Learning Outcomes

After completing this lesson, learners will be able to:

  • Explain procurement and its role in supply chain operations.
  • Distinguish between procurement and purchasing.
  • Identify important procurement principles.
  • Distinguish between materials, services and works.
  • Explain the main procurement workflow.
  • Distinguish between an RFI, RFQ, RFP and tender.
  • Describe the stages of the sourcing process.
  • Explain procurement in public, private and not-for-profit environments.

1. Procurement

Procurement is the process of acquiring goods, services or works from external suppliers to meet organisational requirements.

It covers the complete process from identifying a need to monitoring the supplier’s performance.

Procurement aims to obtain:

  • The correct product or service
  • In the correct quantity
  • At the required quality
  • From a suitable supplier
  • At the required time
  • At an appropriate total cost
  • Under suitable contractual conditions

2. Procurement and Purchasing

Purchasing focuses mainly on transactions such as issuing orders and processing payments.

Procurement has a broader scope.

Purchasing Procurement
Focuses on placing orders Covers the complete acquisition process
Has a transactional focus Has a strategic and operational focus
Concentrates on price and delivery Considers value, quality, risk and sustainability
Begins after a requirement is approved Begins when the organisational need is identified
Ends after receipt and payment Includes supplier and contract performance

3. Role of Procurement

Procurement supports:

  • Production continuity
  • Inventory availability
  • Service delivery
  • Product quality
  • Cost control
  • Supplier reliability
  • Risk management
  • Contract compliance
  • Organisational sustainability

A procurement delay can affect production, warehousing, transport and customer delivery.

4. Procurement Principles

Needs-Based Procurement

Every purchase should address a verified organisational requirement.

Value for Money

The lowest price does not always provide the best value. Procurement should consider:

  • Quality
  • Delivery
  • Reliability
  • Operating cost
  • Maintenance
  • Risk
  • Product life
  • Disposal cost

Fairness and Transparency

Suppliers should receive clear requirements, instructions and evaluation criteria.

Competition

Suitable competition can improve price, quality, innovation and supplier performance.

Accountability

Procurement decisions must be authorised, documented and open to review.

Ethical Conduct

Procurement employees must avoid:

  • Bribery
  • Favouritism
  • Fraud
  • Conflicts of interest
  • Undisclosed gifts
  • Misuse of supplier information

Sustainability

Procurement should consider environmental, social and economic effects.

5. Identifying the Requirement

The procurement process begins when an organisational need is identified.

The requesting department should specify:

  • What is required
  • Quantity
  • Quality
  • Required delivery date
  • Delivery location
  • Intended purpose
  • Available budget
  • Technical requirements
  • Operational risks

An unclear requirement may produce unsuitable supplier responses.

6. Purchase Requisition

A purchase requisition is an internal request asking the procurement function to acquire goods, services or works.

It may contain:

  • Requesting department
  • Description
  • Quantity
  • Required date
  • Estimated value
  • Budget information
  • Specification
  • Approval

A purchase requisition is not normally an order sent to a supplier.

7. Specifications

A specification describes what the organisation requires.

It should be:

  • Clear
  • Complete
  • Measurable
  • Relevant
  • Unbiased
  • Linked to the intended use

Specifications may define:

  • Technical characteristics
  • Required performance
  • Outputs
  • Quality standards
  • Delivery requirements
  • Service levels

Overly restrictive specifications may reduce competition unnecessarily.

8. Materials, Services and Works

Materials and Goods

Examples include:

  • Raw materials
  • Components
  • Packaging
  • Consumables
  • Office supplies
  • Machinery
  • Equipment
  • Finished goods

Physical goods can normally be counted, inspected and stored.

Services

Examples include:

  • Transport
  • Maintenance
  • Information technology
  • Security
  • Cleaning
  • Consulting
  • Training
  • Professional services

Services require clear outputs, responsibilities and performance measures.

Works

Works commonly involve:

  • Construction
  • Infrastructure
  • Engineering
  • Installation
  • Building alterations

Works may require technical designs, project schedules, milestone payments and completion certification.

9. Procurement Documents

Request for Information

An RFI gathers information about:

  • Supplier capability
  • Available products
  • Market conditions
  • Possible solutions

It is often used before a formal request for offers.

Request for Quotation

An RFQ asks suppliers to provide prices and terms for clearly defined goods or services.

Request for Proposal

An RFP asks suppliers to propose how they will meet a more complex requirement.

Tender

A tender is a formal competitive process in which suppliers submit bids against defined requirements and conditions.

Document Main purpose
RFI Understand suppliers and the market
RFQ Obtain comparable prices
RFP Evaluate proposed solutions
Tender Conduct a formal competitive procurement

10. Sourcing

Sourcing identifies and selects the most suitable supply arrangement.

A sourcing strategy may consider:

  • Make or buy
  • Local or global sourcing
  • Single or multiple suppliers
  • Short- or long-term agreements
  • Competitive bidding or negotiation
  • Standard or customised products
  • Supplier development
  • Supply risk

11. Sourcing Process

A typical sourcing process is:

  1. Analyse the requirement.
  2. Review organisational expenditure.
  3. Research the supply market.
  4. Identify risks.
  5. Develop the sourcing strategy.
  6. Identify potential suppliers.
  7. Prepare sourcing documents.
  8. Invite supplier responses.
  9. Evaluate offers.
  10. Complete supplier due diligence.
  11. Negotiate where permitted.
  12. Approve and appoint the supplier.
  13. Finalise the agreement.
  14. Implement and monitor the agreement.

12. Supplier Evaluation

Suppliers may be evaluated according to:

  • Price
  • Total cost
  • Quality
  • Delivery
  • Capacity
  • Experience
  • Technical capability
  • Financial stability
  • Risk
  • Sustainability
  • Ethical conduct
  • Compliance

The evaluation criteria should be established before supplier offers are assessed.

13. Negotiation and Award

Negotiation may cover:

  • Price
  • Delivery dates
  • Payment terms
  • Quality
  • Service levels
  • Warranties
  • Risk allocation
  • Contract duration

Once the preferred supplier has been selected:

  1. Obtain the required approval.
  2. Finalise the contract or purchase order.
  3. Secure authorised signatures.
  4. Communicate responsibilities.
  5. Capture the agreement in the relevant system.

14. Purchase Order

A purchase order formally confirms the goods or services ordered from a supplier.

It normally includes:

  • Supplier details
  • Product or service
  • Quantity
  • Price
  • Delivery date
  • Delivery location
  • Payment terms
  • Purchase-order number
  • Applicable conditions

Only an authorised person or system should issue a purchase order.

15. Receipt and Payment

When goods or services are delivered, the organisation should verify:

  • Supplier
  • Description
  • Quantity
  • Quality
  • Condition
  • Delivery date
  • Supporting documents

Payment control may compare:

  1. The purchase order
  2. The receipt record
  3. The supplier’s invoice

Discrepancies should be resolved before payment is approved.

16. Procurement Environments

Private-Sector Procurement

Private-sector procurement commonly focuses on:

  • Profitability
  • Competitiveness
  • Speed
  • Customer value
  • Commercial risk
  • Organisational policy

Public-Sector Procurement

Public-sector procurement must follow applicable legislation and authorised procedures.

Important principles include:

  • Fairness
  • Equity
  • Transparency
  • Competition
  • Cost-effectiveness
  • Accountability

Not-for-Profit Procurement

Not-for-profit organisations may need to consider:

  • Donor requirements
  • Restricted funding
  • Community impact
  • Ethical sourcing
  • Reporting obligations
  • Value for money

All three environments require appropriate approval, documentation and control.

17. Procurement Workflow Summary

Need identified
      ↓
Requisition approved
      ↓
Specification prepared
      ↓
Market and risks analysed
      ↓
Suppliers invited
      ↓
Offers evaluated
      ↓
Supplier approved
      ↓
Agreement or order issued
      ↓
Delivery inspected
      ↓
Invoice verified and paid

18. Lesson Summary

  • Procurement covers the complete process of acquiring goods, services and works.
  • Purchasing is the transactional part of the broader procurement process.
  • Procurement must support value, fairness, competition, ethics and accountability.
  • Requirements and specifications must be clearly defined.
  • RFIs, RFQs, RFPs and tenders serve different purposes.
  • Sourcing selects an approach suited to the requirement and supply market.
  • Supplier evaluation should use predetermined criteria.
  • Purchase orders must be properly authorised.
  • Delivery and payment must be checked against the agreement.
  • Public, private and not-for-profit procurement operate under different priorities and controls.
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