Understanding What Is Procurement:
When people talk about procurement, they think it’s just obtaining raw materials from the supplier. But the term “procurement ” is much more vast than that. It is the first phase of a manufacturing process where goods are sourced or services bought from the supplier or the business vendor.
It is not uncommon for the process to be specified to just the buying of goods or services. However, all the stages that lead up to purchasing the product can also be included in the process.
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It is a significant factor in an organization, and globally if procuring resources is tabulated as a service market size, it is expected to reach a market value of about 7.8 billion dollars by 2024. The process refers only to the buyer’s activities, although the interactions are always between the buyers and the sellers.
It is done on a massive scale by the business, and the goods or services bought by the company are used in the manufacturing of the final product. Being the most vital phase of any business, obtaining the raw materials ensures that the buyers get good quality products at a competitive price.
Although it does seem like a straightforward process, the steps leading up to it are very complex and require careful planning and thinking.
There’s the selection of a vendor that offers the services suited for the buyer, followed by a considerable price fixation. With different contracts and agreements to be signed and authorized, both parties agree to fix the purchase finally. Based on the type of goods and services, procurement is classified into direct, indirect, and service.
The Process Of Identifying and Procuring Resources:
The process involves a large number of steps or stages implemented by a business. These stages differ for each company, but they aim to obtain the best goods so that they can create the final product more effectively and profitably.
Businesses must take care to understand the various pitfalls in this process and change or adapt accordingly. Once every aspect is reviewed daily, deadlines can be met within schedule, and businesses can derive the highest efficiency for their production capacity.
As mentioned before, every business has a different process of securing raw materials from suppliers than the other companies. But the various stages of undergoing it are more or less the same. They are:
- Identification of the need for a specific set of goods, services, or equipment.
- Writing down the specifics of the required product after consultation with the business heads and technicians.
- Finding out the most reliable source for that specific service or equipment.
- Negotiating a price and finalization of different terms of purchase.
- Fabricating the purchase requisition and generating a purchase order that adheres to all the terms and conditions.
- The purchase order delivered to the buyer or company.
- Creating a timeline or schedule for the prompt delivery of the service of goods.
- Inspection of the delivered goods or services by the buyer to ensure that everything is in order.
- The process of payment done by the buyer for the delivered goods and services.
- Reviewing the process and keeping records for future references or legal purposes.
Procurement And Purchasing: Understanding The Difference
Many people confuse these terms and often consider them both as the same. It is, however, not true. Procuring resources is the entire process that involves identifying the need, specifying the different requirements, and finding the vendors or suppliers that are best suited for the necessity.
However, purchasing is not the same. Purchasing a product is a part of the procurement process, a sub-step in the different stages that leads to successfully obtaining the products. Purchasing a product deals only with the purchase requisition, receiving or verifying the goods or services, and finalizing the payments.
Purchasing involves a specific aspect of procuring, whereas the process focuses on and encompasses different factors, including purchasing. Purchasing has only a few steps that focus solely on monetary transactions.
There is no strategic planning or thinking involved here. Finding resources takes a lot of risks to be considered, as this affects the entire chain of the manufacturing process. Purchasing, being just a transaction, has no risks that need to be mitigated and does not consider the relationship between suppliers and buyer.
Obtaining raw materials is always an ongoing process as employees are always on the lookout for the organization’s various needs and finding the best suppliers for that specific need.
Purchasing is essential and lasts only for a short time when the buyer and the sellers confirm and transfer the payments. These concepts differ in their stages, their ultimate objectives, and their impacts on the company on a vast scale.
