what is procurement

Procurement: What it is and how it can benefit your business

There comes points in a person’s life where they discover something new and quickly wonder how they ever managed without it. Take, for example, the plastic tabs on the top of juice cartons. After years of struggling to tear an opening into the stubborn, thick material, spilling the liquid, swearing loudly, all before hacking at the corners with scissors or a knife, some bright spark had the idea to just put a tab on the top. And there it was. A way of doing something that was so frustrating for so long, was suddenly effortless.

Procurement shares much with the plastic carton tab insomuch as once a company has used procurement services, they often wonder how they’d managed before. For those companies who’ve never used procurement services, often the main reason, is that they simply don’t really know what it is.

In this piece, we’re going to make the opaque transparent. We’re going to explain exactly what procurement is, what it involves, and crucially, how it can transform your business.

 

Cards on the table. What is procurement?

The Oxford English dictionary defines procurement as; ‘The action of obtaining or procuring something’.

As far as procurement as a professional service goes, that definition pretty much hits the mark. The job of a procurement company, is to obtain (or procure!) the services an organisation needs to run successfully.

Think of it this way; most companies rely on supply chains to operate. However, such endeavours as:

  • Finding suppliers;
  • Ascertaining the quality of their product;
  • Negotiating prices, drawing up contracts, and;
  • Managing a supply chain once it’s been established;

are all labour-intensive, painstaking pursuits which can become needlessly expensive and damaging to reputations if handled improperly. Procurement companies take on these burdens on behalf of an organisation.

A broader remit than you might imagine

The above covers the definition of procurement as a professional service, with the four responsibilities that most people understand procurement companies deliver on. However, the full remit the discipline covers often surprises.

The contemporary procurement company looks to target as many organisational pain-points as possible. These can include but are by no means limited to:

  • Observing current processes and identifying opportunities for automation;
  • Providing ongoing coaching and mentoring;
  • Supplier innovations that influence strategic thinking;
  • Procuring people as well as services by taking charge of recruitment and delivering a holistic approach to organisational capability;
  • Scrutinising job descriptions and re-aligning people, roles, and responsibilities, and;
  • Enhancing a company’s reputation through delivery of sustainable supply chains and delivery of social value

 

What are the benefits to your business?

If the function of a procurement company was stripped back to its most basic objective; it’s to help the organisations they service have more capital at the end of each financial year. They achieve this by:

Freeing up time and resources to concentrate on mission critical activities

The business functions procurement companies take control of, as mentioned above, are typically labour-intensive and painstaking. Every hour spent on them, is an hour taken away from developing your business.

It might also be the case that you’ve taken on (or are thinking of taking on) permanent staff to fulfil the roles a procurement company can manage. This brings pressures of its own in terms of salaries and obligations. By transferring these roles to a procurement company, you are freed to concentrate on your business, knowing tasks are being professionally handled without the headache of managing permanent staff.

Driving down costs

Procurement companies are indoctrinated to drive down costs. They are specifically trained and experienced in spotting opportunities to save money that other businesses may miss.

As they are typically brought into an organisation to manage various aspects of daily operations, the cumulative value of capital saved can be significant.

Maintaining quality through contract management

When an organisation is dealing with multiple suppliers and managing a large employee-base, quality becomes difficult to uphold.

Procurement companies scrutinise all areas of the business where quality has a direct impact on the bottom-line and ensure standards do not slip. This means regularly referring to contracts and cross-referencing terms with delivery and acting where inconsistencies are discovered.

Adding value

More and more, procurement companies are looking at not just ways of saving money, but of making it as well.

From mentoring staff, to implementing automation, to spotting new markets, they work to find ways of increasing revenue streams into an organisation.

 

Return on Investment

Ultimately, this is the scale by which procurement companies are measured. Yes, you will need to ring-fence a budget to bring in a company you wish to work with, but the return they can deliver will quickly dwarf that figure.

Once you have begun working with an established company with a demonstrable track-record, you’ll soon wonder how you managed before. You may wish to reflect on that next time you open the tab on a carton of juice…