Procurement: Overview, definition and example
What is procurement?
Procurement refers to the process of acquiring goods, services, or works from an external source, typically through a tender or contract. In business terms, it involves identifying what is needed, selecting a supplier, negotiating terms, and securing the purchase. It’s a key part of supply chain management and helps ensure that businesses get the necessary resources at the best value.
Why is procurement important?
Procurement is important because it allows businesses to obtain the goods and services they need to operate effectively. By managing procurement well, businesses can reduce costs, ensure the quality of their resources, and build strong relationships with suppliers. It’s also a way to manage risks, such as ensuring that suppliers meet specific standards or regulatory requirements.
Procurement also plays a significant role in business strategy, as companies may seek suppliers that align with their values or sustainability goals.
Understanding procurement through an example
Imagine a company needs to buy office supplies for its staff. The procurement process involves identifying what supplies are needed, sourcing potential suppliers, negotiating prices, and finalizing the purchase agreement. Once the goods are delivered, the procurement process is complete.
In another example, a construction company may need to procure building materials for a new project. The procurement process here would be more complex, involving tendering for suppliers, evaluating bids, and managing long-term supplier relationships to ensure a steady supply of materials during the construction process.
An example of a procurement clause
Here’s how a procurement clause might look in a contract:
“The Buyer agrees to procure the goods from the Supplier in accordance with the terms set out in this agreement. The Buyer shall place an order within 30 days from the date of this agreement, and the Supplier shall deliver the goods within 45 days of receiving the order.”
Conclusion
Procurement is a critical business process that helps organizations acquire the goods and services they need to function. By managing procurement effectively, businesses can reduce costs, mitigate risks, and maintain the quality and consistency of their resources. Whether it’s for a small purchase or a large-scale project, understanding procurement ensures that business operations run smoothly and efficiently.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.