To procure simply means to obtain

Procurement is the acquisition of goods and/or services. It is favorable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location.

TYPES OF PROCUREMENT
Direct Procurement Raw Material and production goods F E A T U R E S Quantity Frequency Value Large High Industry specific Indirect Procurement Maintenance, Repair and operating supplies Low Relatively High Low

Nature
Example

Operational
Crude oil in petroleum industry

Tactical
Lubricants, spare parts, etc.

The first category being direct, productionrelated procurement. 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.

The second being indirect, non-productionrelated procurement.

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 standardized low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services.

Operational procurement is one of the less-loved routine functions, with which many buyers often spend or rather waste-a large part of their working time. Among these unavoidable tasks are,

- Formulation of inquiries

- Detailing individual and general agreements

- Data administration - Order processing

Today, purchasing departments should work at creating global transparency and get well versed with national and international sourcing market. It is experienced often that those buyers who blindly trust partners and believe that they are offered the best prices frequently get deceived.

Essentials for successful reorientation of procurement Procurement planning and control : Plan the key figures and define the goal for steering procurement on the basis of profit-oriented data and identifying successes or failures.

Sourcing market research : Market research in the area of procurement should be made systematically. Only a supplier that systematically analyzes markets, competitors, suppliers, value chains and business models is capable of procuring correctly.

Make or buy : A companys decision to make or buy has a close connection with the optimization of the own operational value added. The correct shift to international suppliers increases the competitiveness and significantly reduces costs simultaneously.

Total cost of ownership

This strategic procurement management tool makes sure that there is an overall understanding and a corresponding transparency of all costs accompanying the procurement of products and services. Direct and indirect costs

Concept competitions - Concept competition not only assure the required quality early, but they also automatically initiate a competition between suppliers and maintain the costs within certain prescribed limits. - E.g. Lopez strategy at Volkswagen.

Target costing The concept of target costing is paraphrased as an integrated cost management concept for planning, supervision and control of all cost structures. How much the customer is prepared to pay for the product? Which supplier will supply what product at what price and also where the supplier is located.

Value analysis
This process aims at reducing the costs of a product or its components, while still maintaining its functions and characteristics.