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What is procurement?

Blog / 01/09/2020

In over 20 years of working in Procurement we have found that it can mean many things to different people and organisations, which is probably why it goes under many names: Strategic Sourcing, Purchasing, Buying – but simply put, it is about:

  • Getting the goods or services you need
  • Delivered when you need them
  • For the best possible cost and terms

However, very few things in life are ever really that simple and Procurement is no exception. Having a Procurement Strategy is a good idea, but where to start?

 

Let’s start at the beginning… what do you want?

The first and most important question that any organisation needs to ask BEFORE it does anything else is what do I need? Unless you know what it is you are looking for you can’t hope to buy it, let alone ensure the best possible cost and terms.

How many times have we all had to return things we have bought because they haven’t been the right fit, or they were for a different model or there was only one in the packet and we thought we were buying a pair! The list of buying mistakes in our own lives is endless and it’s the same for organisations. Unless you take the time to really think about what it is you need you will fall at the first hurdle.

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Next… who can provide it?

Some companies love to go shopping, forget that they might already have the capability in house to provide the service they want, or they may be able to use something they already have to meet the need. Particularly in the IT Procurement space, software often has more capability than organisations need or use in the short term. Rather than looking to drive value from the existing assets, there is the temptation to look at the shiny new opportunities in the marketplace. This may be the right business decision but can be more costly to acquire and in the long run, so using something you already have should be a conscious part of the sourcing strategy.

 

How do I ensure the best terms?

Having clearly defined what you want (a detailed specification is required) and understood if you need to go shopping at all, you are finally ready to go and talk to some possible suppliers. And this is where the fun really starts! There are so many factors that impact what you do at this point, how you do it and how much time and effort you devote to it that there is too much to cover here. However, see for some determining factors.

Suffice to say, if you think about how you buy things in your own life, you will start to understand the considerations:

  • Buying an Alexa on Amazon is a fairly quick choice – a few colour options to consider and some bundle variations, but the price will be fairly static with little opportunity for negotiation and most likely next day delivery.
  • However, if you are considering buying a new fully electric car, there is an awful lot more to think about. You probably haven’t made a purchase like this previously so you are likely to take more time, having done some online research up front, chosen to visit a number of showrooms, and test driving the vehicles before getting close to a choice. You may even shortlist a couple before you go back round and negotiate one final time to make sure you are getting the best deal you can.

Many organisations approach their procurement strategy in a similar way, splitting up what they buy into ‘transactional’ type purchases (like the Alexa, that require less time and consideration and are more about just ensuring delivery at the best price) and ‘strategic’ purchases that require a lot more focus and attention.

 

What next?

Some organisations consider the Procurement journey complete once the goods or services have been delivered. That might be the case for some of the more transactional purchases (assuming you have paid for them of course!). However, for the strategic purchases, much like the electric car example, the delivery of the goods (or service) is simply the start of the relationship and there is a whole raft of activities that need to be managed post-delivery (e.g. servicing, upgrades, repairs, another car etc). Again, too big for the scope of this discussion – we did say it was a big topic for a little blog!