing?
This is an important distinction to make. Procurement might include market research, vendor evaluation, cost-benefit analysis, and negotiation of contracts as well as purchasing. Purchasing is a facet of the procurement cycle.
Breaking it down.
To differentiate levels of source strategies, purchasing is a function of procurement and procurement is a function of acquisition. Think: three-layered matryoshka doll. Acquisition is the largest doll, procurement the middle, and purchasing the smallest.
In procurement your company might consider cost, time, location of the good or service, quantity, quality, reliability and competency of vendor and the overall costs and benefits to the company. All contribute to the actual price of the procurement process.
How did procurement become a practice in acquisition?
The process of modern procurement started in the early 20th century and took hold as the dominant tactical business practice after the 1990s. As corporate models began to mature and expand (specialization) and the market sourcing became increasingly global (complex and competitive) the process of securing the highest quality good or service with the most benefit and lowest cost became ever more important to the health of corporate finance. The C-level position of Chief Procurement Officer (CPO) was created to manage these responsibilities within a company.
Continue reading for more information on the Process of Procurement.