Procurement
[2] Procurement as an organizational process is intended to ensure that the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared.
[3] Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing risks such as exposure to fraud and collusion.
Organisations which have adopted a corporate social responsibility perspective are also likely to require their purchasing activity to take wider societal and ethical considerations into account.
[4] On the other hand, the introduction of external regulations concerning accounting practices can affect ongoing buyer-supplier relations in unforeseen manners.
The Institute for Supply Management (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.
[9][10] The first record of procurement activities dates back to 3,000 BC when the Egyptians managed materials and labor for the pyramids using scribes.
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.
Feldman and Cordozo questioned this approach in a 1969 article, suggesting that industrial buyer decision-making had similarities with consumer buying behaviour.
From a marketing perspective, buying center research has looked at which individuals and organisational divisions become part of the decision-making group, how they interact, and the internal and external factors which influence purchasing outcomes.
Wesley Johnson and Thomas Bonoma, in a 1981 research paper, found situations where "the purchasing manager's centrality is likely to be high", and equally situations where their centrality "is likely to be low", recommending that "purchasing managers desiring to increase their influence" should aim to play a pivotal role in the internal communications linking the various individuals and organisational divisions involved.
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.
[33][34][35] 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.
The process is used to ensure the buyer receives goods, services or works for the best possible price, when aspects such as quality, quantity, time, and location are compared.
[41] Sustainable procurement is a spending and investment process typically associated with public policy, although it is equally applicable to the private sector.
Organizations practicing sustainable procurement meet their needs for goods, services, utilities and works not only on a private cost–benefit analysis, but also with the intention to maximizing net benefits for themselves and the wider world.
[44]: 35 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.
A report commissioned by the European Parliament's Committee on the Internal Market and Consumer Protection (IMCO) has recommended that EU Member States "should consider creating Central Purchasing Bodies (CPBs)" in order to secure "coherent and coordinated procurement".
[46] On a trans-national scale, Guyana, Barbados and Rwanda announced "a programme of mutual support for the local manufacturing of vaccines and medicines" in July 2023 for which a "pooled procurement mechanism" would be required.
[50] 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.
[53] 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%.
[54] A more restrictive definition of "spend under management" includes only expenditure which makes use of preferred supplier contracts and negotiated payment rates and terms.
The effect of this growing involvement of women in procurement was recognised in the form of "more creativity and innovation", acknowledged by 76% of the CPO's surveyed.
[76] A contractual obligation to procure refers to an absolute obligation to ensure that the action is done or the condition is met,[77] for example a contract with a principal supplier may include a clause requiring the company to "procure" that its subsidiaries, holding companies and other associated businesses undertake the same commitments as those contractually imposed on the principal.
