Procurement

Resources for Improving Procurement Department Operations

  • What is Procurement?

    The Procurement function purchases products (raw materials, components, large machinery, software, etc.) from vendors to satisfy internal (inside the company) and external (customers) demand. After a need is identified, the Procurement Group is responsible for identifying and screening potential suppliers, selecting a supplier, negotiating terms of payment and arranging any logistical concerns (shipping, delivery, installation, training, etc.). Procurement employees are also tasked with monitoring the performance of company suppliers as it relates to the terms of the contract that governs the relationship with the vendor.
  • The History of Procurement

    The concept of acquiring goods or services for corporate or commercial use is not new. The invention of the wheel around 3,000 BC allowed raw materials to be transported more easily. The Sumerians used this new technology to acquire metal and other building materials from Syria, Iran and the Indus Valley. In the fourteenth century the Silk Road was used to export goods (namely spices and textiles) from Asia to Europe and played a vital role in the development of both eastern and western civilizations.

    Modern procurement practices began to emerge during the Industrial Revolution in the early nineteenth century. Manufacturers began to mass produce products efficiently and needed parts and raw materials in bulk. The development of transportation networks (canals, roads, railroads, etc.) during this period improved both the speed of delivery and overall price of obtaining manufacturing materials. During World Wars I and II, procurement operations played a vital role in supplying raw materials, supplies and services. During the 1970s-80s, effective procurement emerged as a legitimate tactical and strategic advantage, rather than just a simple “purchasing” function.
  • Modern Trends in Procurement

    The Internet has transformed procurement into an increasingly global function. Procurement information systems allow for more coordinated interactions across business units and geographic boundaries. These systems have also enabled the demand forecasting and inventory management functions to be linked, which allows for more rapid, coordinated response to demand.

    Just-in-time (JIT) manufacturing has taken advantage of these technological advances to reduce cost and improve the speed of production. During the past decade, many companies have developed the position of Chief Procurement Officer, reflecting the increased importance of the function in today’s competitive global economy.

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