Procurement is the act of finding, acquiring, buying goods, services or works from an external source, often via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works the best possible price, when aspects such as quality, quantity, time, and location are compared. Corporations and public bodies often define procurement processes intended to promote fair and open competition for their business while minimizing risk, such as exposure to fraud and collusion.
Procurement activities are often split into two distinct categories, direct and indirect spend. These categories sometimes are also referred to merchandise and non merchandise spend. Direct spend or merchandise spend refers to production-related procurement that encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect spend or non merchandise spend refers to operating resources that a company purchases to enable its operations. Indirect procurement comprises a wide variety of goods and services, from standardized items like office supplies, marketing spend, consulting services, and outsourcing services.
Automating Procurement using technology which is commonly referred to as eProcurement has a benefit for both the Purchasing Department as well as the Accounts Payable Department.
The Purchasing Department benefits from:
- reduced costs through enabling centralized tracking of spend
- increased productivity through online ordering and requisition systems
- enhanced controls from standardizing the approval process through automated workflows
- technology to automate electronic requests for information (e-RFI), requests for proposal (e-RFP) and requests for quotation (e-RFQ)
The Accounts Payable Department benefits from:
- full visibility to requisitions and orders from start to finish
- automated matching of approved purchase orders to invoices
- improved collaboration between Purchasing and Accounts Payable Employees
- enhanced supplier relationships