Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or individuals, generally via a contract. Wikipedia does not have an article with this exact name. ... Wiktionary (a portmanteau of wiki and dictionary) is a multilingual, Web-based project to create a free content dictionary, available in over 150 languages. ... It has been suggested that Life cycle cost analysis be merged into this article or section. ...

Simple procurement may involve nothing more than repeat purchasing. Complex procurement could involve finding long term partners – or even 'co-destiny' suppliers that might fundamentally commit one organisation to another.

Almost all purchasing decisions include factors like delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If good data is available it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis. In economics, scarcity is defined as a condition of limited resources, where society does not have sufficient resources to produce enough to fulfill subjective wants. ... Cost-benefit analysis is an important technique for project appraisal: the process of weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. ... Cost-utility analysis is a form of economic analysis used to guide procurement decisions, especially health technology assessment (HTA). ...

An important distinction is between analyses made without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of expected value should be employed. Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ... In probability theory the expected value (or mathematical expectation) of a random variable is the sum of the probability of each possible outcome of the experiment multiplied by its payoff (value). Thus, it represents the average amount one expects as the outcome of the random trial when identical odds are...

Procurement Types

Based on the consumption purposes of the acquired goods and services, procurement activities are often split into two distinct categories. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement.

Direct procurement occurs in manufacturing settings only. It 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 procurement activities concern “operating resources” that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardised low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services. Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. ... A lubricant (colloquially, lube) is a substance introduced between two moving surfaces to reduce the friction and wear between them. ... This page discusses common devices known as tools, for other meanings see Tool (disambiguation) Modern hammer A tool is, among other things, a device that provides a mechanical or mental advantage in accomplishing a task. ...

Procurement Systems

Another common procurement issue is the 'timing' of purchases. Just In Time is a system (commonly used by Japanese companies but widely adopted by many global manufacturers from the 1990s onwards) of timing the purchases of consumables so as to keep inventory costs low. Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. ... Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. ...

Shared Services

In order to achieve greater economies of scale, an organization’s procurement functions may be joined into shared services. This combines several small procurement agents into one centralized procurement system. The increase in output from Q to Q1 causes a decrease in the average cost of each unit from C to C1. ... Shared Services are the convergence and streamlining of an organisation’s functions to ensure that they deliver the organisation the services required of them as effectively and efficiently as possible. ...

Procurement Process

Procurement may also involve a bidding process i.e, Tendering. A company may want to purchase a given product or service. If the cost for that product/service is over the threshold that has been established (eg: Company X policy: "any product/service desired that is over $1,000 requires a bidding process"), depending on policy or legal requirements, Company X is required to state the product/service desired and make the contract open to the bidding process. Company X may have ten submitters that state the cost of the product/service they are willing to provide. Then, Company X will usually select the lowest bidder. If the lowest bidder is deemed incompetent to provide the desired product/service, Company X will then select the submitter who has the next best price, and is competent to provide the product/service. Procurement is the acquisition of goods or services at the best possible total cost of ownership, in the right quantity, at the right time, in the right place for the direct benefit or use of the governments, corporations, or individuals generally via, but not limited to a contract. ... Look up Threshold in Wiktionary, the free dictionary. ...

Procurement Steps

Procurement life cycle in modern businesses usually consists of seven steps:

• Information Gathering: If the potential customer does not already have an established relationship with sales/ marketing functions of suppliers of needed products and services (P/S), it is necessary to search for suppliers who can satisfy the requirements.
• Supplier Contact: When one or more suitable suppliers have been identified, Requests for Quotation (RFQ), Requests for Proposals (RFP), Requests for Information (RFI) or Requests for Tender (RFT) may be advertised, or direct contact may be made with the suppliers.
• Background Review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined, or trials undertaken.
• Negotiation: Negotiations are undertaken, and price, availability, and customisation possibilities are established. Delivery schedules are negotiated, and a contract to acquire the P/S is completed.
• Fulfillment: Supplier preparation, shipment, delivery, and payment for the P/S are completed, based on contract terms. Installation and training may also be included.
• Consumption, Maintenance and Disposal: During this phase the company evaluates the performance of the P/S and any accompanying service support, as they are consumed.
• Renewal: When the P/S has been consumed and/or disposed of, the contract expires, or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier.

A Request for Quotation (referred to as RFQ) is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products and/or services. ... A Request for Proposal (referred to as RFP) is an invitation for suppliers, through a bidding process, to submit a proposal on a specific product or service. ... An RFI (Request for Information) is a standard business process which purpose is to collect written information about the capabilities of various suppliers. ... In commercial and consumer transactions, a warranty is an obligation that an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the... Broadly speaking, Negotiation is an interaction of influences. ...

See also

• Auction
• Buyer leverage
• E-procurement
• Global sourcing
• Management contract
• Purchasing
• Rate contract
• Reverse auction
• Strategic sourcing
• Turnkey