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What is the procurement and why is it important?

What is the procurement and why is it important?

How much you spend and how efficiently you purchase directly affects the purpose of any enterprise, namely, profit. The profit can be affected either by increasing revenues, increasing sales, or by cutting costs.

Direct and Indirect Purchases

Direct purchases include purchases that are made by the company for the production of goods and services and whose value is included in the prime cost. Indirect procurement, respectively, are all the others. For example, if your company is the glass factory, the purchase of sand, soda, cullet are a direct purchases, and the purchase of stationery, household chemicals, food for employees are indirect purchases.

Also, all purchases can be divided into permanent (for example, monthly purchase of raw materials) and one-time purchases (for example, office repair, purchase of new equipment etc.).

Depending on a number of purchases and the goals set by the management, a supply department is created, which fulfill most of the needs of internal customers.

What does the purchasing department do?

Usually the purchasing department is engaged in basic purchases, as their size is much larger and even a small amount of savings can lead to significant savings.

The main task of the procurement department is to provide all departments of the company with the necessary goods and services on time with the best ratio of price and quality.

To define the best price and quality, it is necessary to provide a market analysis(for example, to assess the level of competition and determine the pricing parameters).

For effective work of the purchasing department, companies use different software that allows to reduce the human factor and automate the purchasing process, for example: collect requests from internal customers and create a purchase order.

However, it should be noted that the procurement software can't take a place of the purchasing manager in the process of selecting a supplier, evaluating its work and negotiating.

 

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