Types of procurement

Business-to-business transactions or B2B involve generating different types of documents to formalize and standardize the process of communication and negotiation. To be specific, aside from a procurement plan or a documented procurement strategy, an organization seeking to attract and contract the services of another business needs to generate different types of B2B procurement documents to include a request for information, request for proposal, and a statement of work, among others.

This article provides an overview of the different types of procurement documents used for obtaining relevant market information and drawing the interest of possible B2B contractors. Request for Information: A Request for Information or RFI is both a business process and a document issued prematurely to survey the market and explore options or opportunities. The purpose of an RFI is to gather information about the capabilities of possible contractors and benchmarks or standards in the industry.

Responses to an RFI can help the contracting or prospective client adjust its requirements and scope of work before generating a request for proposal. Request for Proposal: A Request for Proposal or RFP is a procurement document generated and issued to solicit proposals from possible contractors.

types of procurement

A typical RFP specifies what the prospective client is looking for. It also sets expectations by establishing criteria for evaluating the proposals provided by interested contractors or bidders. Statement of Work: A Statement of Work or SOW is a document that provides a detailed description of the requirements of the prospective client.

It essentially discusses the roles and responsibilities of the contractor by listing and defining involved activities, deliverables, and timelines.

Types of Procurement Contracts used in Project Management

A SOW is also a component of a procurement plan. Furthermore, the primary purpose of these procurement documents is to understand the market and the capabilities of contractors. However, an RFT is used widely in the public sector in which a government office or agency generates and issue this procurement document containing very specific details of its requirements to solicit proposals.

More than soliciting for price quotation of each item or service to be contracted, this procurement document also solicits information about payment terms, product or service quality, and after-sales information. Request for Qualifications: A Request for Qualifications is another type of a procurement document generated and issued as part of a two-step process.

To be specific, a prospective client will use a Request for Quotation as a preliminary screening process to determine the qualification and eligibility of interested contractors. Our website uses cookies to provide us with data and information that can help us understand our website traffic, customize advertisements, and improve user experience and service delivery.

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You agree to our terms and privacy policy by consuming our contents. Read our Privacy Statement.Now, regardless of the sector or industry, the procurement of goods and services in a timely and efficient manner is one of the primary drivers of success. If your procurement process costs you valuable time and incurs unnecessary costs, you may end up falling behind your competitors. Fortunately, we live in a digital age rife with statistics, data, and insights that give us the power to spot potential issues and inefficiencies within the business.

And procurement reporting is no exception to this. In this article, we will explain the basic definition of procurement reports, talk about the benefits and challenges that occur when dealing with procurement data to provide you with innovative ideas on spotting inefficiencies. We will continue with tips on how to do a procurement analysis, and wrap up with real-life examples that you can implement into your own business strategies.

A procurement report allows an organization to demonstrate how its procurement activities deliver value for money, contribute to the realization of its broader goals and objectives, and provide a panoramic snapshot of the effectiveness of its procurement strategy. Throughout years these reports have been created and managed through traditional means of data management such as spreadsheets or static presentations but companies need to hurl these stone-age practices and start utilizing modern online reporting software that will transform your results, and ultimately, increase profits.

Let us see the importance of procurement reports in more detail, alongside with most common challenges. In a time when digital data reigns supreme, offering us more insight into our commercial activity than ever before, businesses that conduct their procurement activities blindly will pay the price.

There are a host of benefits to procurement reporting. By monitoring and analyzing key elements of your procurement activities, it is possible to:. You can easily increase financial efficiencies and save costs by identifying potential procurement problem areas in your business.

If you track your costs on a regular basis, your purchasing report will be filled with crucial financial analytics insights that will help you streamline your supplier management processes, identify if you need to train your staff on how to reduce costs, and ensure continuous monitoring to ensure your finances are being well managed and efficient. With the help of a dashboard designeryou can simply drag-and-drop your values and create interactive visualizations that will point out errors immediately.

That way you will be able to significantly reduce errors, and increase your productivity levels. With so many areas to consider, deciding which KPIs to focus on while defining metric measurement periods can prove to be a challenge at the initial stages. Scaling the value of data and analytics across all areas of your procurement process might prove difficult in the beginning, but by ensuring that all key members of your procurement team have access to your reporting dashboards and understand how to leverage the data to their advantage, the steps to take towards your procurement strategy will swiftly become clear.

For example, you might want to track crucial order cycle times and order fulfillment speeds to be able to handle urgent orders and take into account suppliers that can fulfill your requirements quickly and without additional complexities.

If you create regular purchasing reports, you can easily identify which suppliers are not only available during your urgent times, but also classify them based on a number of other criteria such as special discounts, reaction time, and other compliance parameters of your contract.During the requirement identification stage, the entity with the need determines when they want the goods delivered, services rendered or construction works completed.

It is important to consult with the procuring entity at this early stage in order to determine the most appropriate procurement method for their specific need. The procurement method should be determined at this early stage because of the impact it has on the procurement lead-time, and also to ensure that the responsible entity is able to set realistic timeframes and expectations for contract award in the initial stages of development and definition of their procurement requirement.

This simple exercise of obtaining the assistance of the procuring entity early on helps to avoid disappointments, unrealistic expectations and frustrations when, due to poor planning, it is impossible to meet expectations set during the requirement definition phase.

types of procurement

At this stage of the process, it is also important to decide if a competitive or non-competitive procurement method will be used.

The complexity of a requirement, procurement category, and monetary value are all important factors to consider when deciding on the procurement method. A decision to use a particular procurement method must be based on the stipulations of the procurement rules.

Acquiring goods, services and construction works from only one source is referred to as: sole-source procurement, single-source procurement, sole-source selection, direct procurement, among others. This is clearly a non-competitive procurement method, and it should be used only under exceptional circumstances, namely:. The use of this method should be preceded by a rigorous approval process. A checklist should preferably be developed for requesting entities to complete in sufficient detail to justify the need for fulfilling a procurement requirement from a single source.

Such justification should identify the requesting entity, describe the requirement, address why the requirement can only be fulfilled from the identified source, including action taken to identify additional sources, in addition to the total cost and planned future actions to preclude the need for using this method.

A key feature of this procurement method is that the submission of proposals takes place in two stages. Another, that bidders can assist in defining the technical requirement and the scope of work. Two-stage tendering is used for the procurement of goods, services and construction works, and there are several ways in which the process may be carried out.

Two of the most common are illustrated below:. In this first stage, bidders are requested to submit a technical proposal with their best solution for fulfilling the requirement. The proposal is evaluated and scored, and the firm with the highest ranked technical proposal invited for discussions with the purpose of reaching agreement on the proposed technical solution. This process is very similar to the quality-based selection QBS procedures used to request proposals from consulting firms when the Terms of Reference are difficult to define under highly specialized and complex requirements.

In this second stage, if an agreement is reached, the technical specifications or terms of reference are finalized and the highest ranked firm is invited to first submit a financial proposal based on the agreed technical solution, and then to contract negotiations. The technical proposals submitted are evaluated for responsiveness to the solicitation documents. A clarification and discussions meeting is held with all responsive bidders, and minutes of this meeting are prepared and distributed to all responsive bidders.

The results of this meeting are used to finalize the technical specifications and the scope of work. First stage responsive bidders are then invited to submit technical and financial proposals based on the amended technical specifications and scope of work.

The technical proposals are evaluated first, and the financial proposals remain sealed and secured. Firms achieving the minimum technical qualifying mark or greater, as stated in the call for proposals, are then invited to the public opening of their financial proposals. Financial proposals are then evaluated, and the firm achieving the highest score on the combined technical and financial proposals evaluation is invited to contract negotiations. If negotiations fail, the next highest ranked firm is called for contract negotiations.

The above are only two variations of the two-stage tendering procurement method. There are others which given the degree of complexity will not be discussed in this text.

The Request for Proposal RFP is a two envelope procurement method that can be used for goods, services or works. It is used when suppliers, contractors or services providers are expected to propose a specific solution methodology and workplan to fulfilling a specific requirement.Procurement contracts are the agreements to use certain products and services on a project. The types of procurement contracts and are typically either fixed-price, cost-reimbursable, or time and materials.

Some agreements can include more than one of these payment structures on a single procurement contract. The process of procurement management allows you to find the right contractors and suppliers for the goods and services you need for your project.

Using the right type of procurement contract can have a significant impact on a project's success since each type of procurement contract comes with specific benefits and downsides. The procurement manager is responsible for analyzing the scope of the project to determine whether it can be completed using internal resources or whether outside vendors will need to be hired.

Needs that must be outsourced will be subject to the formal procurement process. For example, a telecommunications company may outsource invoice creation to a printing vendor who can create these forms and mail them to subscribers. Both buyers and sellers in an organization should understand the formal procurement process. Procurement contracts are used across almost all industries and businesses.

While private companies have flexibility when it comes to procurement, government agencies must comply with specific rules and regulations because they are spending public funds. Ideally, procurement results in obtaining appropriate goods and services that meet standards for time, location, quality, and quantity at the best possible cost. Procurement can involve buying hardware, equipment, or other goods needed for a project, or it can require hiring a consult or service provider.

Before beginning the procurement process, determine whether the benefits of procurement outweigh those of completing the project in-house. Procurement is the best option to save the time, money, and stress involved in training employees to conduct a task in which they are not experienced.

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It makes more sense to hire an expert and have the job done right. Procurement allows your venture to focus on its core business and to outsource tasks that fall outside that mission. While businesses once completed everything they needed independently, doing so can be impractical and cause you to accrue significant costs and to develop a substandard product, both of which are bad for your company.

For this reason, your company should establish a procurement management process to find the best vendors and suppliers and to negotiate beneficial contracts that account for the interests of both parties. Like other contracts, a procurement contract legally binds two or more parties, typically a buyer and a seller.

Contracts detail the terms and conditions of a particular project.

Procurement

Forming a contract inaccurately can cost you money over time. If a contract is inadequate, you may need to spend money to get the other party to legally comply or pay extra because you opted for a time and materials procurement contract instead of one with a fixed price.

The procurement manager is responsible for selecting the best contract for a particular project. Procurement contracts are categorized into the following types and subtypes:. With this type of contractthe seller agrees to provide their service or product at a set price, independent of resulting equipment, material, and labor costs. This means that the seller will bear any costs beyond the agreed-upon amount. This type of contract has the least risk for the buyer.

A well-defined scope and statement of work and a selection of competitive bidders help control pricing for this type of contract. If you don't have a clearly defined scope of work, this may not be the best type of contract.

Procurement Management Your business may require procurement when the following applies: You don't have the expertise to conduct a specific task. You don't have the resources to handle a specific task or to complete a project. You don't have the required capacity for the goods or services in question.Everybody benefits from taking a risk or two in their personal life on occasion. Life would get pretty boring if we all spent our days doing the same things over and over, wrapped in bubble wrap and avoiding any chance of excitement or peril.

But in procurement, predictability and avoiding risk are hallmarks of an effective and successful organization. Managing procurement risks is essential if you want to create value as well as cut costs for your company.

Taking a few moments to familiarize yourself with the most common procurement risks, and how to control them, will put you on the right path. Because it involves decision-making at all levels and can affects every part of the organization, procurement strategy must prioritize risk mitigation in order to maximize its efficiency and its efficacy.

Every organization is different, and not all companies will experience the same levels of business risk for any given variable. Generally speaking, however, your procurement process will likely face potential risk exposure from:.

Without knowing what you need, when you need it, or who will deliver it on time and at the best price, your supply chain might look more like a tangle of fairy lights with a few bulbs missing. You may end up purchasing too much, not enough, or the wrong goods and services altogether, at sub-optimal prices and without the benefit of discounts and economies of scale offered by well-negotiated contracts.

Rogue spending will likely be a major concern; both financial planning and procurement strategy will take a serious hit to accuracy. Connecting budgets to actual purchasing behavior will be difficult, and create an incomplete audit trail, exposing you to significant financial risk.

This could damage both your profitability and your ability to achieve competitive advantage, as well as your reputation with your target audience if the quality and availability of the goods and services you offer are affected.

Reducing the Risk: Big Data and the ever-growing importance of information technology has transformed the way we look at everything from our own personal shopping habits to the procurement processes of Fortune companies. A robust procurement software package will give you the tools you need to collect and analyze transaction data for everything you buy, and allow you to identify usage patterns and other information that make it easier both to develop smarter purchasing strategies and negotiate mutually beneficial contracts with your best suppliers.

This problem goes hand in glove with inadequate needs analysis. Furthermore, failing to vet your vendors using key performance indicators KPIs robs you of a wealth of information you can use to remove redundancies and form strategic partnerships with your best suppliers. Reducing the Risk: Artificial intelligence and a cloud-based, centralized software procurement solution makes it a lot easier to set up a vendor portal and fully automate vendor evaluation and management.

You can track vendor performance and issues, identify negotiation opportunities if your needs change, and cut costs significantly by outsourcing part of your purchasing to trusted partners with limited access to the system.

You can also reduce or even eliminate rogue spending by defining and assigning roles for requests, approvals, and purchasing, and make sure you get the best possible price including discounts while paying your vendors on-time or early.

Modern procurement practitioners regard contracts as much more than a simple agreement to buy. Reducing the Risk: A centralized document library, with terms automatically linked to approved vendors and rich transactional data that can be turned into reports for finance, marketing, and upper management makes negotiations much simpler.

Review and approval by your legal team means contract information is always accurate and up-to-date, and staff can create new contracts from pre-approved templates for easy review and approval.

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While some risks are created by a lack of available data or unintentional inefficiencies, others are both intentional and malicious. The specific risks include invoice fraud, embezzlement, and theft via false record keeping. A decentralized and opaque procurement function robs hinders your ability to spot red flags that might otherwise pop up during risk analysis. Out of sight, out of mind—and out of your pocket!

Reducing the Risk: Clear and automated procurement functions, limited catalogs from approved and preferred vendors, and complete transactional information with document cross-checking make it very hard for potential fraudsters to submit a fake invoice or conceal corruption.

In addition, the full audit trail available for every transaction and a fully documented approval process increases your protection while making it easier to nip illegal behavior in the bud. Avoid business losses, reputation damage, and damaged competitiveness by making a procurement solution with automated risk management part of your procurement plan.Procurement departments have moved far beyond traditional roles limited to contracting goods and services on demand.

The duties and responsibilities of modern procurement organizations are intrinsic to company profitability and productivity. Organization revenue and liquidity depend on how well the procurement department functions.

Buying goods and services is only the beginning. World-class procurement departments are staffed by procurement professionals highly skilled at negotiating the best deal for the company — the highest quality product available for the lowest price — while meeting company standards, client and public expectations, and industry regulations.

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The right software will by easy to understand and use, and help the department meet compliance issues, meet deadlines, and maintain liquidity with timely payments.

The purchasing or procurement manager runs the purchasing department. These highly trained professionals are responsible for crafting effective procurement strategies, finding cost-effective deals and suppliers, and supply chain management from initial requisition to invoice payment.

A typical procurement director job description includes negotiation skills, chain management experience. Purchasing clerks are primarily responsible for preparing purchasing orders. They compare purchase orders to requisitions to decide whether the orders are adequate and adjust product quantities when necessary. They handle all customer and supplier inquiries regarding orders, status, changes, invoice payments, and cancellations.

Clerical, math, and customer service skills are a must for this position. Administrative Assistant is a general position within the purchasing department. They take on the more basic clerical work and are responsible for help in choosing new vendors for the company. This position requires attention to detail, interpersonal skills, and clerical qualifications. Early adopter organizations that understood the value of professional procurement departments and implemented the technology to help them succeed report higher profits and lower costs, without sacrificing quality or ethics.

They are better able to build the strong relationships with suppliers that lead to adaptive supply chains and more favorable contract terms. On-the-go procurement managers are always in touch and informed. And it is all accomplished with fewer man-hours than ever before. Help streamline your procurement with PurchaseControl. Your email address will not be published. Enter your email below to begin the process of setting up a meeting with one of our product specialists.

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Let us know what your business is doing.Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process.

Procurement generally involves making buying decisions under conditions of scarcity. If sound data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

Types of Procurement Documents

Procurement is used to ensure the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared. Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations.

Formalized acquisition of goods and services has its roots in Military logisticswhere the ancient practice of foraging and looting was taken up by professional quartermasters, a term which dates from the 17th Century. The first written records of what would be recognized now as the purchasing department of an industrial operation is in the railway companies of the 19th Century. An early reference book from explains that. A Purchasing agent of the modern breed is a creative thinker and planner and now regards his work as a profession" [4].

An important distinction should be made between analyses without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of best value should be employed.

Procurement activities are also often split into two distinct categories, direct and indirect spend. Direct spend refers to the production-related procurement that 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 managementdirectly affects the production process of manufacturing firms.

In contrast, indirect procurement concerns non-production-related acquisition: obtaining "operating resources" which a company purchases to enable its operations. Indirect procurement comprises a wide variety of goods and services, from standardized items like office supplies and machine lubricants to complex and costly products and services like heavy equipment, consulting services, and outsourcing services.

Procurement is one component of the broader concept of sourcing and acquisition. Typically procurement is viewed as more tactical in nature the process of physically buying a product or service and sourcing and acquisition are viewed as more strategic and encompassing.

types of procurement

The Institute of Supply Management ISM [7] defines strategic sourcing as the process of identifying sources that could provide needed products or services for the acquiring organization. The term procurement is used to reflect the entire purchasing process or cycle, and not just the tactical components. ISM defines procurement as an organizational function that includes specifications development, value analysis, supplier market research, negotiation, buying activities, contract administration, inventory control, traffic, receiving and stores.

Purchasing refers to the major function of an organization that is responsible for acquisition of required materials, services and equipment. The revised acquisition process for major systems in industry and defense is shown in the next figure.

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The process is defined by a series of phases during which technology is defined and matured into viable concepts, which are subsequently developed and readied for production, after which the systems produced are supported in the field. The process allows for a given system to enter the process at any of the development phases. For example, a system using unproven technology would enter at the beginning stages of the process and would proceed through a lengthy period of technology maturation, while a system based on mature and proven technologies might enter directly into engineering development or, conceivably, even production.

The process itself includes four phases of development: [9]. Procurement officials increasingly realize that their make-buy supplier decisions fall along a continuum from simple buying transactions to more complex, strategic buyer-supplier collaborations. It is important for procurement officials to use the right sourcing business model that fits each buyer-seller situation. Procurement software often labeled as e-procurement software manages the purchasing processes electronically or via cloud computing.

Most of the organizations think of their procurement process in terms of a life cycle. Some of the most common steps from the most popular frameworks include:. The Chartered Institute of Procurement and Supply CIPS promotes a model of "five rights", which it suggests are "a traditional formula expressing the basic objectives of procurement and the general criteria by which procurement performance is measured", namely that goods and services purchased should be of the right qualityin the right quantitydelivered to the right place at the right time and obtained at the right price.

Ardent Partners published a report in which presented a comprehensive, industry-wide view into what was happening in the world of procurement at that time by drawing on the experience, performance, and perspective of nearly chief procurement officers and other procurement executives.


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