Procurement

Procurement is the process of finding, agreeing to terms, and acquiring goods, services, or works from an external source, often through a tendering or competitive bidding process.

Core procurement elements:

1. Scope: Sourcing as much of the product or service as required.
2. Time: Acquiring it when needed.
3. Price: Ensuring the cost fits the budget and aligns with financial constraints.
4. Specification: Meeting the required specifications.
5. Terms: Agree on acceptable terms and conditions.

Critical elements of procurement management:

• Expertise – Having the right professionals in procurement roles is essential.
• Policies – Procurement teams need clear guidelines to ensure proper acquisition of goods and services.
• Systems – Purchasing systems integrate technology and processes to manage purchase requests, specifications, vendor selection, and compliance with company policies.
• Ethics and vendor management – Vendor management involves evaluating and selecting suppliers based on product quality, pricing, and performance.
• Checks and balances – Quality assurance is another critical aspect of procurement management.

It is important to distinguish between analyses with and without risk. When risk is involved—whether in costs or benefits—the concept of best value should be applied.

Procurement activities are often divided into two distinct categories: direct procurement, which includes raw materials, components, and parts, and indirect procurement, which covers office supplies, machine lubricants, heavy equipment, consulting services, and outsourcing services.

Trends in procurement:

1. Pervasive talent shortage. A global study estimated that demand for supply chain professionals exceeds supply by a ratio of 6:1.
2. Rise of digital technologies. McKinsey & Company found that nearly 60% of tasks in the source-to-pay process can be fully or largely automated using current technologies. This includes both transactional activities (e.g., order and invoice processing) and strategic tasks (e.g., vendor selection and management).
3. Cybersecurity concerns. Cyberattacks are the fastest-growing crime in the U.S., increasing in size, sophistication, and cost.
4. Fact-based procurement decisions. Data-driven insights help procurement professionals improve spend management, detect potential fraud, mitigate risks, and negotiate more strategically with vendors.
5. Impact of tariffs. Tariffs are expected to rise in the coming years due to the global increase in protectionist policies.