Your Genie Primer

It’s about procurement  
and what that means for your business 

Defining procurement 

What makes procurement important to a business? 

Types of procurement

About the Procurement profession

The 9 key procurement functions  

The 9 steps in the procurement process 

Purchasing vs. Procurement – What’s the difference?

Tell us how we can help you 

Defining procurement

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What makes procurement important to your business?

 What

What makes procurement important for your business?

 In many respects, procurement is by necessity a primary concern.  Before the merchandise you sell can be produced or the services you offer can be delivered, your business must acquire the means to make those things happen.  This includes having your manufacturing tools and equipment. Service teams must be provided with their needed resources to serve your customers.  It’s the role of procurement to address those needs. 

It requires analysing competitors, tracking economic conditions, technological advances, and monitoring regulatory and public concerns that could impact your competitiveness. 

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Types of procurement

 

• Direct 
  Acquiring the goods used to create the products or services your business sells. Direct procurement involves acquiring everything that enables your business to sell goods and services.

• Indirect 
  Everything the business needs to operate, but is not sold as merchandise or services delivered to your customers. Office equipment, clerical supplies, manufacturing tools, and equipment are all examples of goods acquired as indirect procurement. Likewise, service vendors like jet charters, landscapers, janitorial, limos with drivers, catering, and other services are obtained through indirect procurement.

• Goods 
  Tangibles like office furniture, telephones, computers, cars, or trucks are examples of procured goods. Consumables like employee food service meals, or snack machine menu items, office supplies, gasoline for business cars or trucks are also examples.

• Services 
  Hiring temporary personnel (usually through an agency), freelance creative talent, plant and office facility mechanical systems maintenance contractors, interior plant rentals and florists, plus security guard companies are some examples of service procurement. These are intangible purchases that many times feel like extensions of your business workforce.

• Strategic  
  This is an active, long-term effort to make smarter, more sustainable sourcing decisions. Factors like business spending patterns, changes in the economy, technology, the supply chain, consumer tastes, or the competition are studied constantly to reduce risk and increase competitiveness.

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The procurement professional

The procurement professional

Some attributes of a well-run procurement operation include: 

• Cost savings 
  Freezing spending is not the only way to save money.  You can also save money by spending wisely.  The concept of Cost of Ownership means that buying better quality, longer—lasting goods and services can reduce the need for repeat purchases. Providing safer, more efficient, and satisfying experiences for your business’s employees can reduce worker-related health costs and expensive downtimes.  Likewise, those same concerns for the customer experience can help your business retain customers, promote future sales, and avoid the cost of damaging your brand. 

• Risk management 

Encountering risks is a cost of doing business, but those costs can be minimized.  Or at least contained.  Working with vendors that adopt sustainable business practices, acquiring goods and services that are healthier and safer can help you avoid the risk of liability. 

• Quality assurance 

Keeping vendors and suppliers honest and accountable for their products and services effectively meets the needs of the organization and end-users.  Purchases are investments that must be protected.  Procurement is the first line of defense against fraud or waste. 

• Driving efficiency 

Maintaining a strategic outlook allows procurement to evaluate all purchase requests. Keeping leasing and buying decisions in alignment with your business operating plans, budgets, and comprehensive objectives.  Any product or service request that violates your business game plans can be detected and stopped without approval by higher management.   

• Promoting innovation 
  Sometimes it’s best to leave doing things the old-fashioned way.  The expression, “If it isn’t broken, don’t fix it.” It can be true.  But some situations require new thinking and ways of action.  In times of necessary change for your business, it is the procurement team that finds itself in a leading position. 

• Ethical and sustainable practices 

A growing trend among procurement professionals is awareness of and adherence to the public’s growing concern about our planet. The desire for more eco-friendly products and services is driving more consumer purchasing decisions.. There is growing interest in doing business with honest and reputable providers of goods and services.  These trends affect the employees and supply chain vendors as well. Demonstrating integrity in doing business can be good for business.

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9 key procurement functions

9 key procurement functions

9 key procurement functions

 

1. Identifying needs – Through constant business operational analysis, supported by an understanding of strategic plans and budgets, the procurement team can recommend current and future purchases.

2. Required specification – Working in collaboration with other departments and end-users, the procurement team can carry their needs analysis forward to generate the details for new purchases that make the goods and services acquired more compatible with your business operations.  

3. Identifying solution sources – With acquisition requirements in hand, the procurement team can research the market to find the best vendor, supplier, and service provider candidates.

4. Soliciting bids, quotes, or proposals – With permission from upper management and support from end-users in other departments, procurement team members conduct formal requests for bids, quotes, and proposals as needed.

5. Evaluating and selecting vendors – Received proposals, bids, or quotes are scrutinized and compared to determine suitable vendors, suppliers, or service providers to incorporate into the supply chain.

6. Negotiating and contract settlements – Members of the procurement team review and discuss the prices, terms, and conditions offered by the selected vendors. Then they negotiate conditions for the purchase that are more compatible with business plans, budgets, and operations.

7. Crafting purchase orders – The final prices, terms, and conditions agreed to by procurement and the vendors are documented in the purchase order. That purchase order should supersede all other agreements regarding the purchase.

8. Receiving and inspecting deliveries – Upon delivery of goods or services, a member of the procurement team should examine results with qualified personnel and end-users to determine acceptable outcomes or problems. Any required changes should be made before payment is approved.

9. Handling invoices and payments – With product or service delivery requirements met, vendors present an invoice for payment. Members of procurement or accounting match purchase orders with proof of delivery and invoices to confirm alignment and accuracy. Then, payments are expedited by accounting.

The procurement team performs the nine functions listed above.  But the following steps in the procurement process are performed by many more players.  These include stakeholders both inside and outside your business. 

The 9 steps in the procurement process 

The 9 steps in the procurement process 

These efforts should involve all your business stakeholders: department leaders, employees, customers, and supply chain vendors. Even the public, your competitors, and government regulators have roles to play.

1. Identify business need – A sharp business responds to requests and alerts from many groups.  These channels can be their employees, customers, or vendors. Even the general public or government regulators can affect your business needs.  Staying aware of what the competition is doing, trends in the economy, changes in technology, and social pressures affecting your business can also indicate needs that require action.  

2. The purchase requisition – Based on the need to acquire goods or services, an employee or manager should submit a purchase requisition to procurement.  It is not advisable to allow employees working in other departments to make purchases. Ad hoc purchases can lead to out-of-control spending. 

3. Vendor assessments – Even your business’s longest-running vendor relationships should be periodically reviewed and assessed.  Key concerns should be prices, quality, reliability, responsiveness, and timeliness when action is necessary.  Only the most competitive vendors and suppliers should be awarded opportunities.  And only the best vendors should be asked to fill orders. 

4. Negotiating contract terms – Many vendors instruct their sales force to offer terms that favor their interests over those of the customer.  This includes sales and leasing agreements or service contracts.  Savvy procurement specialists can analyze, detect, and remove purchase terms that are incompatible with your business. 

5. Issuing the purchase order – Generating purchase orders with acceptable buying, delivery, and payment terms (favoring your business over the seller’s interests whenever possible) should be performed by your procurement team.  Vendors should agree to accept purchase order terms and operate in compliance with them before the orders are placed.  

6. Place the order – The procurement team should be designated as the only employees allowed to make business purchases.  Otherwise, business spending can get out of control. 

7. Take the order delivery – The procurement team confers with the original purchase requester to confirm that the delivered goods and services are provided satisfactorily.  If changes are needed or if the order is unacceptable, the procurement team works with the vendor to address issues.  

8. Approve payment – The procurement team assembles proof of satisfactory delivery for the goods and services being invoiced.  That is forwarded to those authorized to approve the payment.  Then, the accounts payable team can expedite the payment. 

9. Update records – The procurement team maintains transactional and strategic records.  These records should be detailed and accurate with prices paid, item manufacturer, and inventory parts numbers, expediting vendors, and sales contacts.   Comprehensive recordkeeping can make future purchases much easier to budget and facilitate.  

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Purchasing vs. Procurement – What’s the difference? 

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Purchasing –  Tactical/transactional	Procurement – Strategic/comprehensive
Primarily focuses on ordering and receiving goods and services	Expansive to include vendor relationships, soliting bids and selecting sources
Passive – compares vendor choices to determine best prices and delivery terms	Proactive – negotiates with vendors to acquire best prices and delivery terms
Short-term/immediate – manages transactions, payments, and records	Long-duration – builds vendor relationships and supply chains
Begins with the decision to obtain the goods or services	Starts with needs analysis and budgeting
Priorities are speed and specification accuracy in ordering	Priorities are value, quality and risk reduction
Concerned with acquiring goods and services	Responsible for acquiring goods and services plus disposing of surplus items
Buying goods and services	Buying and leasing arrangements

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Tell us how we can help you

You can start by sharing your procurement interests with us.

Perhaps?

Email us at marketing@myprocuregenie.com. We’re ready to listen, We’re here to help you.