Procurement is a strategic process of acquiring goods and services that an organization requires. It is an essential business process that ensures goods and services acquisition from external vendors occurs at the best price while expanding, enhancing, and optimizing business operations. Procurement is an end-to-end process where businesses aim to establish relationships with vendors to obtain the best service and lowest possible costs, which ultimately yields higher profit margins. Its significant impact on the rest of the business functions is undeniable. Any misstep can have a cascading effect on multiple processes causing delays and disruptions throughout the organization. Adopting an appropriate procurement solution can help businesses and organizations of all types and sizes ensure the necessary resources are available to support operations and achieve strategic objectives.
Types of Procurement
We can manage different procurements in separate ways. To handle the procurement process better, we can classify them based on the usage and nature of the product involved.
Procurement Based on Usage
Based on the purpose of the purchasing product, procurement is classified into the following types:
Direct Procurement - It is the process of purchasing materials and services that are used in core business operations and production. It includes buying raw materials, wholesale goods, or services critical for production. For example, a fabric factory procuring textiles and cloth materials for processing and sewing down the line.
Indirect Procurement - It is a process of purchasing items that are essential for daily operations but are not directly related to the production. This includes maintenance and repair services, hardwares, softwares, and so on. For example, the procurement of office supplies such as paper, pens, and printers.
Procurement Based on Nature
Based on the characteristics of the purchasing product, procurement is categorized as follows:
Goods Procurement - It refers to acquiring physical items an organization requires to serve the business operations. This can involve purchasing raw materials, finished goods, and so on. For example, a hospital might procure medical supplies from vendors to provide healthcare services to their patients such as bandages, medical devices, and so on.
Services Procurement - It refers to the spends on services ensuring uninterrupted business operations. This may include hiring contractors and security services, purchasing software subscriptions, and so on. For example, an organization might procure IT services from an external vendor to manage its technical infrastructure, such as server maintenance.
Procurement in Facility Management
The purchase process of the organizations varies based on their nature. In facility management, procurement involves acquiring goods, services, and equipment necessary to support the effective operation and maintenance of the facilities. It encompasses various activities, including requirement analysis, vendor selection, contract negotiation, purchase order processing, inventory management, cost control, and compliance.
Computerized Maintenance Management System (CMMS) offers real-time monitoring of procurement activities, allowing organizations to track the progress, from raising a purchase request to the final payment. It helps the team identify issues or delays in the acquisition cycle and mitigate risks. Hence, procurement management aligned with CMMS results in enhanced precision and improved monitoring while reducing cost.