Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process.[1] The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.[2]
Procurement as an organizational process is intended to ensure that the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared.[3]Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing risks such as exposure to fraud and collusion.
Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and fluctuations in the prices of goods. Organisations which have adopted a corporate social responsibility perspective are also likely to require their purchasing activity to take wider societal and ethical considerations into account.[4] On the other hand, the introduction of external regulations concerning accounting practices can affect ongoing buyer-supplier relations in unforeseen manners.[5]
History
Formalized acquisition of goods and services has its roots in military logistics. The Romans developed a system of supply depots that were located throughout their empire. These depots were stocked with food, weapons, and other supplies that could be quickly distributed to troops in the field. This system helped to ensure that the Roman army was always well-supplied, even when it was fighting far from home. [6]
The first record of what would be recognized now as the purchasing department of an industrial operation relate to the railway companies of the 19th century:
"The intelligence and fidelity exercised in the purchase, care and use of railway supplies influences directly the cost of construction and operating and affect the reputations of officers and the profits of owners."[7]
An early reference book from 1922 explains that
"The modern purchasing agent is a more important man by far than he was in older days when purchasing agents were likely to be rubber stamps or bargainers for an extra penny. A Purchasing agent of the modern breed is a creative thinker and planner and now regards his work as a profession."[8]
Overview
The Institute for Supply Management (ISM) defines procurement as an organizational function that includes specification development, value analysis, supplier market research, negotiation, buying activities, contract administration, inventory control, traffic, receiving and stores. Federal US legislation defines procurement as including
all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.[9]
Purchasing is a subset of procurement that specifically deals with the ordering and payment of goods and services. Organizational procurement is also referred to as "organizational buying" or "institutional buying", for example in studies of the buying behaviour of staff involved in purchasing decision-making.[10]
Procurement activities are also often divided into two distinct categories, direct and indirect spend. Direct spend refers to the production-related procurement that encompasses all items that are part of finished products, such as raw materials, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect procurement concerns non-production-related acquisition: a wide variety of goods and services, from standardized items like office supplies and safety equipment to complex and costly products and services like heavy equipment, consulting services, and outsourcing services.[11][12]
Procurement is one component of the broader concept of sourcing and acquisition. Typically procurement is viewed as more tactical in nature (the process of physically buying a product or service) and sourcing and acquisition are viewed as more strategic and encompassing.
The Institute for Supply Management (ISM) defines strategic sourcing as the process of identifying sources that could provide needed products or services for the acquiring organization.[citation needed] The term procurement is used to reflect the entire purchasing process or cycle, and not just the tactical components.
There is also an important distinction between the terms "procurement" and "purchasing"; the clear distinction between the two is often lost amidst the ambiguities of international English. As a broad definition,[13] "procurement" is the overarching function that describes the activities and processes to acquire goods and services. Importantly, and distinct from "purchasing", it involves the activities involved in establishing fundamental requirements, sourcing activities such as market research and vendor evaluation and negotiation of contracts. It can also include the purchasing activities required to order and receive goods.
Acquisition and sourcing are therefore much wider concepts than procurement.
Multiple sourcing business models and acquisition models exist.
Acquisition processes
A linear acquisition process used in industry and defense is shown in the next figure, in this case relating to acquisition in the technology field. The process is defined by a series of phases during which technology is defined and matured into viable concepts, which are subsequently developed and readied for production, after which the systems produced are supported in the field.[14]
Model of the acquisition process
The process allows for a given system to enter the process at any of the development phases. For example, a system using unproven technology would enter at the beginning stages of the process and would proceed through a lengthy period of technology maturation, while a system based on mature and proven technologies might enter directly into engineering development or, conceivably, even production. The process itself includes four phases of development:[14]
Concept and technology development is intended to explore alternative concepts based on assessments of operational needs, technology readiness, risk, and affordability.
The concept and technology development phase begins with concept exploration. During this stage, concept studies are undertaken to define alternative concepts and to provide information about capability and risk that would permit an objective comparison of competing concepts.
The system development and demonstration phase could be entered directly as a result of a technological opportunity and urgent user need, as well as having come through concept and technology development.
The last, and longest phase is the sustainable and disposal phase of the program. During this phase all necessary activities are accomplished to maintain and sustain the system in the field in the most cost-effective manner possible.
Some aspects of a procurement process may need to be initiated ahead of the majority of the project, for example where there are extensive lead times. Such cases may be referred to as "advance procurement".[15][16]
Many writers also refer to procurement as a cyclical process, which commences with a definition of business needs and develops a specification, identifies suppliers and adopted appropriate methods for consulting with them, inviting and evaluating proposals, secures on contract and takes delivery of a new asset or accepts performance of a service, manages the ownership of the asset or the delivery of the service and reaches an end-of-life point where the asset becomes due for replacement or the service contract terminates. At this point the cycle would recommence.[17][18] The Chartered Institute of Procurement & Supply (CIPS) recommends involvement of procurement staff and skills from an early stage in the cycle, noting that such "early procurement involvement" can have a beneficial impact on the nature and timing of any approach to market, the specification and the sourcing strategy and supplier selection approach adopted.[19] Charles Dominick notes that procurement or purchasing involvement at "the earliest stages" of any significant supplier deal can also help ensure the appliction of strong ethical principles to negotiation processes, apply expertise in areas such as comprehensive supplier suitability assessment and protect against future risks such as price shocks.[20]
Procurement decisions fall along a continuum from simple buying transactions to more complex buyer-supplier collaborations.[citation needed] There are a number of models along the sourcing continuum: basic provider, approved provider, preferred provider, performance-based/managed services model, vested business model, shared services model and equity partnerships.[citation needed]
A basic provider model is transaction-based; it usually has a set price for individual products and services for which there are a wide range of standard market options. Typically these products or services are readily available, with little differentiation in what is offered.
An approved provider model uses a transaction-based approach where goods and services are purchased from prequalified suppliers that meet certain performance or other selection criteria.
The preferred provider model also uses a transaction-based economic model, but a key difference between the preferred provider and the other transaction-based models is that the buyer has chosen to move to a supplier relationship where there is an opportunity for the supplier to add incremental value to the buyer's business to meet strategic objectives.
A performance-based (or managed services model) is generally a formal, longer-term supplier agreement that combines a relational contracting model with an output-based economic model. It seeks to drive supplier accountability for output-based service-level agreements (SLAs) and/or cost reduction targets.
A vested sourcing business model is a hybrid relationship that combines an outcome-based economic model with a relational contracting model. Companies enter into highly collaborative arrangements designed to create and share value for buyers and suppliers above and beyond.
A shared services model is typically an internal organization based on an arms-length outsourcing arrangement. Using this approach, processes are often centralized into an SSO that charges business units or users for the services they use.
An equity partnership creates a legally binding entity; it can take different legal forms, from buying a supplier (an acquisition), to creating a subsidiary, to equity-sharing joint ventures or entering into cooperative (co-op) arrangements.[citation needed]
Procurement software (often labeled as e-procurement software) manages purchasing processes electronically or via cloud computing.
Performance
CIPS promotes a model of "five rights", which it suggests are "a traditional formula expressing the basic objectives of procurement and the general criteria by which procurement performance is measured", namely that goods and services purchased should be of the 'right quality', in the 'right quantity', delivered to the 'right place' at the 'right time' and obtained at the 'right price'.[21] CIPS has in the past also offered an alternative listing of the five rights as "buy[ing] goods or services of the right quality, in the right quantity, from the right source, at the right time and at the right price.[22] 'Right source' is added as a sixth right in CIPS' 2018 publication, Contract Administration.[23]
Delivery on savings goals is an important part of the procurement function, but this objective is generally seen as value generation rather than cost reduction.[24] CIPS also notes that securing savings is "one measure of purchasing performance", but argues that savings should only be used as a measure of performance where they are "a reflection of the [organisation]'s ... expectations of the purchasing and supply management function". CIPS distinguishes between "savings", which can reduce budgets, and "cost avoidance", which "attempts to thwart price increases and to keep within budget".[25] Examples of savings as a beneficial outcome include:
agreeing a reduction in price, obtaining the same item for less cost
sourcing, or developing a supply of, a lower quality item at a reduced cost, where the item is still fit for purpose
Ardent Partners published a report in 2011 which presented a comprehensive, industry-wide view into what was happening in the world of procurement at that time by drawing on the experience, performance, and perspective of nearly 250 chief procurement officers (CPOs) and other procurement executives. The report included the main procurement performance and operational benchmarks that procurement leaders use to gauge the success of their organizations. This report found that the average procurement department manages 60.6% of total enterprise spend. This measure, commonly called "spend under management" or "managed spend", refers to the percentage of total enterprise spend (which includes all direct and indirect spend) that a procurement organization manages or influences. Alternatively, the term may refer to the percentage of addressable spend which is influenced by procurement, "addressable spend" being the expenditure which could potentially be influenced.[26] The average procurement department also achieved an annual saving of 6.7% in the last reporting cycle, sourced 52.6% of its addressable spend, and has a contract compliance rate of 62.6%.[27] A more restrictive definition of "spend under management" includes only expenditure which makes use of preferred supplier contracts and negotiated payment rates and terms.[28]
Consultants A.T. Kearney have developed a model for assessing the performance of a procurement organisation or the procurement function within a wider organisation, known as ROSMASM (Return on Supply Management Assets).[29] According to the 2016 ROSMA Performance Check Report, What Good Looks Like,
the procurement profession has a top-tier group of standout performers, a middle-tier that is delivering value, but performing well below the top tier, and a large group of bottom-quartile performers that add limited value to their organizations.[30][31]
CIPS promotes organisational self-assessment using the ROSMA Performance Check, arguing that it enables a procurement department to "measure and explain procurement and supply's value in terms your CFO and CEO will understand, using a common financial standard".[30] Findings in 2020 suggested that "top quartile procurement performers have ROSMA scores two to three times higher than those in the middle two quartiles".[32] A.T. Kearney's report suggests a close match between the self-reported performance of CPOs in the best performing departments and the view of procurement held by the CFO and the organisation more widely, and also notes that weaker performers or "inconsequentials" share a distinct profile marked by lack of "identifiable leadership accountable for procurement's performance.[31]:page 5
Spend under management also contributes to an additional measure of procurement performance or procurement efficiency: procurement operating expense as a percentage of managed spend.[33]
Joint ventures
Joint procurement takes place when two or more organisations share purchasing activities, and therefore has a more specifically buyer-side focus than many examples of collaborative buyer-seller relationships. Kamann, van der Vaart and de Vries propose a "theoretical frame of reference" to explain various approaches to understanding "why would companies work together in the first place?"
a transaction cost economics approach, where the total transaction costs of the actors involved are lower when they work together
neo-classical economics' case, arguing that certain functions become separate, specialised units in order to obtain scale effects
neo-institutionalism - the argument that actors work together because it is the thing to do these days.[34]
They note also that many large and powerful companies "do not have - nor feel - the need to go together".[34]
Joint or collaborative procurement is a common practice within public sector procurement. There are central purchasing bodies in many countries which coordinate joint purchasing activities for public sector organisations. A report commissioned by the European Parliament's Committee on the Internal Market and Consumer Protection (IMCO) has recommended that EU Member States "should consider creating Central Purchasing Bodies (CPBs)" in order to secure "coherent and coordinated procurement".[35] On a trans-national scale, Guyana, Barbados and Rwanda announced "a programme of mutual support for the local manufacturing of vaccines and medicines" in July 2023 for which a "pooled procurement mechanism" would be required.[36]
Procurement and Finance have, as functions within the corporate structure, been at odds.[37] The contentious nature of their relationship can perhaps be attributed to the history of procurement itself. Historically, Procurement has been considered Finance's underling. One reason behind this perception can be ascribed to semantics. When Procurement was in its infancy, it was referred to as a "commercial" operation. And so the procurement department was referred to as the commercial department rather than the procurement department: the word "commercial" was understood to be associated with money. And so it was obvious that Procurement would become directly answerable to Finance. Another factor, equally grounded in semantics, was that procurement departments (or rather, commercial departments) were always seen as "spending the money". This impression was enough to situate Procurement within the Finance function.
Procurement and Finance are functions with interests that are mutually irreconcilable. Whereas Procurement is fundamentally concerned with the spending or disbursal of money, Finance, by its very nature, performs a cost-cutting role. That is fundamentally the reason why Procurement's aspirations have been constantly checked by Finance's cost-cutting imperatives. This notion has been changing as more chief procurement officers have begun to argue for more autonomy and less interference from Finance departments.
Electronic procurement is the purchasing of goods by businesses through the internet or other networked computer connection.[39]Electronic data interchange (EDI) was a forerunner to electronic procurement, this consisted of standardized transmission of data such as inventories and good required electronically. Schoenherr argues that EDI developed from standardized manifests for deliveries to Berlin during the Berlin Airlift which were applied by DuPont in the 1960s and argues that Material requirements planning and Enterprise resource planning were both forerunners to electronic procurement.[40]:35
Public procurement, also known as government procurement, is when a governing body purchases goods, works, and services from an organization for themselves or the taxpayers.[2][41][42] In 2019, public procurement accounted for approximately 12% of GDP in OECD countries[43] and in 2021 the World Bank Group estimated that public procurement made up about 15% of global GDP.[44]
Benefits
Public procurement is based on the idea that governments should direct their society while giving the private sector the freedom to decide the best practices to produce the desired goods and services.[45]:Chapter 1 One benefit of public procurement is its ability to cultivate innovation and economic growth.[46][47][48] The public sector picks the most capable nonprofit or for-profit organizations available to issue the desired good or service to the taxpayers. This produces competition within the private sector to gain these contracts that then reward the organizations that can supply more cost-effective and quality goods and services. Some contracts also have specific clauses to promote working with minority-led, women-owned businesses and/or state-owned enterprises.[49] Competition is a key component of public procurement which affects the outcomes of the whole process.[50] There is a great amount of competition over public procurements because of the massive amount of money that flows through these systems; It is estimated that approximately one trillion USD is spent on public procurement worldwide every year.[51]
Environmentalism
In public procurement, contracting authorities and entities take environmental issues into account when tendering for goods or services. The goal is to reduce the impact of the procurement on human health and the environment.[52]
In the European Union, the commission has adopted its communication on public procurement for a better environment, where proposes a political target of 50% Green public procurement to be reached by the Member States by 2010.[53] The European Commission has recommended GPP criteria for 21 product/service groups which may be used by any public authority in Europe.[54]
The EU has also launched the GPP 2020, which aims to implement 100 low-carbon tenders.[55][56]
Social and environmental considerations can be applied to contracts both above and below the threshold for application of the EU Procurement Directives. The 2014 Procurement Directives enable public authorities to take environmental considerations into account. This applies during pre-procurement, as part of the procurement process itself, and in the performance of the contract. Rules regarding exclusion and selection aim to ensure a minimum level of compliance with environmental law by contractors and sub-contractors. Techniques such as life-cycle costing, specification of sustainable production processes, and use of environmental award criteria are available to help contracting authorities identify environmentally preferable bids.[57]
Accessibility
The United States Section 508[58] and European Commission standard EN 301 549[59] require public procurement to promote accessibility. This means buying products and technology that have accessibility features built in to promote access for the around 1 billion people worldwide who have disabilities.[60]
Detriments
One issue of public procurement is the inability of governments to measure economic productivity, because as the size of public procurement systems substantially grows, so do their complexity and influence.[61][62] Public procurement is heavily embedded in all forms of public sector goods and services, from health care to road maintenance,[61] thus making it difficult for the government to monitor the impacts, positive or negative.[43] Monitoring public spending and its impact is important to reform public procurement, especially when pending economic instability calls for proactive responses.[61]
In some cases, if a nation is extremely impoverished, it may not have the necessary funds or a large enough private sector to even procure companies to issue the goods or services to the people.[45] Thus, omitting public procurement as a potential governing practice.
Another concern with public procurement is corruption; companies have much to gain from bribing public officials to obtain these procurements. In societies where corruption is endemic and enforcement is low, public officials are incentivized to accept bribes due to either necessity or greed.[63] Academic research shows that discretion in procurement decisions is beneficial in countries with a high level of human capital, but is detrimental in low-human capital jurisdictions.[64]
Fraud
The OECD has published guidelines on how to detect and combat bid rigging.[65]
Procurement fraud can be defined as dishonestly obtaining an advantage, avoiding an obligation or causing a loss to public property or various means during procurement process by public servants, contractors or any other person involved in the procurement.[66] An example is a kickback, whereby a dishonest agent of the supplier pays a dishonest agent of the purchaser to select the supplier's bid, often at an inflated price. Other frauds in procurement include:
Collusion among bidders to reduce competition.
Providing bidders with advance "inside" information.
Submission of false or inflated invoices for services and products that are not delivered or work that is never done. "Shadow vendors", shell companies that are set up and used for billing, may be used in such schemes.
Intentional substitution of substandard materials without the customer's agreement.
Use of "sole source" contracts without proper justification.
Use of prequalification standards in specifications to unnecessarily exclude otherwise qualified contractors.
Dividing requirements to qualify for small-purchase procedures to avoid scrutiny for contract review procedures of larger purchases.
Integrity Pacts are one tool to prevent fraud and other irregular practices in procurement projects. The G20 has recommended their use in their 2019 Compendium of Good Practices for Promoting Integrity and Transparency in Infrastructure Development.[67] A major European Commission pilot project entitled Integrity Pacts - Civil Control Mechanism for Safeguarding EU Funds is seeking to evaluate the effectiveness of Integrity Pacts in reducing corruption in 17 EU-funded projects in 11 Member States with a total value of over EUR 920 million.[68]
Roles
"Buyer" and "Purchasing agent" redirect here. For other uses, see Buyer (disambiguation).
Personnel who undertake procurement on behalf of an organization may be referred to as procurement officers, professionals or specialists, buyers or supply managers.[69] The US Federal Acquisition Regulation refers to Contracting Officers.[70] Staff in managerial positions may be referred to as Purchasing Managers or Procurement Managers. The ISM refers to "the supply profession".[71]
A Purchasing or Procurement Manager's responsibilities may include:
approving orders
seeking reliable vendors or suppliers to provide quality goods at reasonable prices
supervision of other procurement staff and agents.
Category management represents a system of organising the roles of staff within a procurement team "in such a way as to focus ... on the [external] supply markets of an organisation", rather than being organised according to the organisation's internal departmental structure.[72]
In many larger organizations the procurement and supply function is led by a board-level or other senior position such as a Director of Supply Chain [73] or a Chief Procurement Officer (CPO). In other cases, procurement is overseen by the Chief Financial Officer (CFO) or Director of Finance, or the growing need for liaison between the CFO and the procurement function has been recognised. A 2006 report by the National Audit Office in the UK commented that in the further education sector, where procurement practice was not well developed and college organisations were relatively small, oversight of procurement by the Director of Finance was a typical arrangement.[74]
Independent or third party personnel who undertake procurement or negotiate purchases on behalf of an organization may be called purchasing agents or buying agents, although the term "purchasing agent" has a longer and broader history: the Institute for Supply Management in the United States was originally called the National Association of Purchasing Agents from its formation in 1915.[75] A commercial agent may both purchase and sell on behalf of a third party.[76]
US Bureau of Labor Statistics research found that there were 526,200 purchasing manager, buyer and purchasing agent positions in the United States in 2019.[77] Various writers have noted that businesses may reduce the numbers of purchasing staff during a recession along with staff in other business areas, despite a tendency to become more dependent on bought-in goods and services as operations contract. For example, US business executive Steve Collins observed that in one major company the purchasing staffbase "was downsized some 30% during the [2010] recession, 'but the expectations for the remaining employees remained unchanged ... The additional workload placed on the remaining employees following the downsizing created a much more challenging environment'".[78] In 2021 the Australasian Procurement and Construction Council (APCC) put forward an appeal asking everyone working in the procurement profession in Australia to include the term in their occupational title when completing their August 2021 census return.[79]
The European Commission issued a recommendation in October 2017 directed towards the "professionalisation of public procurement" so that Member States could "attract, develop and retain" staff in public purchasing roles, focus on performance and "make the most of the available tools and techniques".[80] Research undertaken in 2020 highlighted the importance of social or "soft" skills within the skill sets of professional procurement staff.[81]
Women
Procurement and purchasing roles are generally open to both men and women, but leaders of the profession recognise that women face "the same challeges as men, [including] the need for recognition, and [the need] to influence the organisations they work for", but with additional challenges such as the need to be "twice as good" to prove their capability in order to gain the appreciation of their peers and their senior colleagues.[82] Some writers have observed that there is limited opportunity for women to enter procurement because of stereotypes vewing some roles as not appropriate for women.[83]
A "Women in Procurement" event held at Khobar in Saudi Arabia in 2016 identified networking among women working in the profession as a valuable tool for supporting women in the profession.[82]
Management consultants Oliver Wyman reported in 2019 that, based on a survey of over 300 CPOs in Europe, USA, and Asia working across 14 industries, 38% of the staff in the procurement organizations surveyed were women: 60% of CPOs stated that there were more women in their organization than three years previously, while 6% said that the number of women had decreased. The effect of this growing involvement of women in procurement was recognised in the form of "more creativity and innovation", acknowledged by 76% of the CPO's surveyed.[84]
Obligation
A contractual obligation to procure refers to an absolute obligation to ensure that the action is done or the condition is met,[85] for example a contract with a principal supplier may include a clause requiring the company to "procure" that its subsidiaries, holding companies and other associated businesses undertake the same commitments as those contractually imposed on the principal.[86] The use of the word "procure" in a joint venture agreement between Nearfield Ltd., Lincoln Nominees Ltd., and other partners, in relation to the utilisation of a bank loan, gave rise to a dispute between the parties regarding the meaning of the word "procure", which was resolved in 2006 by the judge, Peter Smith, confirming that the "normal meaning of the word" is clear and well understood:
I do not see that procure means anything other than as Nearfield [the claimant] puts it "see to it".[87]
In this case the obligation to "procure the payment" of the loan amounted to a guarantee of that loan.[88]
A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.
A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer. The concept comes from the field of business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.
A purchase order, often abbreviated to PO, is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services required. It is used to control the purchasing of products and services from external suppliers. Purchase orders can be an essential part of enterprise resource planning system orders.
Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations.
E-procurement is the business-to-business or business-to-consumer or business-to-government purchase and sale of supplies, work, and services through the Internet as well as other information and networking systems, such as electronic data interchange and enterprise resource planning.
Strategic sourcing is the process of developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands upon traditional organisational purchasing activities to embrace all activities within the procurement cycle, from specification to receipt, payment for goods and services to sourcing production lines where the labor market would increase firms' ROI. Strategic sourcing processes aim for continuous improvement and re-evaluation of the purchasing activities of an organisation.
Procurement software refers to a range of business software designed to streamline and automate purchasing processes for businesses and organizations. By managing information flows and transactions between procuring entities, suppliers, and partners, procurement software aims to cut costs, improve efficiency, and boost organizational performance.
Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.
Industrial marketing or business-to-business marketing is the marketing of goods and services by one business to another. Industrial goods are those an industry uses to produce an end product from one or more raw material. The term, industrial marketing has largely been replaced by the term B2B marketing.
Sustainable procurement or green procurement is a process whereby organizations meet their needs for goods, services, works and utilities in a way that achieves value for money on a life-cycle basis while addressing equity principles for sustainable development, therefore benefiting societies and the environment across time and geographies. Procurement is often conducted via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works for the best possible price, when aspects such as quality, quantity, time, and location are compared. Procurement is considered sustainable when organizations broadens this framework by meeting their needs for goods, services, works, and utilities in a way that achieves value for money and promotes positive outcomes not only for the organization itself but for the economy, environment, and society. This framework is also known as the triple bottom line, which is a business accounting framework. The concept of TBL is narrowly prescribed, and even John Elkington, who coined the term in the 1990s, now advocates its recall. Indeed, procurement practitioners have drawn attention to the fact that buying from smaller firms, locally, is an important aspect of sustainable procurement in the public sector. Ethics, culture, safety, diversity, inclusion, justice, human rights and the environment are additionally listed as important aspects of SPP.
Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a substantial part of the global economy.
A chief procurement officer (CPO) undertakes an executive role within an enterprise, focusing on sourcing, procurement, and supply management.
Supplier evaluation and supplier appraisal are terms used in business and refer to the process of evaluating and approving potential suppliers by quantitative assessment. The aim of the process is to ensure a portfolio of best-in-class suppliers is available for use, thus, it can be an effective tool to select suppliers in the awarding stage of an auction. Supplier evaluation can also be applied to current suppliers in order to measure and monitor their performance for the purposes of ensuring contract compliance, reducing costs, mitigating risk and driving continuous improvement.
Spend analysis or spend analytics is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of decreasing procurement costs, improving efficiency, and monitoring controls and compliance. It can also be leveraged in other areas of business such as inventory management, contract management, complex sourcing, supplier management, budgeting, planning, and product development.
A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction also known as a forward auction, buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.
Indirect procurement is the sourcing of goods and services not related to manufacturing for a business to enable it to maintain and develop its operations. The goods and services classified under the umbrella of indirect procurement are commonly bought for consumption by internal stakeholders rather than the external customer or client.
An invitation to tender is a formal, structured procedure for generating competing offers from different potential suppliers or contractors looking to obtain an award of business activity in works, supply, or service contracts, often from companies who have been previously assessed for suitability by means of a supplier questionnaire (SQ) or pre-qualification questionnaire (PQQ).
Performance based contracting (PBC), also known as performance-based logistics (PBL) or performance-based acquisition, is a product and services purchasing strategy used to achieve measurable supplier performance. A PBC approach focuses on developing strategic performance metrics and directly relating contracting payment to performance against these metrics. Common metrics include availability, reliability, maintainability, supportability and total cost of ownership. The primary means of accomplishing this are through incentivized, long-term contracts with specific and measurable levels of operational performance defined by the customer and agreed on by contracting parties. The incentivized performance measures aim to motivate the supplier to implement enhanced practices that offer improved performance and cost effective. This stands in contrast to the conventional transaction-based, or waterfall approach, where payment is related to completion of milestones and project deliverables. In PBC, since a part or the whole payment is tied to the performance of the provider and the purchaser does not get involved in the details of the process, it becomes crucial to define a clear set of requirements to the provider. Occasionally governments fail to define the requirements clearly. This leaves room for providers, either intentionally or unintentionally, to misinterpret the requirements, which creates a game like situation.
Category management is an approach to the organisation of purchasing within a business organisation. Applying category management to purchasing activity benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach which focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation, the results can be significantly greater than traditional transactional based purchasing negotiations, however the discipline of category management is sorely misunderstood.
At around £290 billion every year, public sector procurement accounts for around a third of all public expenditure in the UK. EU-based laws continue to apply to government procurement: procurement is governed by the Public Contracts Regulations 2015, Part 3 of the Small Business, Enterprise and Employment Act 2015, and the Public Contracts (Scotland) Regulations of 2015 and 2016. These regulations implement EU law, which applied in the UK prior to Brexit, and also contain rules known as the "Lord Young Rules" promoting access for small and medium enterprise (SMEs) to public sector contracts, based on Lord Young's Review Growing Your Business, published in 2013.
↑ Weele, Arjan J. van (2010). Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice (5thed.). Andover: Cengage Learning. ISBN978-1-4080-1896-5.
↑ Salam, M. A. (2007), Social responsibility in purchasing: the case of Thailand, International Journal of Procurement Management, vol. 1, issue 1/2, 97-116, accessed 27 January 2021. Salam refers to CSR in a purchasing context as "purchasing social responsibility" (PSR).
↑ Bowman, Alan (2000). The Cambridge Ancient History, Volume XI: The Roman Empire, 284-337. Cambridge University Press. p.222.
↑ Kirkman, Marshall Monroe (1887). The Handling of Railway Supplies: Their Purchase and Disposition. Chicago.{{cite book}}: CS1 maint: location missing publisher (link)
↑ Hysell, Helen (1922). The Science of Purchasing. New York: Appleton.
↑ Lewis, M.A. and Roehrich, J.K. (2009), Contracts, relationships and integration: Towards a model of the procurement of complex performance. International Journal of Procurement Management, 2(2):125–142.
↑ Caldwell, N.D., Roehrich, J.K. and Davies, A.C. (2009) Title needed. [pageneeded]
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