What is Procurement: Process and Types – 2023
Procurement is an important part of any business and it involves the process of acquiring goods and services from outside sources. It is a critical function that helps to ensure that companies are able to obtain the materials they need so that they can complete their projects and produce products. With the right procurement processes in place, businesses can save money, streamline operations and reduce waste.
In 2023, those looking to advance their career in procurement management can pursue an online MBA in Procurement Management. By gaining additional knowledge about this field, professionals can develop a better understanding of the various types of procurement and how they should be managed. They will also gain insight into advanced topics such as supplier management, the different methods of procurement and how to structure an effective procurement plan.
- What is procurement and procurement management?
- Procurement meaning and definition
- What is a procurement process?
- Type of procurement
- Procurement best practices
- Tendering process in Kenya
- Traditional vs. strategic procurement
- Role of procurement in supplier management
- Procurement management FAQs
- Study procurement with Kenyatta University
- What is data in procurement?
- What is the most important factor in procurement process?
- How big data can benefit procurement?
- Optimising the procurement process?
- What are the five pillars of procurement?
- What is the golden rule of procurement?
- How can procurement efficiency be improved?
- What is procurement management
- What is procurement management with an example?
- What are procurement systems?
- What is the main purpose of procurement management?
- What are the components of a procurement plan?
- What are the five stages in a procurement cycle?
What is procurement and procurement management?
Procurement is an essential part of any business or public entity. It involves the process of acquiring goods and services from external sources in order to meet the organisation’s needs. The procurement process includes activities such as identifying potential suppliers, negotiating prices and selecting the best supplier for a particular product or service. Procurement management is a critical component of any successful supply chain. Procurement managers are responsible for managing all aspects of the procurement process, from identifying potential suppliers to evaluating bids and awarding contracts.Procurement meaning and definition
As explained above, procurement is the process of acquiring goods and services. This usually happens within the context of an organisation and we can look to dictionaries for a succinct procurement definition. The Collins dictionary defines procurement as follows: “Procurement is the act or process of buying, including any negotiations that this involves on price and availability.” The Oxford dictionary gives the procurement definition as “the process of obtaining supplies of something, especially for a government or an organisation”.What is a procurement process?
The procurement process includes activities such as identifying potential suppliers, negotiating prices and selecting the best supplier for a particular product or service. Procurement managers are responsible for overseeing all aspects of the procurement process, from identifying potential suppliers to evaluating bids and awarding contracts. The tender process is an important part of this process, as it allows organisations to compare different suppliers and select the one that offers the best value for money. By implementing an effective and efficient procurement process, businesses can ensure that they get the best value for money when it comes to purchasing goods and services.Purchasing
Purchasing is an essential part of the procurement process and the wider supply chain of an organisation. Purchasing managers must ensure that goods or services are of sufficient quality and that they are acquired at a good price. If purchasing is done poorly, it has a negative knock-on effect for the entire supply chain. In the case of business, poor purchasing can undercut profit or result in an inferior final end product or service. For public entities, a shoddy purchasing process can result in a failure to provide effective public services. Purchasing is a complex process that requires careful planning, negotiation and evaluation in order to ensure that the best possible deal is achieved. The purchasing process includes identifying potential suppliers, negotiating prices and terms, evaluating bids, selecting suppliers and managing contracts.Procurement plan
A procurement plan is a document that outlines the steps and processes involved in the procurement of goods and services. It is an important part of procurement management, as it helps to ensure that all necessary steps are taken in order to acquire the right goods or services at the right price. A well-crafted procurement plan can help organisations save time and money by ensuring that they are getting the best value for their money.Procurement cycle
The procurement cycle is a series of steps that are taken by an organisation to carry out is procurement or purchasing. Done correctly, the procurement cycle would ensure that the right goods and services are acquired at the right price, on time and with minimal risk. This cycle includes activities such as planning, sourcing, negotiation, contracting and monitoring.Type of procurement
There are two main types of procurement: direct procurement and indirect procurement. In general, everyday terms, indirect and direct procurement definitions sometimes refer to whether the goods or services are sourced directly or through a third party. However, within the field of procurement management, these two procurement types refer to how the goods or services fit into the company’s supply chain, with direct procurement meaning that the procured goods or material go directly into producing the end product. Indirect procurement, on the other hand, relates to support services and goods that are not directly related to the end product, such as office supplies. In addition to these two types of procurement, there are also other methods of procurement such as strategic sourcing and reverse auctions, which we explain more about further down..Procurement best practices
In order to ensure that the procurement process is efficient and cost effective, it is important to follow best practices in procurement. These best practices include setting clear objectives for purchasing, understanding different methods of procurement, developing a modern procurement policy that meets organisational needs and monitoring supplier performance. By following these best practices in procurement, organisations can ensure that they are getting the best value for their money while meeting their goals.Procurement tools
Procurement tools are a set of tools used to manage the procurement cycle. They help organisations plan, source and purchase goods and services in an efficient manner. Procurement tools can be used for different types of procurement such as direct, indirect and strategic procurement. Here are some common procurement tools used by organisations:- E-procurement software helps companies automate the entire purchasing process from requisitioning to ordering and payment. It also helps in reducing costs by providing visibility into the entire supply chain.
- Supplier management software helps procurement managers manage their suppliers in a more efficient way by automating tasks such as supplier evaluation and performance tracking.
- Spend analysis software gives users detailed insights into where money is being spent so that decisions can be made to improve cost efficiency and reduce unnecessary costs.
- Contract management software makes it easier for purchasing managers to ensure that all supplier contracts are properly monitored, tracked, updated and archived.
- Accounting software manages the company’s accounts to keep track of income and expenditure as well as to prepare financial statements..
Methods of procurement
There are various methods of procurement that procurement managers can use in their purchasing process. These include tendering, direct negotiation and reverse auctioning. Tendering is a process in which organisations invite bids from potential suppliers for goods or services they require. Direct negotiation involves negotiating directly with potential suppliers to get the best deal possible. Reverse auctioning is an online bidding process in which suppliers compete against to offer the lowest price for a product or service. Each method has its own advantages and disadvantages, so it’s important to consider all options before making a decision about which procurement method to use.Objectives of purchasing
The objectives of purchasing are to ensure that goods and services are acquired at the best possible price, quality and delivery time. Tendering is one of the most common methods used for procurement. It involves inviting bids from potential suppliers for a particular product or service. This helps organisations compare different offers and select the best one that meets their requirements. Different types of procurement such as direct purchase, competitive bidding and reverse auction can be used depending on the nature of goods or services required by an organisation.Tendering process in Kenya
As with any country, the tendering process in Kenya is an important part of the country’s economy and plays a large role in the government’s ability to provide public services. Kenya’s public procurement and government tenders are handled by the Public Procurement Regulatory Authority (PPRA). The PPRA was created when the Public Procurement and Asset Disposal Act was enacted in January 2016. The PPRA’s task is to monitor, assess and review the public procurement and asset disposal system to ensure they respect Kenya’s national values. It is credited with evolving Kenya’s public procurement system from “a crude system with no regulations to an orderly legally regulated procurement system”. The tendering process in Kenya involves a number of steps, such as pre-qualification, submission of bids, evaluation of bids and the award of contracts. The tendering process also includes measures to ensure fairness and transparency throughout the entire process. The PPRA uses the Public Procurement Information Portal (PPIP) to publish contract awards and tender notices. Kenya’s National Treasury also maintains a list of all tenders that are open to public bidding.Traditional vs. strategic procurement
Traditional procurement and strategic procurement are two different approaches to purchasing goods and services. Each of the two methods of procurement has their advantages and disadvantages. Traditional procurement focuses on cost savings, while strategic procurement focuses on long-term value. Traditional procurement is a process of buying goods and services that focuses on immediate savings and efficiency. Strategic procurement, on the other hand, is a more comprehensive approach to purchasing that takes into account the long-term goals of an organisation. It involves analysing the market, understanding customer needs and developing relationships with suppliers. Traditional procurement can be faster and more cost effective in the short term, but it may not be as effective in meeting long-term goals. Strategic procurement requires more time and resources upfront but can result in better value for money over time.Role of procurement in supplier management
Procurement plays a key role in supplier management. It is responsible for ensuring that the right products and services are sourced from the right suppliers at the right price. Procurement professionals must have an in-depth understanding of the supplier market, their capabilities and their pricing. They must also be able to evaluate suppliers based on quality, reliability and cost effectiveness. Procurement professionals also need to be able to identify potential risks associated with suppliers and manage those risks accordingly. This includes setting up contracts with suppliers that contain specific terms and conditions, monitoring supplier performance over time and taking corrective action when needed.Procurement FAQ’s
Here are some common questions about procurement management and organisational supply chains.What is data in procurement?
Procurement data is used to track and manage the purchasing of goods and services. It includes information such as supplier details, purchase orders, invoices and contracts. This data can be used by procurement managers to analyse trends in procurement activities, identify cost-saving opportunities and improve the efficiency of the procurement cycle. Examples of procurement data include supplier names, product descriptions, prices paid for goods or services, delivery dates and payment terms. Having access to detailed and accurate procurement data is important for effective procurement management. Procurement data provides procurement managers with valuable insights into their purchasing activities that can help them make better decisions about their procurement processes.What is the most important factor in the procurement process?
There are many factors that need to be considered within the procurement process. If we have to choose a single factor as the most important, it would be value for money. For an organisation to achieve value for money, it must ensure that the right goods and services are acquired at the right price, with quality assurance and timely delivery. This means that value for money is not about sourcing the cheapest supplier, but rather the best possible supplier for the organisation’s needs. To achieve the best possible value for money, procurement or purchasing managers must consider various factors such as supplier selection, negotiation strategies, contract management and risk management.How big data can benefit procurement?
Big data refers to the large amount of data that is collected and analysed to gain insights into various aspects of business operations. In procurement management, big data can be used to identify trends in pricing, supplier performance and customer demand. It can also be used to improve forecasting accuracy and reduce costs associated with procurement activities. By taking advantage of big data, companies can make better decisions about their supply chain and ensure they get the best value for money. Examples of how big data can benefit procurement include improved supplier selection processes, better inventory management and more accurate forecasting.Optimising the procurement process?
To ensure that the procurement process runs smoothly, it is important to optimise it by streamlining processes, leveraging technology and improving stakeholder communication. Streamlining processes is a way to improve the speed of procurement by making sure there are no unnecessary steps taken during the whole process. This will help to reduce costs, increase efficiency and ensure that goods and services are procured in a timely manner.What are the five pillars of procurement?
To ensure that the procurement process is successful, there are five pillars that need to be taken into consideration. These five pillars are strategic sourcing, supplier management, contract management, risk management and performance measurement.- Strategic sourcing involves researching and selecting suppliers that can provide the best quality goods or services at the most competitive prices.
- Supplier management focuses on building relationships with suppliers to ensure that they meet all requirements in terms of quality and delivery times.
- Contract management ensures that all contracts are properly managed and monitored for compliance with regulations and standards.
- Risk management helps identify potential risks associated with procurement activities and also entails developing strategies to mitigate them.
- Performance measurement helps track progress against the goals that have been set for the organisation’s procurement activities.
What is the golden rule of procurement?
The golden rule of procurement is to always get the best value for money. This means that when making a purchase, you should always consider the quality of the product or service, its cost and any other factors that may affect your decision. By following this rule, you can ensure that you are getting the most out of your money and making wise purchases.How can procurement efficiency be improved?
Procurement efficiency is an important factor in the success of any business. Improving procurement efficiency can help businesses save money, reduce waste and increase profitability. Some strategies that can be used to improve procurement efficiency include streamlining processes, leveraging technology and procurement tools, utilising data-driven insights, improving supplier relationships and implementing best practices. By leveraging data-driven insights and technology, companies are able to gain greater control over their supply chain and improve supplier relationships. Procurement managers can also use these tools to improve the efficiency of their procurement plan and procurement cycle by automating processes, increasing visibility into spending patterns and getting a better understanding of their suppliers’ performance.What is procurement management?
As we’ve already explained, procurement management is the process of acquiring goods, services and materials from external sources in order to meet the needs of an organisation. Professionals who work in procurement management are tasked with identifying potential suppliers, negotiating contracts and managing relationships with vendors.What is procurement management with example?
Procurement is the process of acquiring goods or services or works for an organsation’s needs, usually by purchase or lease. For example, a company may need to purchase raw materials for manufacturing its products. In this case, procurement management would involve researching and selecting the best supplier for these materials at the lowest possible price. The procurement team would also need to negotiate with suppliers and review contracts to ensure that all terms are in line with the organisation’s objectives.What are procurement systems?
Procurement systems are automated solutions that help organisations manage their purchasing processes. They provide a streamlined way to purchase goods and services, from the initial request to the final delivery. Procurement systems can help organisations save time and money by streamlining the process of finding suppliers, negotiating prices and tracking orders. Additionally, they can provide valuable insights into spending patterns and trends that can be used to make better decisions in the future. For some examples of how procurement systems are used, please see our section on procurement tools.What is the main purpose of procurement management?
The goal of procurement management is to ensure that the organisation obtains the right product or service at the right price, in a timely manner and with minimal risk. Another way of stating the main goal of procurement management is to ensure that an organisation gets the best value for its money. Done correctly, the company’s procurement should run seamlessly and allow for optimal efficiency within the organisation’s production cycle or workflow.What are the components of a procurement plan?
A procurement management plan documents the company’s policies and procedures related to purchasing goods or services from external suppliers or within their own organisation. The plan should include guidelines for how supply requests are handled, what factors are considered when selecting suppliers and how to provide feedback to suppliers. The procurement management plan should include a summary of the company’s company’s objectives and decision criteria for purchasing goods or services from suppliers. It should also include guidelines on how supplier requests are submitted and evaluated. The plan should cover all stages in the procurement process from initial contact through to evaluation of the acquired services or goods and the process to get them.What are the five stages in a procurement cycle?
The procurement cycle consists of five stages: planning, solicitation, selection, contract administration and closure.- Planning is the first stage of the procurement cycle and involves understanding what goods and services are needed, the budget allocated for them and when they are needed.
- During the solicitation stage, companies open up the tendering process and invite suppliers to submit bids for their requirements.
- Selection is the process of evaluating bids and selecting a supplier that best meets the organisation’s needs.
- Contract administration involves negotiating with the selected supplier to ensure that all contractual requirements are met.
- Closure is when the company completes all activities related to procurement such as payment of invoices and finalising any remaining paperwork.
