Procurement

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Procurement is the process of finding, agreeing terms and obtaining goods, services or working from external sources, often through competitive bidding or bidding processes. This process is used to ensure buyers receive goods, services or work at the best price, when aspects like quality, quantity, time, and location are compared. Corporations and public bodies often define processes intended to promote fair and open competition for their businesses while minimizing risks, such as exposure to fraud and collusion.

Almost all purchasing decisions include factors such as shipping and handling, marginal benefits, and price fluctuations. Procurement generally involves making purchasing decisions under conditions of scarcity. If good data is available, it is a good practice to use economic analysis methods such as cost-benefit analysis or utility cost analysis.

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Important differences should be made between the analysis without risk and risk. Where risk is involved, whether in cost or benefit, the best value concept should be used.

Procurement activities are also often divided into two different categories, direct and indirect spending. Direct expenditure refers to procurement related to production which includes all goods that are part of the finished product, such as raw materials, components, and spare parts. Direct procurement, which is the focus of supply chain management, directly affects the manufacturing process of manufacturing companies. In contrast, indirect procurement involves acquisitions that are not related to production: obtaining "operating resources" purchased by the company to enable its operations. Indirect procurement consists of a wide range of goods and services, ranging from standard items such as office supplies and machine lubricants to complex and expensive products and services such as heavy equipment, consulting services, and outsourcing services.

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Procurement vs. procurement vs. acquisition

Procurement is one component of broader source and acquisition concepts. Usually procurement is seen as more tactical (the process of purchasing products or services physically) and sources and acquisitions are considered more strategic and include.

The Institute of Supply Management (ISM) defines strategic sources as a process of identifying sources that can provide products or services needed for the acquiring organization. The term procurement is used to reflect the entire buying or cycling process, and not just the tactical component. ISM defines procurement as an organizational function that includes the development of specifications, value analysis, supplier market research, negotiations, purchasing activities, contract administration, inventory controls, traffic, receipts, and stores. Purchase refers to the primary function of an organization responsible for obtaining necessary materials, services, and equipment.

The United States Defense Force University (DAU) defines procurement as an act of purchasing goods and services for the government. DAU defines acquisitions as conceptualization, initiation, design, development, testing, contracting, production, deployment, Logistics Support (LS), modification and disposal of weapons and systems, supplies, or other services (including construction) to satisfy the Department of Defense needs, for use in or supporting military missions.

Therefore, acquisition and sourcing is a much broader concept than procurement.

Several business sourcing models exist, and the acquisition model exists.

The acquisition process

The revised acquisition process for major systems in industry and defense is shown in the following figure. This process is defined by a series of phases in which technology is defined and matured into a viable concept, which is then developed and prepared for production, after which the resulting system is supported in the field.

This process allows a given system to enter the process at each development phase. For example, a system that uses unproven technology will enter in the early stages of the process and will continue through a long period of technological maturity, while systems based on mature technology can prove directly involved in engineering development or, perhaps, even production. The process itself includes four development phases:

• The development of concepts and technologies is intended to explore alternative concepts based on operational needs assessment, technological readiness, risk, and affordability.
• The phase of concept and technology development begins with concept exploration. During this stage, conceptual studies are conducted to define alternative concepts and to provide information about capabilities and risks that will enable an objective comparison of competing concepts.
• Development of demonstration systems and phases can be incorporated directly as a result of urgent technology and user needs, and has come through the development of concepts and technologies.
• The last, and longest, phase is the ongoing phase and disposal of the program. During this phase all necessary activities are undertaken to maintain and maintain systems in the field in the most cost-effective manner.

Sourcing business model

Procurement officials are increasingly aware that their purchasing-buying decisions are falling with the continuum from simple purchase transactions to more complex and strategic collaboration of suppliers. It is important for procurement officials to use the appropriate source business model that suits every buyer-seller situation. There are seven models along the source chain: basic providers, approved providers, preferred providers, performance/managed/performance based service models, Vested business models, shared service models, and equity partnerships.

• The basic provider model based on transactions; usually have a set price for each product and service that there are various standard market options. Usually these products or services are already available, with little difference in what is offered.
• Approved provider models use a transaction-based approach where goods and services are purchased from qualified suppliers that meet certain performance or other selection criteria.
• The preferred provider model also uses a transaction-based economic model, but the main difference between the preferred provider and the other transaction-based model is that the buyer has chosen to move to a supplier relationship where there is an opportunity for the supplier to add additional value to the buyer's business to meet the goal strategic.
• A performance-based service model (or managed service model) is generally a formal long-term supplier agreement that incorporates a relational contract model with a results-based economic model. It seeks to encourage supplier accountability for output-based service level agreements (SLAs) and/or cost reduction targets.
• The private source business model is a hybrid relationship that combines an output-based economic model with a relational contract model. The company goes into highly collaborative arrangements designed to create and share value for buyers and suppliers above and beyond.
• The shared service model is usually an internal organization based on a reasonable outsourcing arrangement. Using this approach, processes are often centered on SSOs that overload business units or users for the services they use.
• The equity partnership creates legally binding entities; can take different legal forms, from buying a supplier (acquisition), to creating a subsidiary, to joint business share equity or enter into co-op arrangement.

Procurement software

Procurement software (often labeled as e-procurement software) manages purchasing processes electronically or through cloud computing.

Procurement life cycle

Most organizations think about their procurement processes in terms of the life cycle. Various consulting and expert companies have developed various frameworks. Some of the most common steps of the most popular frameworks include:

• Needs identification and requirements analysis is an internal step that involves an understanding of business objectives by setting a short-term (three to five-year) strategy for the overall shopping category followed by defining direction and technical requirements.
• External macro-level market analysis : Once the organization understands its requirements, it should look out for the overall market rate. An important part of market analysis is understanding the overall competitiveness of the market and the trends that may affect the organization.
• Cost analysis is the accumulation, examination, and manipulation of cost data for comparison and projection. Cost analysis is important to help organizations make purchasing-buying decisions.
• Supplier identification includes identifying specific suppliers who can provide the required products or services. There are many sources to find potential suppliers. One good source is a trade show. Modern procurement software often includes a catalog of suppliers for standard goods and services.
• Confidentiality Agreement (NDA) : It is normal to require vendors to sign the NDA before engaging with them. It protects organizations where sensitive information is shared with some potential vendors before releasing detailed requirements that often point to strategic decisions taken by the company.
• Supplier communication: When one or more of the appropriate suppliers have been identified, the organization will typically conduct a competitive bidding process. Organizations may use a variety of competitive bidding methods including demand for quotes, proposal requests, information requests, tender requests, demand for solutions or requests for partnerships. Some institutions choose to use notification services to increase competition for selected opportunities. This system can be directly from their e-tender software, or as a repackaged notification from an external system. During this step direct contact can be made with the supplier. References to product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of products/services considered can be examined, or a pilot is performed. The organization shall conduct a risk assessment, analysis of total cost of ownership and the best value judgment before selecting the final supplier/solution.
• Negotiations and contracts: Negotiations are made that often include pricing, availability, adjustments, and delivery schedules. Details are outlined in purchase orders or more formal contracts.
• Logistics and performance management: Preparation of suppliers, acceleration, delivery, delivery and payment for products/services is completed, subject to contract terms. Installation and training can also be included. An organization should evaluate the performance of the products/services they consume. Scorecard suppliers are a popular tool for this purpose. When the product/service has been consumed or disposed of, the contract expires, or the product or service has to be reordered, the organization should review their experience with the product/service. If the product/service needs to be re-ordered, the company determines whether to consider another supplier or continue with the same supplier.
• Supplier management and relationships: Organizations that have more strategic goods or services that require a sustainable interface with suppliers will use the supplier relationship management process. The strategic outsourcing relationship should govern the formal governance process.

Procurement performance

The Chartered Institute of Procurement and Supply (CIPS) promotes the "five rights" model which it claims to be "a traditional formula that reveals the basic objectives of procurement and the general criteria by which procurement performance is measured", ie goods and services purchased must have < b> right, in exact quantities, delivered to where right at and obtained at exact . CIPS also offers an alternate list of five rights as "buying the right quality of goods or services, in the right amount, from the right source, at the right time and at the right price.

Ardent Partners publishes a report in 2011 that presents an industry-wide outlook into what is happening in the procurement world at the time by leveraging the experience, performance, and perspectives of nearly 250 procurement officers and other procurement executives. This report covers the key procurement performance and operational benchmarks that procurement leaders use to measure the success of their organizations. The report finds that the procurement department averages 60.6% of the company's total expenses. This measure is usually called "spend under management" refers to the percentage of total corporate expenses (which includes all direct and indirect spending) managed or affected by the procurement organization. The average procurement department also achieved an annual savings of 6.7% in the last reporting cycle, sourced 52.6% of address expenditure, and had a contract compliance rate of 62.6%.

Relationship with Finance

Procurement and Finance, as a function within the corporate structure, is at loggerheads. The controversial nature of their relationship may be attributed to the history of procurement itself. Historically, Procurement has been deemed subordinate to Finance. One of the reasons behind this perception can be attributed to semantics. When Procurement is still in its infancy, it is referred to as a "commercial" operation. So the procurement department is called a commercial department rather than the procurement department: the word "commercial" is understood to be related to money. And it is clear that Procurement will be directly responsible to the Finance. Another factor, equally grounded in semantics, is that procurement departments (or rather, commercial departments) are always seen as "spending money." This impression is enough to put Procurement in the Finance function. It is easy to see why Procurement and Finance function with mutually irreconcilable interests. While Procurement is basically related to the disbursement or disbursement of money, Finance, in essence, performs the role of cost-cutting. That is the basic reason why the Procurement aspirations have been constantly checked by the necessity of cutting finance costs. This idea, however, has changed as more head procurement officers began arguing for more autonomy and less disturbance from the finance department.

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Public procurement

Public procurement is generally an important economic sector. In Europe, public procurement accounts for 16.3% of GDP Communities.

Green public procurement

In green public procurement (GPP), the authorities and contracting entities consider environmental issues when conducting tenders for goods or services. The goal is to reduce the impact of procurement on human health and the environment.

In the European Union, the Commission has adopted its communications on public procurement for a better environment, which proposes a 50% green political procurement target to be achieved by Member States by 2010.

Accessible procurements

The United States 508 section and the European Commission standard EN 301 549 require public procurement to promote accessibility. This means buying products and technologies that have accessibility features built to promote access for about 1 billion people worldwide who have disabilities.

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Competitive competitive bidding procedure

There are several alternatives to traditional competitive bid offerings available in formal procurement. One approach that has gained increasing momentum in the construction industry and among developing countries is selection in the planning process (SIP), which allows project developers and equipment buyers to make significant changes to their requirements relatively easily. The SIP process also allows vendors and contractors to respond with greater accuracy and competitiveness as a result of generally longer waiting times. The University of Tennessee's research shows that Demand for Solutions and Demand associations (also known as demand for partners or demand for partnerships) methods also gains appeal as a viable alternative and more collaborative methods to choose strategic suppliers - especially for outsourcing.

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Fraud

Recognizing the negative impacts of procurement fraud, the OECD has published guidance on how to detect and combat tender cheating.

Procurement fraud can be defined as a dishonest gain, avoiding liability or causing harm to public property or any other means during the procurement process by public servants, contractors or others involved in procurement. An example is a bribe, where a dishonest sales agent is paying a dishonest buyer agent to choose a supplier's offer, often at an inflated price. Other frauds in procurement include:

• Collusion between bidders to reduce competition.
• Provide bidders with "in" information from scratch.
• False or jacked invoices for services and products not delivered or jobs that have not been done. "Shadow vendors", shell companies that are set and used for billing, can be used in such a scheme.
• Substitution substitution of substandard substances without customer agreement.
• Use of a "single source" contract without proper justification.
• Use of prequalification standards in the specification to avoid excluding qualified contractors.
• Split requirements to qualify for small purchase procedures to avoid oversight of larger purchasing contract review procedures.

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See also

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References

• This article incorporates public domain material from the Defensive Acquisition University website http://www.dau.mil/pubscats/PubsCats/SEFGuide 01-01.pdf.

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Further reading

• N., Shaw, Felecia (October 1, 2010). "Strength for Procurement: A Look in the City of Austin Procurement Program" . Retrieved October 26 2016 .
• Benslimane, Y.; Plaisent, M.; Bernard, P.: Investigates Search Costs and Coordination Costs in the Electronic Market: Economic Perspectives Transaction Costs, at: Electronic Market , 15, 3, 2005, pp.Ã, 213-224.
• Hodges Silverstein, S.; Sager, Q: 2015. Procurement Handbook (New York: Purchasing a Legal Council).
• Keith, B.; Vitasek, K.; Manrodt, K.; Kling, J.: 2016. Strategic Resources in the New Economy: Utilizing the Potential of Modern Procurement Business Model (New York: Palgrave Macmillan).

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External links

• Federal Data Procurement System (United States)
• Green public procurement (EC)
• System Engineering Fundamentals. Defense Acquisition University Press, 2001

Source of the article : Wikipedia