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ProcurementWikipedia,thefreeencyclopedia

Procurement
FromWikipedia,thefreeencyclopedia

Procurementistheacquisitionofgoods,servicesorworksfromanexternalsource.Itisfavourablethat
thegoods,servicesorworksareappropriateandthattheyareprocuredatthebestpossiblecosttomeetthe
needsoftheacquirerintermsofqualityandquantity,time,andlocation.[1]Corporationsandpublicbodies
oftendefineprocessesintendedtopromotefairandopencompetitionfortheirbusinesswhileminimizing
exposuretofraudandcollusion.

Contents
1Overview
2Topics
2.1Procurementvsacquisition
2.2Acquisitionprocess
2.3Procurementsoftware
2.4Procurementsteps
2.5Procurementperformance
3Publicprocurement
3.1Greenpublicprocurement
4Alternativeprocurementprocedures
5Procurementfrauds
6Seealso
7Notesandreferences
8Externallinks

Overview
Almostallpurchasingdecisionsincludefactorssuchasdeliveryandhandling,marginalbenefit,andprice
fluctuations.Procurementgenerallyinvolvesmakingbuyingdecisionsunderconditionsofscarcity.Ifgood
dataisavailable,itisgoodpracticetomakeuseofeconomicanalysismethodssuchascostbenefitanalysis
orcostutilityanalysis.
Animportantdistinctionshouldbemadebetweenanalyseswithoutriskandthosewithrisk.Whereriskis
involved,eitherinthecostsorthebenefits,theconceptofexpectedvaluemaybeemployed.
Directprocurementandindirectprocurement

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TYPES
Direct
procurement

Indirect
procurement

Rawmaterial
andproduction
goods

Maintenance,
repair,and
operatingsupplies

Capital
goodsand
services

Quantity

Large

Low

Low

Frequency

High

Relativelyhigh

Low

Value

Industryspecific

Low

High

Nature

Operational

Tactical

Strategic

Examples

Crudeoilin
petroleum
industry

Lubricants,spare
parts

Crudeoil
storage
facilities

F
E
A
T
U
R
E
S

Basedontheconsumptionpurposesoftheacquiredgoodsandservices,procurementactivitiesareoften
splitintotwodistinctcategories.Thefirstcategorybeingdirect,productionrelatedprocurementandthe
secondbeingindirect,nonproductionrelatedprocurement.
Directprocurementoccursinmanufacturingsettingsonly.Itencompassesallitemsthatarepartoffinished
products,suchasrawmaterial,componentsandparts.Directprocurement,whichisthefocusinsupply
chainmanagement,directlyaffectstheproductionprocessofmanufacturingfirms.Incontrast,Indirect
procurementactivitiesconcernoperatingresourcesthatacompanypurchasestoenableitsoperations.It
comprisesawidevarietyofgoodsandservices,fromstandardizedlowvalueitemslikeofficesuppliesand
machinelubricantstocomplexandcostlyproductsandservices[2][3]likeheavyequipmentandconsulting
services.

Topics
Procurementvsacquisition
TheUSDefenseAcquisitionUniversity(DAU)definesprocurementastheactofbuyinggoodsand
servicesforthegovernment.[4]
DAUdefinesacquisitionastheconceptualization,initiation,design,development,test,contracting,
production,deployment,LogisticsSupport(LS),modification,anddisposalofweaponsandothersystems,
supplies,orservices(includingconstruction)tosatisfyDepartmentofDefenseneeds,intendedforuseinor
insupportofmilitarymissions.[4]
Acquisitionisthereforeamuchwiderconceptthanprocurement,coveringthewholelifecycleofacquired
systems.Multipleacquisitionmodelsexist,oneofwhichisprovidedinthefollowingsection...
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Acquisitionprocess
Therevisedacquisitionprocessformajorsystemsinindustryanddefenseisshowninthenextfigure.The
processisdefinedbyaseriesofphasesduringwhichtechnologyisdefinedandmaturedintoviable
concepts,whicharesubsequentlydevelopedandreadiedforproduction,afterwhichthesystemsproduced
aresupportedinthefield.[5]

ModeloftheAcquisitionProcess. [5]

Theprocessallowsforagivensystemtoentertheprocessatanyofthedevelopmentphases.Forexample,a
systemusingunproventechnologywouldenteratthebeginningstagesoftheprocessandwouldproceed
throughalengthyperiodoftechnologymaturation,whileasystembasedonmatureandproven
technologiesmightenterdirectlyintoengineeringdevelopmentor,conceivably,evenproduction.The
processitselfincludesfourphasesofdevelopment:[5]
ConceptandTechnologyDevelopment:isintendedtoexplorealternativeconceptsbasedon
assessmentsofoperationalneeds,technologyreadiness,risk,andaffordability.
ConceptandTechnologyDevelopmentphasebeginswithconceptexploration.Duringthisstage,
conceptstudiesareundertakentodefinealternativeconceptsandtoprovideinformationabout
capabilityandriskthatwouldpermitanobjectivecomparisonofcompetingconcepts.
SystemDevelopmentandDemonstrationphase.Thisphasecouldbeentereddirectlyasaresultofa
technologicalopportunityandurgentuserneed,aswellashavingcomethroughconceptand
technologydevelopment.
Thelast,andlongestphaseistheSustainableandDisposalphaseoftheprogram.Duringthisphase
allnecessaryactivitiesareaccomplishedtomaintainandsustainthesysteminthefieldinthemost
costeffectivemannerpossible.

Procurementsoftware
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Procurementsoftware(oftenlabeledaseProcurementsoftware)managesthepurchasingprocesses
electronicallyand/orviacloudcomputing.AsProcurementNetwork'sresearch
(http://www.procurement.org/#!software/c1n9m)provides,[6]therearemorethanonehundrede
Procurementsolutionsavailabletoday.Asanimportantelementofsupplychainmanagementsystems,
thesesystemshelporganizationsefficientlymanagetheirpurchasingcycletimesandmaximizeprofiton
everypurchaseorder.Manyorganisationsproducetheirownwaysofworkingbutsomesoftwaredoes
exist:SMARTbyGEP,acloudbased,endtoendprocurementplatformbyGEP,Track8byFuture
Purchasing,[7]Puridiomprocuretopaysoftware,FishbowlInventoryInventorymanagement

Procurementsteps
Procurementlifecycleinmodernbusinessesusuallyconsistsofsevensteps:
Identificationofneed:Thisisaninternalstepforacompanythatinvolvesunderstandingofthe
companyneedsbyestablishingashorttermstrategy(threetofiveyears)followedbydefiningthe
technicaldirectionandrequirements.
SupplierIdentification:Oncethecompanyhasansweredimportantquestionslike:Makebuy,
multiplevs.singlesuppliers,thenitneedstoidentifywhocanprovidetherequiredproduct/service.
TherearemanysourcestosearchforsuppliermorepopularonesbeingAriba,Alibaba,other
suppliersandtradeshows.
SupplierCommunication:Whenoneormoresuitablesuppliershavebeenidentified,requestsfor
quotation,requestsforproposals,requestsforinformationorrequestsfortendermaybeadvertised,
ordirectcontactmaybemadewiththesuppliers.Referencesforproduct/servicequalityare
consulted,andanyrequirementsforfollowupservicesincludinginstallation,maintenance,and
warrantyareinvestigated.SamplesoftheP/Sbeingconsideredmaybeexamined,ortrials
undertaken.
Negotiation:Negotiationsareundertaken,andprice,availability,andcustomizationpossibilitiesare
established.Deliveryschedulesarenegotiated,andacontracttoacquiretheP/Siscompleted.
SupplierLiaison:Duringthisphase,thecompanyevaluatestheperformanceoftheP/Sandany
accompanyingservicesupport,astheyareconsumed.Supplierscorecardisapopulartoolforthis
purpose.WhentheP/Shasbeenconsumedordisposedof,thecontractexpires,ortheproductor
serviceistobereordered,companyexperiencewiththeP/Sisreviewed.IftheP/Sistobere
ordered,thecompanydetermineswhethertoconsiderothersuppliersortocontinuewiththesame
supplier.
LogisticsManagement:Supplierpreparation,expediting,shipment,delivery,andpaymentforthe
P/Sarecompleted,basedoncontractterms.Installationandtrainingmayalsobeincluded.
AdditionalStepTenderNotification:Someinstitutionschoosetouseanotificationservicein
ordertoraisethecompetitionforthechosenopportunity.Thesesystemscaneitherbedirectfrom
theiretenderingsoftware,orasarepackagednotificationfromanexternalnotificationcompany.
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Procurementperformance
InJuly2011,ArdentPartners,publishedaresearchreportthatpresentedacomprehensive,industrywide
viewintowhatishappeningintheworldofprocurementtodaybydrawingontheexperience,performance,
andperspectiveofnearly250ChiefProcurementOfficersandotherprocurementexecutives.Thereport
includesthemainprocurementperformanceandoperationalbenchmarksthatprocurementleadersuseto
gaugethesuccessoftheirorganizations.Thisreportfoundthattheaverageprocurementdepartment
manages60.6%oftotalenterprisespend.Thismeasurecommonlycalled"spendundermanagement"refers
tothepercentageoftotalenterprisespend(whichincludesalldirect,indirect,andservicesspend)thata
procurementorganizationmanagesorinfluences.Theaverageprocurementdepartmentalsoachievedan
annualsavingsof6.7%inthelastreportingcycle,sourced52.6%ofitsaddressablespend,andhasa
contractcompliancerateof62.6%.[8]

Publicprocurement
Publicprocurementgenerallyisanimportantsectoroftheeconomy.InEurope,publicprocurement
accountsfor16.3%oftheCommunityGDP.[9]

Greenpublicprocurement
InGreenpublicprocurement(GPP),contractingauthoritiesandentitiestakeenvironmentalissuesinto
accountwhentenderingforgoodsorservices.Thegoalistoreducetheimpactoftheprocurementon
humanhealthandtheenvironment.[10]
IntheEuropeanUnion,theCommissionhasadopteditsCommunicationonpublicprocurementforabetter
environment,whereproposesapoliticaltargetof50%Greenpublicprocurementtobereachedbythe
MemberStatesbytheyear2010.[11]

Alternativeprocurementprocedures
Thereareseveralalternativestotenderingwhichareavailableinformalprocurement.Onesystemwhich
hasgainedincreasingmomentumintheconstructionindustryandamongdevelopingeconomiesisthe
Selectioninplanningprocesswhichenablesprojectdevelopersandequipmentpurchaserstomake
significantchangestotheirrequirementswithrelativeease.TheSIPprocessalsoenablesvendorsand
contractorstorespondwithgreateraccuracyandcompetitivenessasaresultofthegenerallylongerlead
timestheyareafforded.

Procurementfrauds
Procurementfraudcanbedefinedasdishonestlyobtaininganadvantage,avoidinganobligationorcausing
alosstopublicpropertyorvariousmeansduringprocurementprocessbypublicservants,contractorsor
anyotherpersoninvolvedintheprocurement.[12]Anexampleisthekickback,wherebyadishonestagentof
thesupplierpaysadishonestagentofthepurchasertoselectthesupplier'sbid,oftenataninflatedprice.
Otherfraudsinprocurementinclude:[13]
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Collusionamongbidderstoreducecompetition.
Providingbidderswithadvance"inside"information.
Submissionoffalseorinflatedinvoicesforservicesandproductsthatarenotdeliveredorworkthat
isneverdone."Shadowvendors",shellcompaniesthataresetupandusedforbilling,maybeusedin
suchschemes.
Intentionalsubstitutionofsubstandardmaterialswithoutthecustomer'sagreement.
Useof"solesource"contractswithoutproperjustification.
Useofprequalificationstandardsinspecificationstounnecessarilyexcludeotherwisequalified
contractors.
Dividingrequirementstoqualifyforsmallpurchaseprocedurestoavoidscrutinyforcontractreview
proceduresoflargerpurchases.

Seealso
AgreementonGovernmentProcurement

Procurementoutsourcing

Auction

Publicfleet

Buyerleverage

PurchaseOrder

Callforbids

Purchasing

Contractmanagement

Ratecontract

Eprocurement

Reverseauction

Expediting

Selectioninplanning

Globalsourcing

Spendanalysis

Grouppurchasingorganization

Strategicsourcing

Indirectprocurement

TenderNotification

NationalAssociationofStateProcurement

Totalcostofacquisition

Officials

Turnkey

Presales

Notesandreferences
Benslimane,Y.Plaisent,M.Bernard,P.:InvestigatingSearchCostsandCoordinationCostsinElectronic
Markets:ATransactionCostsEconomicsPerspective,in:ElectronicMarkets,15,3,2005,pp.213224.
VanMendell5stepframework
1. ^Weele,ArjanJ.van(2010).PurchasingandSupplyChainManagement:Analysis,Strategy,Planningand
Practice(5thed.ed.).Andover:CengageLearning.ISBN9781408018965.

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2. ^Lewis,M.A.andRoehrich,J.K.(2009).Contracts,relationshipsandintegration:Towardsamodelofthe
procurementofcomplexperformance.InternationalJournalofProcurementManagement,2(2):125142.
3. ^Caldwell,N.D.Roehrich,J.K.andDavies,A.C.(2009).Procuringcomplexperformanceinconstruction:
LondonHeathrowTerminal5andaprivatefinanceinitiativeHospital.JournalofPurchasingandSupply
Management15(3):178186.
4. ^abGlossaryofDefenseAcquisitionAcronymsandTerms,12thEdition(plusupdatessincepublication)
(https://akss.dau.mil/dag/DoD5000.asp?view=document)accessedon22April2009,DefenseAcquisition
University
5. ^abcSystemsEngineeringFundamentals.(http://www.dau.mil/pubs/pdf/SEFGuide%200101.pdf)Defense
AcquisitionUniversityPress,2001
6. ^http://www.procurement.org/#!software/c1n9m
7. ^http://www.futurepurchasing.com/category_management/track8
8. ^"ArdentPartnersResearchCPO2011:InnovativeIdeasfortheDecadeAhead"
(http://ardentpartners.com/research/index.php?main_page=product_info&cPath=4_12&products_id=7).
9. ^"PubliccontractsYourEuropeBusiness"(http://europa.eu/youreurope/business/profitingfromeu
market/benefitingfrompubliccontracts/index_en.htm).Europa.eu.Retrieved20130616.
10. ^"EC.Europa.eu"(http://ec.europa.eu/environment/gpp/glossary_en.htm).EC.Europa.eu.Retrieved20130616.
11. ^"EC.europa.eu"(http://ec.europa.eu/environment/gpp/index_en.htm).EC.europa.eu.Retrieved20130616.
12. ^"CombatingProcurementFraudsAuthorDrIrfanAhmad"
(http://openlibrary.org/b/OL23998519M/Combating_Procurment_Frauds).
13. ^"ProcurementFraud' "
(http://www.projectauditors.com/Dictionary2/1.8/index.php/term/,62555a9cae535f6f68555aaf5d5c5b.xhtml).
projectauditors.com.RetrievedApril3,2014.

Externallinks
FederalProcurementDataSystem
(https://www.fpds.gov/fpdsng_cms/)(US)
Greenpublicprocurement
(http://ec.europa.eu/environment/gpp/index_en.htm),
EuropeanCommission
SystemsEngineeringFundamentals.

Lookupprocurementin
Wiktionary,thefree
dictionary.
Lookupprocurementin
Wiktionary,thefree
dictionary.

(http://www.dau.mil/pubscats/PubsCats/SEFGuide%200101.pdf)DefenseAcquisitionUniversity
Press,2001
Shaw,FeleciaN.,2010."ThePowertoProcure:ALookinsidetheCityofAustinProcurement
Program".AppliedResearchProjects,TexasStateUniversitySanMarcos
(http://ecommons.txstate.edu/arp/338)
INSPECTIONhttp://www.inspection.com.tr/procurement.html

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