Procurement

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For procurement in prostitution, see Procuring (prostitution).

Procurement is the acquisition of goods, services or works from an outside external source. It is favourable that the goods, services or works are appropriate and that they are procured at the best possible cost to meet the needs of the acquirer in terms of quality and quantity, time, and location.[1] Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion.

Overview[edit]

Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If good data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

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 expected value may be employed.

Direct procurement and indirect procurement
 TYPES
Direct procurementIndirect procurement
Raw material and production goodsMaintenance, repair, and operating suppliesCapital goods and services

F E A T U R E S

QuantityLargeLowLow
FrequencyHighRelatively highLow
ValueIndustry specificLowHigh
NatureOperationalTacticalStrategic
ExamplesCrude oil in petroleum industryLubricants, spare partsCrude oil storage facilities

Based on the consumption purposes of the acquired goods and services, procurement activities are often split into two distinct categories. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement.

Direct procurement occurs in manufacturing settings only. It 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 activities concern “operating resources” that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardized low value items like office supplies and machine lubricants to complex and costly products and services;[2][3] like heavy equipment and consulting services.

Topics[edit]

Procurement vs acquisition[edit]

The US Defense Acquisition University (DAU) defines procurement as the act of buying goods and services for the government.[4]

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.[4]

Acquisition is therefore a much wider concept than procurement, covering the whole life cycle of acquired systems. Multiple acquisition models exist, one of which is provided in the following section...

Acquisition process[edit]

The revised acquisition process for major systems in industry and defense is shown in the next figure. 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.[5]

Model of the Acquisition Process.[5]

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:[5]

Procurement software[edit]

Procurement software (often labeled as RFQ software, purchasing management software or e-Procurement software) manages the purchasing processes within a supply chain. As an important element of supply chain management systems, these systems help organizations efficiently manage their purchasing cycle times and maximize profit on every purchase order. Many organisations produce their own ways of working but some software does exist: SMART by GEP, a cloud-based, end-to-end procurement platform by GEP, Track8 by Future Purchasing,[6] Puridiom - procure-to-pay software, Fishbowl Inventory - Inventory management

Procurement steps[edit]

Procurement life cycle in modern businesses usually consists of seven steps:

Procurement performance[edit]

In July 2011, Ardent Partners, published a research report that presented a comprehensive, industry-wide view into what is happening in the world of procurement today by drawing on the experience, performance, and perspective of nearly 250 Chief Procurement Officers and other procurement executives. The report includes 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" refers to the percentage of total enterprise spend (which includes all direct, indirect, and services spend) that a procurement organization manages or influences. The average procurement department also achieved an annual savings of 6.7% in the last reporting cycle, sourced 52.6% of its addressable spend, and has a contract compliance rate of 62.6%.[7]

Public procurement[edit]

Public procurement generally is an important sector of the economy. In Europe, public procurement accounts for 16.3% of the Community GDP.[8]

Green public procurement[edit]

In Green public procurement (GPP), 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.[9]

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 the year 2010.[10]

Alternative procurement procedures[edit]

There are several alternatives to tendering which are available in formal procurement. One system which has gained increasing momentum in the construction industry and among developing economies is the Selection in planning 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.

Procurement frauds[edit]

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.[11] An example is the 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:[12]

See also[edit]

Notes et references[edit]

Benslimane, Y.; Plaisent, M.; Bernard, P.: Investigating Search Costs and Coordination Costs in Electronic Markets: A Transaction Costs Economics Perspective, in: Electronic Markets, 15, 3, 2005, pp. 213–224. Van Mendell 5 step framework

  1. ^ Weele, Arjan J. van (2010). Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice (5th ed. ed.). Andover: Cengage Learning. ISBN 978-1-4080-1896-5. 
  2. ^ Lewis, M.A. and Roehrich, J.K. (2009). Contracts, relationships and integration: Towards a model of the procurement of complex performance. International Journal of Procurement Management, 2(2):125-142.
  3. ^ Caldwell, N.D. Roehrich, J.K. and Davies, A.C. (2009). Procuring complex performance in construction: London Heathrow Terminal 5 and a private finance initiative Hospital. Journal of Purchasing and Supply Management15(3):178-186.
  4. ^ a b Glossary of Defense Acquisition Acronyms and Terms, 12th Edition (plus updates since publication) accessed on 22 April 2009, Defense Acquisition University
  5. ^ a b c Systems Engineering Fundamentals. Defense Acquisition University Press, 2001[dead link]
  6. ^ http://www.futurepurchasing.com/category_management/track8
  7. ^ "Ardent Partners Research - CPO 2011: Innovative Ideas for the Decade Ahead". 
  8. ^ "Public contracts - Your Europe - Business". Europa.eu. Retrieved 2013-06-16. 
  9. ^ "EC.Europa.eu". EC.Europa.eu. Retrieved 2013-06-16. 
  10. ^ "EC.europa.eu". EC.europa.eu. Retrieved 2013-06-16. 
  11. ^ "Combating Procurement Frauds Author Dr Irfan Ahmad". 
  12. ^ "Procurement Fraud'". projectauditors.com. Retrieved April 3, 2014. 

External links[edit]

 This article incorporates public domain material from websites or documents of the Defense Acquisition University.