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What Is Procurement Essay

1128 words - 5 pages

Procurement is the acquisition of materials, services and technologies from the right source, at the right time and in the right quantity to meet the needs of the purchaser (Anthony, 2010). Factors that determined purchasing decision include material availability, purchased volume, delivery and handling, marginal benefit, and price fluctuation, but the most important factors is the amount of control purchasing and supply personnel have over materials availability, quality, costs and services (Anthony, 2010). Based on the consumption purposes of the acquired materials and services, the procurement activities are split into two categories. The first category being direct (strategic) ...view middle of the document...

For instance, World Wide Web search through search engines, online catalogues or directories and recommendation from other buyers, direct marketing or through the mouth of another suppliers in other commodity. Supplier may also be found at trade exhibitions, recommendations from other knowledgeable sources such as salesman or engineers and reverse auction (Anthony, 2010). Reverse auction is part of strategic sourcing process which aid supply chain optimization. It is a procurement tool using web-based software that allows suppliers to bid online for contract for the supply of goods or services and the supplier with the lowest bid will qualified to fulfill the contract (Best Practices LLC). Reverse auction has attracted a great deal of attention from major innovative companies due to the substantial savings that has achieved through out the years from different companies. In an interview reported from a benchmarking partner, the company has achieved substantial savings of 8-12 percents over last purchase through reverse auction (Best Practices LLC). In a 2004 annual report from Merck, it was reported that the intensive use of internet auctions (reverse –auctions) ensure the best possible bargaining results which enable the organization to achieve cost savings of around EUR 4.7 million in a total of 31 projects.

In an event when competitive bidding is not appropriate for reaching the cost saving objective, the next procurement process is the process of negotiation (Anthony, 2010). Negotiation process will lead to a complete understanding of all issues involved between suppliers and the purchasing department which will ultimately reduce the number and impact of unseen problems that may arise later (Anthony, 2010). A number of circumstances dictate the use of negotiation. For instance, price negotiation during early involvement of supplier in project, costly tooling and setup cost at supplier side, frequent change of production orders or long supplier lead time be it delivery or manufacturing (Anthony, 2010). However, a successful negotiation required the buyer to have knowledge of the product and process involved in the manufacturing of products, knowledge of factors that may affect cost, quality, delivery and service, current market situations, cultural awareness and strength and weakness of the supplier (Anthony, 2010). Through proper preparation and negotiation skills, the buyer will then be able to secure a contract that meet the organization objectives and indirectly beneficial to the supplier (Anthony, 2010).

After selecting the suitable suppliers and securing the contracts, the next procurement process is supplier management. In the supplier management process, the purchasing function will monitor and control the performance of the supplier through assessing and evaluating supplier’s performance. The supplier-evaluation programs effectively...

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