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Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process.

Procurement generally involves making buying decisions under conditions of scarcity. If sound data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

Procurement is used to ensure the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared. 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 price fluctuations.

An important distinction should be made between analyses without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of best value should be employed.

Procurement activities are also often split 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 material, 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: obtaining "operating resources" which a company purchases to enable its operations. Indirect procurement comprises a wide variety of goods and services, from standardized items like office supplies and machine lubricants to complex and costly products and services like heavy equipment, consulting services, and outsourcing services.

Procurement software (often labeled as e-procurement software) manages the purchasing processes electronically or via cloud computing.

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F.A.Q. about Procurement

What is Procurement?

Procurement is, quite simply, the act of acquiring goods and/or services through a tendering, or competitive bid, process. This is where the Buyer will release a ‘contract notice’ through an electronic portal (known as e-tendering, or e-procurement software) detailing:

  • The contract title and description of goods/services required.
  • A Specification, and/or Scope of Works.
  • The approximate contract value/budget.
  • The length of delivery required.
  • The location of delivery.
  • Details surrounding the timetable for the tendering process, including the submission deadline, site visit dates, and clarification deadlines.
  • The tendering documents to be completed (such as SQ / PQQ documents, ITT documents, RFPs or RFQs).

Suppliers (of goods and/or services) will then put together a tender response in line with the provided guidelines and submit them through the provided medium. The Buyer will then assess all of the responses against the evaluation criteria they have chosen and, ultimately, a supplier will be awarded the Contract.

How is Procurement different from Purchasing?

The distinction between Procurement and Purchasing can be confusing if you are new to the process, as it is common to hear the terms being used interchangeably. However, in this instance the difference between Procurement and Purchasing is this:

Procurement is the umbrella term for the entire process of sourcing, selecting and acquiring goods or services, from conception to conclusion.

Purchasing is just one small part of the procurement process (the acquisition) and does not cover the other stages, such as the creation of the specification of works, management of the procurement process, bidding/tendering, evaluation/vetting or agreement of terms.

Why is Procurement Important?

Procurement is an important, democratic process (when done correctly!) which is especially important to businesses for the following reasons:

It can save you money. The procurement process will allow you the best chance to find a supplier (or, suppliers) who most closely matches your needs and requirements, whilst offering the best value for money. Most often, Buyers will evaluate tenders through the MEAT method (Most Economically Advantageous Tender) which involves scoring the cost the supplier has provided, scoring their quality responses and then conflating the two scores to award an overall total mark. The Supplier with the best overall mark is, therefore, the provider of the Most Economically Advantageous Tender.

It widens the scope of your options. As well as allowing the Buyer to find a Supplier who will offer the best value for money, the Procurement process enables Buyers to receive tenders from potential Suppliers across the country, who may offer experience and added value that local Suppliers do not, or cannot. Essentially, the Procurement process levels the playing field and allows the Buyer a better opportunity to gauge the suitability of multiple Suppliers.

How could Procurement benefit your business?

Procurement specialists are available to advise on specifics relevant to your particular industry and business, but broadly speaking there are several reasons why breaking into Procurement could revolutionize the way you source and acquire goods and services:

It streamlines the workload. If you require a new Supplier to provide an ongoing service, let’s say for 3 years, then you want to be absolutely sure that you are getting the best possible Supplier, and that they will definitely meet all of your requirements. It would be a poor use of staffing resources to dedicate personnel to researching and contacting potential businesses, which could take an inordinate amount of time and still not result in finding a Supplier that meets your requirements. By going through the Procurement process, you can streamline that normally weighty task through following these simple steps:

  • Identify the need (what service/goods does your business require?).
  • Authorize the decision to find a Supplier who can address this need.
  • Establish the parameters of the proposed contract (budget/value, duration, essential vs. desirable requirements, etc).
  • Create the tender documentation (including the Specification / Scope of Works, Supplier Questionnaire, Instructions to Tenderers, Pricing document, etc).
  • Publish the tender through the public Procurement Portal of your choosing.
  • Evaluate the tender submissions against your chosen criteria.
  • Award the contract to your chosen Supplier.

Ensures accountability. When you release a detailed contract notice, with corresponding tender documents, that explicitly states your requirements and the standards that the potential Supplier needs to meet (such as minimum annual turnover, compliance with industry-specific standards and evidence of previous experience) companies can then be held fully accountable for ensuring that they meet these requirements before submitting their responses.

Prevent corruption. By having Suppliers fill out a Supplier Questionnaire you can screen companies for information such as breaches of lawful, environmental or health and safety obligations. Additionally, you can request evidence (in the form of financial records) that they will not pose a financial risk to your operation and are capable of delivering the service. In order to pass the Supplier Questionnaire, Suppliers are required to self-certify that they meet all necessary requirements, and can be held fully accountable if this is not the case.