What is Procurement-Procurement Methods-Procurement Process

What is Procurement | Procurement
Methods | Procurement Process
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What is Procurement?
Procurement in any company is a strategic process of acquisition or purchasing of
goods, works, and services from external sources or organizations by inviting them
through the different procurement methods like tenders, rate contracts, and purchase
orders mainly.
The need for Procurement:
In any business sector, every organization always trying to improve the profitability
using different processes and strategies. In this procurement is one of the processes
that every business follows. Procurement is viewed as a strategic function working to
improve the organization's profitability.
Procurement can save money, time, and be the way to success for any business, most
of the organizations are agree with this. Its savings directly impact bottom-line profits
and are one of the most beneficial models for driving a company’s profitability and
increasing shareholder value.

The goal of public procurement is to satisfy the public interest or to give the
community value for the money spent
A good procurement process is one that –
Obtains goods works or services
In the correct quantity
Of the appropriate quality
At the required time
From the best supplier
With the optimum terms
Under appropriate contractual obligations
Good procurement should –
Meet community needs
Secure value for money for the community
Be fair to bidders
Different Methods of Procurement:
Procurement methods are the processes of inviting suppliers or vendors to fulfill the
organization’s needs in terms of auxiliary products, services, and goods at the best
possible cost.
Fig.- Different Types of Procurement Methods

This procurement invitation process gets done by different methods:
1. Auction
2. Acquisition
3. Rate Contract
4. Purchase Order
5. Agreement
6. Tenders
Auction:
An auction is a sales event wherein potential buyers or vendors place competitive bids
on goods or services either in an open or closed format. Auctions are popular because
buyers and sellers believe they will get a good deal of buying or selling assets.
Acquisition:
The acquisition is the method of acquiring a company and reporting the purchase on
the balance sheet of the company that acquires it. The resources of the targeted
organization are added to the balance sheet.
Rate Contracts:
Rate Contracts is the agreement between the purchaser organization and supplier firm
to provide assets at a specified price for the mentioned period as in agreement.
Rate contracts are mainly Fixed Price(FP) contracts, Time and Material(T&M)
contracts, and Cost Reimbursable(CR) contracts.
Purchase Order:
In this method purchaser or buyer send a legal document called Purchase Order(PO)
to the vendor or supplier. This document outlines the specific goods or services that
buyers want to purchase. When the vendor accepts it becomes a Bidding Contract.
Agreement:
In this method, a legal document is signed by both purchasers and buyers that is called
an agreement. This is between a buyer and a seller in which the buyer agrees to
purchase goods or/and services from the seller in exchange for payment transactions.
The agreement outlines detailed price lists, conditions of delivery, date of delivery,
payment method and information, legal terms, and condition.
Tenders:
A company or organization specifies its requirement of goods or services in front of
the potential seller or vendor. Subsequently, it will open bidding in a process known
as tendering.
Among all above the methods mostly public sector companies or organizations used
the tendering method where they choose the lowest cost bidder due to the budget
constraints.
Canada’s Indigenous community takes a more holistic approach to procurement.
Utilizing the procurement process to positively impact their social-economic goals

and objectives, the cost is not always the determining factor. Major projects within
the Indigenous community are often viewed as an opportunity to provide training that
will lead to future employment opportunities for its citizens. Suppliers willing to
recognize the “bigger picture” often find additional opportunities their companies can
benefit from.
Indigenous communities will often utilize the “Invitation to Attend” request for bid or
documentation which should be interpreted as an opportunity to build a relationship
with the community.
What is Procurement Cycle or Procurement Process:
The procurement cycle is a series of steps to acquire goods and services after
identifying needs and specify them. This cycle follows by every industry and every
organization.
Fig.- Procurement Process or Cycle Image
From the first step identify the needs for payment and record maintenance this cycle
has different stages. These areas follow:
1. Identify Needs
2. Specification of Need
3. Selecting Procurement Method
4. Shortlist & Select Suppliers
5. Award of Contract
6. Receive Goods/Services
7. Evaluate Performance