What is procurement? How to define it as
an entity inside the Company, and how as a business function? What is the main
goal of the procurement department? Let us see a couple of definitions
I agree definitions are boring. And easy to
forget. No worries, no one will ask you to remember and recite them back, ever.
However, every procurement professional needs to have a basic understanding of
the definition of procurement.
So, let us see what some of the experts in
this field has to say.
For a start, the Cambridge dictionary defines procurement as: ”…the process by which an organization buys the products or services it needs from other organizations”1. Correct, but quite basic.
Let us see what CIPS Australia has to say. As per them2
” Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives.”
“…purchasing is the process by which a company (or other organisation) contracts with third parties to obtain goods and services required to fulfil its business objectives in the most timely and cost-effective manner”.Now we are getting a bit closer. We could say that procurement deals with everything that needs to be from outside the company to have the company operating.
Conceptual
model of Purchasing
As we can see, it is not so simple as just
buying things someone requested.
OK, sounds great. But, how does all this practically
work? What is the main thing I need to start doing once I join the procurement department?
Monczka5 and his coauthors
defined procurement in the way I like most, using the five rights as the
ultimate goal of purchasing:
·
Right quality
Using a low-quality
bolt in an aircraft can result in the loss of many lives. But also using an airline
graded bolt in a toy would probably be a bit of “overkill” and too expensive. Our
job is to find the quality that is good enough for its use.
·
In the right quantity
Suppliers will
always try to sell as much as possible, giving big quantity discounts. Bear in
mind, large stock ties our company capital, takes space and can expire. Don’t
buy too much just to get the price you want.
·
At the right time
Toyota kicked all US
car manufacturers with their TPS (Toyota Production System), whose core tactics
was “just in time”. Too early, the warehouses will overflow. Too late, the
production will stop.
· With the right price
Many read this as “as cheap as possible”. But in reality, it depends. While in commodities and other very standardized product groups price is king, there are products and services where other details of the offer play a more important role. After all, are you going for your haircut/manicure only to the cheapest place?
·
From the right source
This means that you need to find a a supplier who can fulfil your needs on a long-term basis, who is reliable in terms of quality and deliveries and can provide warranties.
Sources and Links
1 Cambridge dictionary – Definition of procurement Cambridge dictionary
2 CIPS Australia (2006) – Definition of procurement, pg5 CIPS-Definition of procurement
3 Purchasing Management (2008) LARS BEDEY, SOFIA EKLUND, NOJAN NAJAFI,
WILLIAM WAHRÉN, KARL WESTERLUND, pg3. Purchasing Management
4 Purchasing and supply chain management: strategies and realities (2006) Michael Quayle, pg3
Purchasing and Supply Chain Management: Strategies and Realities
5Purchasing and Supply Chain Management, 4e (2009) Robert M. Monczka,
Robert B. Handfield, Larry C. Giunipero, James L. Patterson. Purchasing & Supply Chain Management
Nicely laid out Zoran, with clear definition, it is very easy to relate too and understand
ReplyDeleteThank you, I am trying to present procurement in a simple way.
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