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CHAPTER 2
THE PROCUREMENT PROCESS
SYNOPSIS
In order to support organisational objectives, the purchasing group within
an organisation must work to ensure that the sourcing process is carried out
efficiently and effectively. This is the process used to identify users’ requirements;
identify and qualify suppliers; bid to, negotiate with and select suppliers;
approve purchases; release and receive purchase requirements and monitor
and measure supplier performance.
This chapter covers the key steps in the purchasing process and the requirements
for ensuring that this process is carried out efficiently and effectively. The chapter
introduces the following topics:
• Procurement objectives.
• Key steps in the sourcing process.
• Types of purchases.
• Importance of item and service purchased.
• Managing the sourcing process.
• Improving the sourcing process/best practices.
2.1 INTRODUCTION
Effective procurement of goods and services helps to contribute to the competitive
advantage of an organisation. The sourcing process links the various entities
in a supply chain; and effective sourcing helps assure the quality of goods and
services supplied in that chain. The quality of the goods and services that serve
as an input affects finished product quality and hence customer satisfaction and
return on investment. Input costs comprise a significant portion of total costs
in many industries. With the importance of procurement as a determinant of
revenues, costs and supply chain relationships, it is easy to understand why it
has recently been receiving more attention from practitioners and academics.
Procurement can be a relatively complex process that is difficult at times to
define, understand and manage. Depending on the circumstances, procurement
can be defined, in a narrow sense, as the process of acquiring goods and
services for the firm. The procurement process is, however, more than just the
culmination of an activity; it is the successful completion of a series of activities
that often cut across organisational boundaries. To formalise the definition,
then, procurement consists of all those activities necessary to acquire goods
and services consistent with user requirements.
In order for procurement to be effective, it must be well managed, must integrate
and link with other functions within the firm as well as with suppliers and
customers and, ultimately, must support organisational goals and objectives.
In this chapter we cover the various aspects of the sourcing process and what
is required to be effective in that process.