Procurement 101Keep Your Eyes on What You Buy: Part 1 – Types of Purchasing
Procurement is an element of corporate operations that often happens behind the scenes, but provides a function that is critical to an organization’s success. The model of purchasing isn’t necessarily about one group managing all purchases of everything for a company, but rather managing two distinct types of purchasing: direct and indirect.
Indirect purchasing is a purchasing method whereby select staff throughout the organization (perhaps based on their role or responsibilities) have autonomy to manage a purchasing budget for specific types of items, such as office supplies. These activities do not typically have a direct impact on product development or revenue generation, but rather are part of the day to day functions of the business keeping the business running. Certain employees are granted the authority to manage expenditures within a certain category of expense, and with a given range of parameters – how much they can spend, on what, and for how long.
Direct purchasing is where you will see a more significant impact on an organization’s bottom line, impacting product development, revenue streams, and even time to market. This type of procurement deals primarily with the acquisition of items such as parts and materials, services, or items for resale that provide the basis of an organization’s revenue stream, and depends heavily on addressing key factors about efficiency and profitability. This type of purchasing isn’t as focused on the budget, time, and type of expenditures as indirect purchasing, but instead looks at results and efficiency, addressing concerns like inventory levels, best terms and others.
Managing direct procurement takes some skill and a good understanding of how to negotiate (and for what). In our next few posts, we’ll talk about some of these factors, including quality, price, delivery and payment, and how to make your purchasing process efficient and effective by measuring and improving results over time.
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