What Is Procurement?

Procurement is the act of obtaining or purchasing goods or services, typically for

business purposes. Procurement is most commonly associated with businesses because
companies need to solicit services or purchase goods, usually on a relatively large
scale. It can also include the overall procurement process, which is critically
important for companies leading up to their final purchasing decision. Companies can
be on both sides of the procurement process as buyers or sellers though here we
mainly focus on the side of the soliciting company.

KEY TAKEAWAYS

 Procurement is the process of purchasing goods or services and is usually in

reference to business spending.
 Business procurement requires preparation, solicitation, and payment
processing, which usually involves several areas of a company.
 Procurement expenses can fall into several different categories, depending on
the procurement demand.
 Competitive bidding is usually a part of most large-scale procurement
processes involving multiple bidders.
 The strategic process of procurement is different from purchasing, which is a
transactional one.
How Procurement Works
Procurement and procurement processes can require a substantial portion of a
company’s resources to manage. Procurement budgets typically provide managers
with a specific value they can spend to procure the goods or services they need. The
process of procurement is often a key part of a company's strategy because the ability
to purchase certain materials or services can determine if operations will be profitable.

In many cases, procurement processes will be dictated by company standards often

centralized by controls from the accounts payable (AP) division of accounting. The
procurement process includes the preparation and processing of a demand as well as
the end receipt and approval of payment.

Comprehensively, this can involve purchase planning, standards, specifications

determination, supplier research, selection, financing, price negotiation, and inventory
control. As such, many large companies may require support from a few different
areas of a company for successful procurement.

There are several steps involved in the procurement process:

 Choosing the goods and services required

 Fill out a purchase request and request quotes from various suppliers
 Work out a price and contract with the vendor, and complete the purchase order
 Receive the shipment and submit payment

Competitive Bidding and Procurement

Competitive bidding  is a part of most business deals involving multiple bidders. The
competitive bidding process for goods is usually more simplified than for services.
Procurement is also the term used for purchasing goods and services on behalf of the
government which has its own bidding processes and requirements.

Competitive bidding for all types of goods generally involves proposals that detail
the per-unit price, shipping, and delivery terms. Competitive bidding for the
procurement of services can be more complex since it may involve different things
like individuals involved, technology services, operational procedures, client
servicing, training, service fees, and more.

In each case, the solicitor of bids chooses the supplier they want to work with based
on both operational business aspects as well as costs. The solicitor is then responsible
for  accounting for expenses depending on the goods or services involved.
Government agencies and large companies may choose to solicit procurement
proposals on an annual or scheduled basis to ensure that they continue to maintain the
best relationships for their business.

Comprehensively, procurement can involve support from several areas of a company.

Types of Procurement
There are a few different kinds of procurement that businesses can undertake. These
include:

 Direct Procurement: This kind of procurement involves any goods and

services used during the production process. This includes raw materials,
machinery, and other components.
 Indirect Procurement: Goods and services purchased under this type of
procurement are used to meet the operational needs of a business. As such,
they don't contribute to the company's revenues. This may include office
equipment and supplies, furnishings, and marketing.
 Goods Procurement: Any physical products that businesses acquire through
the procurement process to serve the needs of the business. This can be direct
or indirect, such as raw materials and office supplies, respectively.
  Services Procurement: Like goods procurement, there are two types of
services procurement: direct and indirect. Both rely on services provided by
people. Direct services procurement may refer to labor that is directly involved
in the business. Indirect services procurement can include things like on-site
security to safeguard the premises.

Procurement vs. Purchasing

Procurement and purchasing are both processes that involve the exchange of goods
and services, so it isn't uncommon for people to confuse the two. But there are certain
distinctions between the two.

For instance, procurement is more of a strategic process that involves the acquisition
of goods and services. It places a greater emphasis on the value of products and uses
a series of steps (as outlined above) to complete the acquisition. Businesses generally
take a proactive approach when they submit procurement orders. Doing so allows
them to identify future deficiencies and fill them before they are needed.

Purchasing, on the other hand, is a transactional process. As such, it involves buying

goods and services. When an entity purchases goods and services, it places greater
importance on price rather than value. Purchasing is usually a reactive process that
satisfies a more immediate need.

The table below highlights the comparison between these two processes.
Procurement vs. Purchasing
Procurement
Strategic process
Greater emphasis on value
Proactive approach
Spot and fill future deficiencies
Purchasing
Transactional process
More importance on price
Reactive approach
Satisfies immediate need(s)

Accounting for Procurement

Procurement costs are generally integrated into the financial accounting of a business,
as procurement involves acquiring goods and/or services for the revenue goals of the
business. As such, some companies may hire a chief procurement officer (CPO for
short) to lead these efforts. The CPO:

 Oversees procurement standards

 Works with accounts payable to ensure procurement standard integration and
efficient payment
 Serves on procurement teams making procurement decisions when there are
multiple competitive bids

Procurement processing can be divided and analyzed from several angles. Companies
and industries have different ways of managing the procurement of direct and
indirect costs. Goods companies, as compared with services companies, will also
have different ways of managing costs.

Direct vs. Indirect Procurement Costs

Direct spending refers to anything related to the cost of goods sold and production,
including all items that are part of finished products. For manufacturing companies,
this can range from raw materials to components and parts. For merchandising
companies, this will include the cost at which merchandise is purchased from a
wholesaler for sales.

For service-based companies, direct costs will primarily be the hourly labor costs of

employees performing services. Procurement for items pertaining to the cost of goods
sold directly affects a company’s gross profit.
By contrast, indirect procurement involves non-production-related purchases. These
are purchases a company uses to facilitate its operations. Indirect procurement can
involve a broad range of purchases including office supplies, marketing materials,
advertising campaigns, consulting services, and more. Companies will generally have
different budgets and processes for managing direct costs as compared with indirect
costs.

Goods vs. Services Procurement Accounting

Procurement is part of the expense process for all types of companies, but goods and
services companies account for revenues and costs differently. As such, accounting for
procured goods will also differ from accounting for procured services.

Companies focused on goods will need to deal with the procurement of those goods
as inventory. These companies place a lot of importance on supply chain management.
Service-based companies provide services as their primary revenue generator so they
do not necessarily rely as heavily on a supply chain for inventory although they may
need to purchase goods for technology-based services.

In general, the cost of sales for many service companies is based on the hourly labor
cost of employees providing the service so procurement as a direct expense is not a
major factor. However, service-based companies will usually have higher relative
indirect costs because they typically deal with their own procurement as an indirect
expense through marketing.

What Is Meant by Procurement?

Procurement is the process involved in obtaining or sourcing something that is
needed. Businesses procure supplies and raw materials, while governments may
procure contractors or service providers.

Is Procurement the Same As Purchasing?

While they are similar, procurement typically deals with finding suppliers and
sourcing materials, whereas purchasing involves the costs and transactions related to
buying those goods or materials.
 What Are the Types of Procurement?
Procurement can be carried out in several ways. Organizations may submit an open
tender to allow competitive bidding among potential suppliers. They may also restrict
the number of bidders or establish criteria for who is allowed to bid. As an alternative
to an auction process, an organization may solicit a request for proposals (REP), where
applicants then compete with one another on price along with competencies.
Sometimes procurement is done under contract with a single source or small group of
exclusive suppliers.

The Bottom Line

Procurement is a strategic process that involves the acquisition of goods and services.
Unlike purchasing, it involves a series of steps that are usually taken by businesses to
meet certain needs, such as production, inventory, and sales. It often involves a series
of documents like demands and receipts for payment. But don't confuse procurement
with purchasing. Although the two terms are often used interchangeably, they are
very different. Unlike procurement, purchasing is transactional and normally fulfills
more immediate needs.

Procurement is the process of acquiring goods and services by purchasing, renting, or leasing. The
procurement process includes preparing specifications and solicitations. The procurement process also
includes evaluating bids and proposals, awarding contracts, and contract administration.

There are six methods of procurement which are; open bidding, request for proposals, two stages
tendering, restricted tendering, request for quotation, and direct procurement. From these methods,
public bodies are required to use the open bidding method except as otherwise provided in the
Proclamation.

Principles of Procurement
 Accountability. ...
 Competitive Supply. ...
 Consistency. ...
 Effectiveness. ...
 Value for Money. ...
 Fair-dealing. ...
 Integration. ...
 Integrity.
The bidding process is used to select a vendor for subcontracting a project, or for purchasing
products and services that are required for a project. Bid records contain the specifications of the
project or details of the products and services to be purchased.
Understanding 10 Stages of the Procurement Cycle
1. Determine Your Business Needs. ...
2. Complete a market analysis. ...
3. Compile a list of suitable suppliers. ...
4. Produce Tender Documents. ...
5. Issue RFI, RFQ, or RFP. ...
6. Negotiate and award the contract to your preferred supplier. ...
7. Finalize the purchase order. ...
8. Process Payment.
the Pareto Principle, also known as the 80/20 Rule, refers to a statistical regularity observed in a number
of areas. According to this rule, 80% of overall value comes from 20% of the most important items.
The term “procurement” encompasses all elements of a company's
purchasing process. While it does involve the literal purchasing of goods,
services, and property, procurement management goes far further to include
strategic planning as well. The procurement process affects several business
functions and requires a mastery of supply chain management, sourcing raw
materials, and meeting purchasing goals. For this reason, procurement
professionals come in high demand, and many companies even have an entire
procurement department led by a chief procurement officer.
he term “procurement” encompasses all elements of a company's purchasing
process. While it does involve the literal purchasing of goods, services, and
property, procurement management goes far further to include strategic
planning as well. The procurement process affects several business functions
and requires a mastery of supply chain management, sourcing raw materials,
and meeting purchasing goals. For this reason, procurement professionals
come in high demand, and many companies even have an entire procurement
department led by a chief procurement officer.

8 Elements of the Procurement Cycle

Consider the general elements of an average procurement cycle.

1. 1. Determining procurement needs: A company cannot begin acquiring goods and

services without firmly establishing what the business needs. Prudent purchasing
decisions start with a carefully considered strategy that aligns with the company's mission
statement and values.
2. 2. Developing a procurement strategy: Just as potential purchases need measured logic
behind them, so too does the strategy for making these purchases. A company may
employ a chief procurement officer to develop this strategy, or it may turn to outside
consulting services.
3. 3. Identifying potential suppliers: Procurement teams must maintain strong supplier
relationships while always being on the lookout for new suppliers.
4. 4. Negotiating the best price: When engaging in direct procurement from a supplier, a
company may need to directly negotiate for the best quality goods and services at the
very best price. When engaging in indirect procurement via a third-party vendor, the
price negotiations may be with the vendor itself. Having multiple vendors can lead to a
competitive bidding process.
5. 5. Approving purchase requests: Some companies have purchase requests coming from
a variety of departments. A procurement department determines what the company needs
to meet its objectives and finds a way to source the requested goods and services.
6. 6. Maintaining procurement software: Cloud-based computer software has helped
streamline the procurement process, but even companies fully bought into e-procurement
automation must employ one or more professionals to oversee the software.
7. 7. Purchasing goods: After sufficient planning and sourcing, procurement teams can turn
to actual purchasing activities. This involves making purchase orders and paying for them
in a timely manner.
8. 8. Adhering to company values: Some companies implement an added social
responsibility step designed to prevent them from purchasing goods linked to
environmental destruction, child labor, or slave labor. For companies that prioritize social
responsibility, all stages of the procurement process must align with those company
values. If certain external sources and suppliers do not meet a company's standards for
social responsibility, a procurement team is tasked with finding new vendors that do.

3 Main Types of Procurement

There are three main types of procurement activities: direct procurement, indirect procurement,
and services procurement.

1. 1. Direct procurement: Direct procurement involves the direct purchase of raw goods,
machinery, and wholesale goods that directly contribute to the company’s end product.
The key stakeholders in direct procurement processes are procurement officers and
contracted suppliers.
 2. 2. Indirect procurement: Indirect procurement involves the purchasing of goods like
office supplies. These goods don’t directly affect the company’s end product or bottom
line, but they support the day-to-day management of the business. A small company may
task office managers with indirect procurement processes while large corporations may
employ a facilities management company to manage those purchases.
3. 3. Services procurement: This type of procurement can involve hiring temporary
staffers, leasing software, and bringing in short-term vendors to work at an event or
seminar.

Procurement vs. Purchasing: What’s the Difference?

Some people use the terms "purchasing" and "procurement" interchangeably, but the terms are
not quite synonyms. Purchasing is an important transactional step in the procurement life cycle.
It slots in alongside other elements like vendor relationships and sourcing the best prices. In
other words, the key difference between procurement and purchasing is that purchasing
represents one link in the larger procurement chain.

The Stages of Procurement

 Stage 1: Identify a need for products and/or services. ...
 Stage 2: Create and submit a purchase request. ...
 Stage 3: Evaluate and select suppliers/vendors. ...
 Stage 4: Negotiate the terms of a contract with the selected supplier. ...
 Stage 5: Finalize a purchase order.
Steps involved in a Procurement Process
Step 0: Needs Recognition.
Step 1: Purchase Requisition.
Step 2: Requisition review.
Step 3: Solicitation process.
Step 4: Evaluation and contract.
Step 5: Order management.
Step 6: Invoice approvals and disputes.
Step 7: Record Keeping.
What is procurement procedures in Ethiopia?
There are six methods of procurement which are; open bidding, request for proposals, two
stages tendering, restricted tendering, request for quotation, and direct procurement. From
these methods, public bodies are required to use the open bidding method except as otherwise
provided in the Proclamation
Purchasing: it’s Meaning, Definition, Importance and
Objectives!
Meaning and Definition:
Purchasing is the first phase of Materials Management. Purchasing
means procurement of goods and services from some external
agencies. The object of purchase department is to arrange the supply
of materials, spare parts and services or semi-finished goods, required
by the organisation to produce the desired product, from some agency
or source outside the organisation.

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The purchased items should be of specified quality in desired quantity

available at the prescribed time at a competitive price. In the words of
Alford and Beatty, ”Purchasing is the procuring of materials, supplies,
machines, tools and services required for equipment, maintenance,
and operation of a manufacturing plant”.

According to Walters, purchasing function means ‘the procurement by

purchase of the proper materials, machinery, equipment and supplies
for stores used in the manufacture of a product adopted to marketing
in the proper quality and quantity at the proper time and at the lowest
price, consistent with quality desired.”

Thus, purchasing is an operation of market exploration to procure

goods and services of desired quality, quantity at lowest price and at
the desired time. Supplier who can provide standard items at the
competitive price are selected.
Purchasing in an enterprise has now become a specialised function. It
was experienced that by giving the purchase responsibility to a
specialist, the firm can obtain greater economies in purchasing.
Moreover purchasing involves more than 50% of capital expenditure
budgeted by the firm.

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According to Westing, Fine and Zenz “Purchasing is a managerial

activity that goes beyond the simple act of buying. It includes research
and development for the proper selection of materials and sources,
follow-up to ensure timely delivery; inspection to ensure both quantity
and quality; to control traffic, receiving, storekeeping and accounting
operations related to purchases.” The modern thinking is that
Purchasing is a strategic managerial function and any negligence will
ultimately result into decrease in profits.

Importance of Purchasing:
1. Purchasing function provides materials to the factory without which
wheels of machines cannot move.

2. A one percent saving in materials cost is equivalent to a 10 percent

increase in turnover. Efficient buying can achieve this.

3. Purchasing manager is the custodian of his firm’s is purse as he

spends more than 50 per cent of his company’s earnings on purchases.

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4. Increasing proportion of one’s requirements are now bought instead
of being made as was the practice in the earlier days. Buying,
therefore, assumes significance.

5. Purchasing can contribute to import substitution and save foreign

exchange.

6. Purchasing is the main factor in timely execution of industrial

projects.

7. Materials management organisations that exist now have evolved

out or purchasing departments.

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8. Other factors like:

(i) Post-war shortages,

(ii) Cyclical swings of surpluses and shortages and the fast rising
materials costs,

(iii) heavy competition, and

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(iv) Growing worldwide markets have contributed to the importance of

purchasing.

Objectives of Purchasing:
The purchasing objective is sometimes understood as buying materials
of the right quality, in the right quantity, at the right time, at the right
price, and from the right source. This is a broad generalisation,
indicating the scope of purchasing function, which involves policy
decisions and analysis of various alternative possibilities prior to their
act of purchase.

The specific objectives of purchasing are:

1. To pay reasonably low prices for the best values obtainable,
negotiating and executing all company commitments.

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2. To keep inventories as low as is consistent with maintaining

production.

3. To develop satisfactory sources of supply and maintain good

relations with them.

4. To secure good vendor performance including prompt deliveries

and acceptable quality.

5. To locate new materials or products as required.

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6. To develop good procedures, together with adequate controls and

purchasing policy.
 7. To implement such programmes as value analysis, cost analysis, and
make-or-buy to reduce cost of purchases.

8. To secure high caliber personnel and allow each to develop to his

maximum ability.

9. To maintain as economical a department as is possible,

commensurate with good performance.

10. To keep top management informed of material development which

could affect company profit or performance.

11. To achieve a high degree of co-operation and co-ordination with

other departments in the organisation.

Related Articles:
1. Purchasing: Objectives and Types of Purchasing
2. Material Management: it’s Definition, Objectives and Organization

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What Is Procurement? Types,

Processes & Technology
 Abby Jenkins | Product Marketing Manager
March 23, 2021

Procurement has been a vital, transactional part of conducting business for

almost as long as commerce has existed. Although the days of scribes
tracking purchases on papyrus scrolls are long past, the process of carefully
selecting and purchasing the goods and services needed for day-to-day
 business operations remains as important as ever. By enabling the company
to reliably get the supplies it needs at the lowest cost, procurement can
directly impact the bottom line.

What Is Procurement?
Procurement encompasses a range of activities involved in obtaining goods or
services. What is the purpose of procurement? In general, procurement teams
work to obtain competitively priced supplies that deliver the most value.
However, not all companies define procurement in the same way. Many
companies consider that procurement encompasses all the stages, from
gathering business requirements and sourcing suppliers to tracking the receipt
of goods and updating payment terms, while others define procurement as a
narrower range of activities, such as issuing purchase orders and making
payments.

Key Takeaways
 Procurement is a vital business function. When managed efficiently and done
well, it can help increase your business’s profitability.
 It includes a range of activities involved in obtaining goods and services,
including sourcing, negotiating terms, making purchases, tracking when
supplies are received and maintaining records.
 It’s important to continuously monitor and assess the procurement process to
improve any weak spots or inefficiencies.
 Technology can reduce procurement cost and administrative overhead by
automating and tracking procurement processes.

Procurement Explained
Traditionally, some businesses have used the term procurement
synonymously with purchasing. But now, purchasing is often seen as just one
stage in a larger, more strategic procurement process. So, what exactly is
procurement?

Procurement involves every activity involved in obtaining the goods and

services a company needs to support its daily operations, including sourcing,
negotiating terms, purchasing items, receiving and inspecting goods as
necessary and keeping records of all the steps in the process.

Why Is Procurement Important in

Business?
Procurement is an important step in understanding supply chains, because it
helps a company find reliable suppliers that can provide competitively priced
goods and services that match the company’s needs. That’s the case whether
the company is seeking raw materials for manufacturing, a marketing services
provider or new office supplies.
 For example, if a company needs a new supplier to provide an ongoing
service for an indefinite period of time — such as an email security solution —
the procurement process helps the company choose the supplier that best
meets all of the business’s requirements at a reasonable price. It enables the
business to avoid wasting time, money and valuable resources dealing with
an inadequate supplier.

Minimizing cost is one important aspect of improving your procurement

processes. But it’s also vital to identify suppliers that provide the quality of
goods and services that the company needs and have the capacity to deliver
reliably and a track record of doing so.

Types of Procurement
Procurement can be categorized in several ways. It can be classified as direct
or indirect procurement, depending on how the company will use the items
being procured. It can also be categorized as goods or services procurement
depending on the items that are being procured.

 Direct procurement refers to obtaining anything that’s required to produce an

end-product. For a manufacturing company, this includes raw materials and
components. For a retailer, it includes any items purchased from a wholesaler
for resale to customers.
 Indirect procurement typically involves purchases of items that are essential
for day-to-day operations but don’t directly contribute to the company’s bottom
line. This can include anything from office supplies and furniture to advertising
campaigns, consulting services and equipment maintenance.
 Goods procurement largely refers to the procurement of physical items, but it
can also include items like software subscriptions. Effective goods procurement
generally relies on good supply chain management practices. It may include
both direct and indirect procurement.
 Services procurement focuses on procuring people-based services.
Depending on the company, this may include hiring individual contractors,
contingent labor, law firms or on-site security services. It may include both direct
and indirect procurement.
Types of Procurement

Direct Indirect Goods Services

Procurement Procurement Procurement Procurement

What is Any good or All non- Physical items All people-based

it? service required production- typically held as services procured,
to produce an end related goods inventory, whether whether for direct
product or services for direct or or indirect
indirect procurement
procurement purposes
purposes

Examples Raw materials, Office supplies, Raw materials, Law firms,

components and marketing wholesale items, contractors,
parts, machinery, services, office supplies contingent labor,
items purchased utilities on-site security
for resale services

How Procurement Works

The procurement process generally involves a number of steps. The business
identifies particular goods and/or services that it needs, sources the suppliers
that will help the company reach its business objectives, negotiates terms and
costs and then purchases and receives the relevant items.

A small company may have just one person handling procurement of all
goods and services. Larger companies may have a team of people
specialized in dealing with different suppliers or supporting specific internal
business groups. For some items, the team may need to gather input from
several different business groups in order to determine the company’s overall
requirements.

It’s important to remember that procurement doesn’t consist of a series of

isolated acts — it’s an ongoing process. For example, businesses generally
aim to establish relationships with key suppliers to help obtain the best service
and lowest possible costs, which ultimately translate into higher profit margins.
Companies may also need to conduct regular quality assurance checks and
performance analysis to make sure suppliers consistently meet expectations.

9 Steps in the Procurement Process

Procurement processes vary greatly depending on each company’s structure
and needs, but generally include the following nine core steps:

1. Identify which goods and services the company needs. First, a

business must identify its requirements for a specific item or a service. This
may be a new item that the company hasn’t previously purchased, a restock
of existing goods or a subscription renewal. This step typically involves
delving into the nitty-gritty details of what the business needs, such as the
precise technical specifications, materials, part numbers or service
characteristics. At this stage, it’s a good idea to consult all business
departments affected by the purchasing decision to ensure the procured items
accurately reflect the needs of each department.

2. Submit purchase request. When an employee or business group needs to

procure a significant quantity of new supplies or services, they make a formal
purchase request (also known as a purchase requisition). A purchase request
notifies the company that a need exists, usually via department managers,
purchasing staff or the financial team, as well as specifications such as price,
time frame needed, quantity and other important things for the purchasing
team to keep in mind. The department overseeing the purchase can then
approve or deny the purchase request. If approved, the procurement team
can proceed with selecting a vendor and making the purchase.

3. Assess and select vendors. With a clear list of requirements and an

approved purchase request, now is the time to find the best vendor and
submit a request for quote (RFQ) – this is what the purchasing team sends to
potential suppliers in order to receive a quote – it is important to be as detailed
as possible so you can compare apples to apples. Vendor assessment should
focus not only on cost but also on reputation, speed, quality and reliability.
Many companies consider ethics and social responsibility as well, since
procurement is often intertwined with corporate identity. A retailer that prides
itself on sustainability would stand to benefit from partnering with
environmentally responsible suppliers, for instance.

4. Negotiate price and terms. A common best practice is to get at least three
quotes from suppliers before making a decision. Examine each quote carefully
and negotiate where possible. If you need to walk away from a deal, be sure
that you have concrete alternative options. Once you’ve agreed on final terms,
be sure to get them in writing.

5. Create a purchase order. Fill out a purchase order (PO) and send it to the
supplier. The PO should be sufficiently detailed to identify the exact services
or goods needed and to enable the supplier to fill the order.

6. Receive and inspect the delivered goods. Carefully examine deliveries

for any errors or damage. Make sure everything is delivered as specified in
the PO and that the quality meets or exceeds expectations.

7. Conduct three-way matching. Accounts payable should conduct three-

way matching by comparing the purchase order, order receipt or packing list
and invoice. The goal is to ensure the goods or services received match the
purchase order and to prevent payment for unauthorized or inaccurate
invoices. Highlight any discrepancies between the three documents and
resolve issues before arranging payment.

8. Approve the invoice and arrange payment. If the three-way match is

accurate, approve and pay the invoice. Businesses should strive to have a
consistent invoice payment process through accounts payable that checks
that payments match the invoice amount and due date. A standardized
process can help make sure invoices are always paid on time, which can
prevent late fees and build good relationships with suppliers.

9. Recordkeeping. It’s important to maintain records for the entire

procurement process, from purchase requests to price negotiations, invoices,
receipts and everything in between. These records may be useful for multiple
reasons. They help the company reorder goods at the right price in the future,
as well as assist with auditing processes and calculating taxes. Clear,
accurate records can also help resolve any potential disputes.
 Stages of Procurement
The nine major steps of the procurement process can also be thought of in
three distinct stages: the sourcing stage, the purchasing stage and the
receiving stage.

 Sourcing stage: This covers the initial steps in which the business identifies its
needs, creates a purchase request and assesses vendors. Even after the initial
sourcing steps are complete, it’s a good practice to build a strong relationships
with suppliers. They can establish grounds for suppliers to learn from partners,
improve products and processes and develop trust.
 Purchasing stage: This stage includes negotiating terms, creating orders and
receiving and inspecting goods and services.
 Payment stage: Accounts payable conducts three-way matching to ensure
order and invoice accuracy. The invoice can then be approved and the payment
is arranged. Records of all invoices, orders and payments should be kept and
carefully maintained.
 Procurement Life Cycle
Organizations commonly think of steps in the procurement process as a life
cycle. This perspective provides a reminder that all the tasks and stages in the
procurement process overlap and rely on each other and that the process is
continuous. A carefully thought-out procurement life cycle also recognizes the
integration between the process and the business as a whole, including the
need to align with existing company rules and procedures covering areas
such as budgeting. The process is not always linear, and sometimes
adjustments need to be made to account for a dynamic digital supply
chain with shifting suppliers, availabilities and costs.

Three Components of Procurement

Three key components work together to make the procurement process
happen: people, process and paperwork.

 People: People generally are responsible for initiating or authorizing every step

of the procurement process. In addition to procurement specialists, the people
involved include other stakeholders, such as accounts payable and the
business groups that request the goods and services. The number of people
involved often depends on the value of the goods and services; more
stakeholders may be involved in specifying and approving high-value
purchases.
 Process: An effective procurement process can help a company succeed by
keeping costs down and ensuring supplies arrive when the business needs
them. A well-designed and methodical process helps to promote accuracy and
timeliness because every person involved knows exactly what they need to
accomplish and how long they have to complete the tasks. In contrast, a
disorganized procurement process results in inefficiencies and potentially costly
errors. Overpayments, for example, can impact the bottom line, while late
payments negatively affect relationships with suppliers.
 Paperwork: It’s important to maintain records for every stage of the
procurement process and ensure they are easily accessible. These records act
as a store of organizational knowledge about payment terms and supplier
performance, helping the business maintain an efficient procurement process —
even if the procurement staff changes over time. In the case of an audit or a
dispute, a business must be easily able to follow the paper or electronic trail
through each stage of the procurement process.

Procurement, Purchasing and Supply

Chain: What’s the Difference?
The terms procurement, purchasing, sourcing and supply chain are often used
interchangeably. However, there are important distinctions between them.

 Procurement vs. purchasing: If procurement involves purchasing, you might

be wondering: What’s the difference between purchasing and procurement?
The answer is that purchasing is essentially transactional, focusing on
managing specific orders to meet company needs. Procurement is a much
broader and more complex set of processes, including establishing and
maintaining supplier relationships. Another way to think about the difference
between purchasing and procurement is that procurement takes a proactive
approach that starts with analyzing the company’s needs, whereas purchasing
is a reactive approach — simply focusing on obtaining what the company has
already decided it needs.
 Procurement vs. sourcing: Sourcing, like purchasing, is only part of the
overall procurement process. Sourcing is an early stage of the procurement
cycle. It encompasses activities such as identifying and assessing potential
suppliers of goods or services, negotiating terms and selecting the vendors that
best meet the company’s needs.
 Procurement vs. supply chain: Procurement covers one aspect of supply
chain management. Procurement includes sourcing, obtaining and paying for
goods and services. Supply chain management also covers the logistics
involved in obtaining goods, such as shipping and warehouse management, as
well as transforming the procured goods into products and distributing them to
customers.
Procurement, Purchasing and Supply Chain: What’s the
Difference?

Supply Chain
Procurement Purchasing Sourcing Management

Definitio All activities Buying goods Selecting and Managing the

n related to and services vetting vendors to coordinated
carefully provide goods network of
sourcing and and/or services companies,
obtaining goods facilities and
and services business activities
needed to involved in
support business sourcing,
operations developing,
manufacturing and
delivering
products

Scope Includes Part of the  Part of the  Includes the entire

sourcing, procurement procurement procurement
negotiation, process process process
purchasing,
receiving and
recordkeeping

Focus Ensuring the Usually focuses Establishing Cutting costs

company gets on getting a good good, long-term while getting
the most value price relationships with goods to the
from goods or suppliers customer as
services to quickly as
increase the possible, without
business’s sacrificing quality
profitability or accuracy
Principles of Procurement
In public-sector organizations, the procurement process is generally similar to
the process in private-sector organizations — but with a few important
differences. Because the people involved handle public funds, they generally
must follow rigorous principles during the procurement process. These
principles can be regarded as an ethical code of conduct that holds public
servants accountable for their purchases. Some of the principles may also be
beneficial to private-sector organizations.

The principles vary somewhat depending on the organization. Here are seven
of the most common procurement principles:

1. Value for money: The organization must manage funds efficiently and

economically when procuring goods and services. This may include
conducting cost-benefit analyses and risk assessments. It’s worth noting
that low cost does not necessarily equate to greater value; characteristics
such as quality and durability also factor into determining whether the
purchase represents value for money.
2. Fairness: Procurement should not provide preferential treatment to
individuals or suppliers. All bids should be assessed objectively, based on
how well they meet the organization’s needs.
3. Competition: Organizations should seek competitive bids from multiple
suppliers, unless there are specific reasons not to do so, such as a sole-
source provider where the good or service is only available from a single
vendor.
4. Efficiency: Procurement processes must be carried out efficiently to help
maximize value and avoid delays.
5. Transparency: Organizations should make relevant procurement
information available to everyone, including the public as well as
suppliers. Information should be kept confidential only when there are
legal or other valid reasons to do so.
 6. Integrity: Those who practice public procurement should always strive to
be perceived as trustworthy, reliable, honest and responsible. Funds must
be used for their intended purpose and in the public interest.
7. Accountability: People involved in the procurement process are
accountable for their actions and decisions. They are required to report
procurement activities accurately, including any errors.

Procurement & Finance

In many companies, procurement and finance teams operate as separate
departments. Historically, they have sometimes been at odds for one major
reason: Procurement spends money, while finance focuses on profitability,
which sometimes means finding ways to spend less.

However, a strategic partnership between the two groups can benefit the
business as a whole, partly because each group can provide unique insights
into the business’s operations. For example, a well-run procurement team
may have a deep understanding of how carefully sourced goods and services
can help business groups maximize profitability. This helps the finance group
get a better overall picture of company spending and how it affects the bottom
line. Integrated supply chain management software that can connect
information from across the business, including finance, is an important tool to
bridge the traditional divide and help teams work together to advance
business objectives. Supply chain management software can also help you
track progress toward goals by providing the information you need for key
performance indicators (KPIs) in a simple-to-understand format for your
procurement team.
Procurement KPIs
By monitoring procurement KPIs, businesses can boost the efficiency of their
procurement process, track progress toward business objectives and identify
areas for improvement. Here are some commonly measured procurement
KPIs:

Purchase order cycle time: Monitor the average number of hours or days it

takes to process requisitions and send purchase orders to suppliers.

Purchase order cycle time = # of hours or days it takes to process

requisitions and send purchase orders to suppliers / # of purchase orders sent
to suppliers

Supplier lead time: The average number of days it takes for suppliers to

send items after they receive a purchase order.

Supplier lead time = # of days it takes for item(s) to arrive after supplier
receives purchase order / total # of purchase orders sent to supplier
Number of suppliers: Having more suppliers gives the company more
options but also increases administrative work. Many procurement groups
monitor the number of vendors in their supplier networks and periodically
remove little-used suppliers to increase efficiency.

Supplier defect rate: An important measure of supplier quality, this is usually

measured as the number of defective parts divided by the total number of
parts supplied.

Supplier defect rate = # of defective parts from vendor / total # of parts from
same vendor

Supplier availability: This measures each supplier’s ability to respond to last-

minute or emergency demands.

Supplier availability = # of times supplier fulfilled business orders / # of

orders sent to supplier
Fulfillment accuracy: This measures the percentage of orders that suppliers
fill accurately and match the purchase order exactly.

Fulfillment accuracy = # of accurate orders from supplier / total # of orders

from same supplier

Total ROI of procurement process: This measures the value a business’s

procurement strategy delivers to the organization. It’s the ratio of the annual
savings generated by the procurement group to the total annual amount spent
on procurement.

ormalized acquisition of goods and services has its roots in military logistics,[citation needed] but

the first written records 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."[6]

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."[7]

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 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: 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.[8][9]

Direct procurement and indirect procurement

 Types

Direct

procure Indirect procurement

ment

Capit
Raw
al
material Maintenance, repair,
good
and and
s
product operating supplies, o
and
ion utsourcing
servi
goods
ces

Quanti
F E A T U 
Large Low Low
ty
R E S

Frequ
High Relatively high Low
ency

Industry-
Value Low High
specific

Nature Operatio Tactical Strat

 nal egic

Crud
Crude
e oil
oil in
Exam stora
petroleu Lubricants, spare parts
ples ge
m
faciliti
industry
es

Topics[edit]

Procurement vs. sourcing vs. acquisition[edit]

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)[10] defines strategic sourcing as the process

of identifying sources that could provide needed products or services for the acquiring

organization. The term procurement is used to reflect the entire purchasing process or

cycle, and not just the tactical components. 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. Purchasing refers to the major function of an
organization that is responsible for acquisition of required materials, services and

equipment.

The United States Defense Acquisition University (DAU) defines procurement as the act

of buying goods and services for the government. [11] DAU defines acquisition as the

conceptualization, initiation, design, development, test, contracting, production,

deployment, Logistics Support (LS), modification, and disposal of weapons and other

systems, supplies, or services (including construction) to satisfy Department of

Defense needs, intended for use in or in support of military missions. [11]

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, [12] "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[edit]

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. [13]

Model of the acquisition process[13]

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: [13]

 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".[14][15]

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. [16][17]

Sourcing business model[edit]

Procurement officials increasingly realize that their make-buy supplier decisions fall

along a continuum from simple buying transactions to more complex, strategic buyer-

supplier collaborations. It is important for procurement officials to use the right sourcing
business model that fits each buyer-seller situation. There are seven 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.

 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.

Procurement software[edit]
Main article: Procurement software

Procurement software (often labeled as e-procurement software) manages purchasing

processes electronically or via cloud computing.

Procurement performance[edit]

The Chartered Institute of Procurement & Supply (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.

[18]
 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. [19] Right source is added as a sixth right in CIPS' 2018

publication, Contract Administration.[20]

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. [21] 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".[22] 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

 obtaining added value for the same cost, e.g. negotiating extended warranties,

additional spare parts etc.[22]

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 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. [23] 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%. [24]

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). [25] 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. [26][27]

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".[26] Findings in 2020 suggested that "top quartile procurement

performers have ROSMA scores two to three times higher than those in the middle two

quartiles".[28] 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. [27]: 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.[29]

Joint procurement[edit]

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

 a resource dependence approach, and the resource based view, where the group of

actors is able to create a resource, market power, which they would be unable to

exercise independently

 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.[30]
They note also that many large and powerful companies "do not have - nor feel - the

need to go together".[30]

Relationship with Finance[edit]

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Procurement and Finance have, as functions within the corporate structure, been at

odds. 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, however, has been changing as more chief

procurement officers have begun to argue for more autonomy and less interference

from Finance departments.

Electronic procurement[edit]

Electronic procurement is the purchasing of goods by businesses through the internet or

other networked computer connection. [31] 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.[32]: 35 

Alternative competitive bidding procedures[edit]

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There are several alternatives to traditional competitive bid tendering that are available

in formal procurement. One approach that has gained increasing momentum in the

construction industry and among developing economies is the selection in

planning (SIP) process, which enables project developers and equipment purchasers to

make significant changes to their requirements with relative ease. The SIP process also

enables vendors and contractors to respond with greater accuracy and competitiveness

as a result of the generally longer lead times they are afforded.

University of Tennessee research shows that request for solution and request for

association (also known as request for partner or request for partnership) methods are

also gaining traction as viable alternatives and more collaborative methods for selecting

strategic suppliers – especially for outsourcing.[33]

Public procurement[edit]

Main article: Government procurement

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][34][35] In 2019, public procurement accounted for approximately 12%

of GDP in OECD countries[36] and in 2021 the World Bank Group estimated that public

procurement made up about 15% of global GDP.[37]

Benefits of public procurement[edit]

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. [38]: Chapter 1  One benefit of public procurement is its ability to

cultivate innovation and economic growth.[39][40][41] 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.

[42]
 Competition is a key component of public procurement which affects the outcomes of

the whole process.[43] 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.[44]

Green public procurement[edit]

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. [45]

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. [46] The European

Commission has recommended GPP criteria for 21 product/service groups which may

be used by any public authority in Europe.[47]

The EU has also launched the GPP 2020, which aims to implement 100 low-carbon

tenders.[48][49]

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. [50]

Accessible procurement[edit]

The United States Section 508[51] and European Commission standard EN 301

549[52] 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. [53]

Challenges for public procurement[edit]

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. [54][55] Public procurement is heavily embedded in all

forms of public sector goods and services, from health care to road maintenance, [54] thus

making it difficult for the government to monitor the impacts, positive or negative.
[36]
 Monitoring public spending and its impact is important to reform public procurement,

especially when pending economic instability calls for proactive responses. [54]

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.[38] 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. [56] 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.[57]

Fraud[edit]

The OECD has published guidelines on how to detect and combat bid rigging. [58]

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.[59] 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. [60] 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. [61]

Roles in procurement[edit]

"Buyer" redirects here. For other uses, see Buyer (disambiguation).

See also: Fashion buyer and broker

Personnel who undertake procurement on behalf of an organisation may be referred to

as procurement officers, professionals or specialists, buyers or supply managers. [62] The

US Federal Acquisition Regulation refers to Contracting Officers.[63] Staff in managerial

positions may be referred to as Purchasing Managers or Procurement Managers.

A Purchasing or Procurement Manager's responsibilities may include:

 approving orders

 seeking reliable vendors or suppliers to provide quality goods at reasonable prices

 negotiating prices and contracts

 reviewing technical specifications for raw materials, components, equipment or

buildings

 determining and monitoring quantity and timing of deliveries (more commonly in

small companies)

 forecasting upcoming demand

 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.[64]

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 [65] or a Chief

Procurement Officer.
Independent or third party personnel who undertake procurement or negotiate

purchases on behalf of an organization may be called purchasing agents or buying

agents. A commercial agent may both purchase and sell on behalf of a third party. [66]

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. [67] 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'".[68] 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.[69]

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". [70] Research undertaken in 2020

highlighted the importance of social or "soft" skills within the skill sets of professional

procurement staff.[71]

Gender: women in procurement[edit]

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.[72] 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.[73]

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.[72]