What is Procurement?

Procurement refers to the activities required to obtain goods and services from suppliers. It is needed to ensure that purchases are made at reasonable prices and from reputable suppliers. The most effective procurement process focuses on obtaining those goods and services that are in short supply, or which present opportunities for significant cost reductions. Conversely, the procurement function tends to offload the routine purchase of small-dollar items through the use of procurement cards, which is a more efficient process.

The Characteristics of Procurement

The key characteristics of procurement are as follows:

Strategic planning. Procurement involves careful planning to align with an organization’s operational needs and objectives. This includes demand forecasting, market research, and supplier selection.
Supplier management. Procurement involves identifying, evaluating, and managing relationships with suppliers.
Cost efficiency. Procurement aims to acquire goods or services at the best value, balancing cost with quality and delivery requirements.
Quality assurance. Procurement ensures that goods and services meet required specifications, standards, and compliance requirements.
Contract management. Procurement involves drafting, reviewing, and managing contracts to define the terms of procurement, including price, delivery, and obligations.
Negotiation. Procurement involves discussions with suppliers to secure favorable terms, such as pricing, delivery schedules, and quality assurances.
Technology integration. Procurement utilizes procurement software or enterprise resource planning (ERP) systems to streamline processes, manage data, and track purchases.
Lifecycle approach. Procurement considers the entire lifecycle of the purchased goods or services, from acquisition to disposal or renewal.
Demand-driven. Procurement is based on the needs of the organization, such as production requirements, operational necessities, or strategic goals.
Time sensitivity. Procurement ensures timely delivery to avoid disruptions in operations or projects.

Steps in the Procurement Process

The standard procurement steps are as follows:

A department submits a purchase requisition for a specific item.
A purchasing agent locates several possible supplier candidates.
The purchasing agent selects the supplier having the best combination of price, quality, and delivery time, and may negotiate some terms of the purchase.
The purchasing agent issues a purchase order to the selected supplier.
The supplier delivers the item, which the receiving staff matches to the purchase order copy supplied by the purchasing agent.
The receiving staff delivers the received item to the department that originally requisitioned it.

What is Procure to Pay?

The procure to pay concept describes the entire process of defining what needs to be purchased, which suppliers to use, issuing purchase orders, and receiving goods. As such, the procure to pay concept encompasses not only all activities within the purchasing department, but also several ancillary tasks normally handled by other departments. These ancillary tasks include receiving (handled by the warehouse), stocking (also handled by the warehouse), and invoice processing and payment (handled by the accounting department).