Understanding the Basic procurement terminology | What is Procurement Process? – procurement | business | buying
Understanding the Basic procurement terminology | What is Procurement Process?
Procurement is about buying the things you need to run a business. Of course, that means buying the right stuff in the right quantity and getting the best deal. But that can be a lot more complicated than many people realize.
Organizations are structured and some of the unique terms that procurement professionals use. The head of the procurement organization is the chief purchasing officer. Under the CPO, there could be directors and managers who specialize in purchasing different kinds of things. For example, many companies make a separation between the things that they buy to put into a product and the things that they need to run the business. The things that go into a product are called direct materials.
For example, if you’re a car manufacturer, the metal glass and plastic you buy are all direct materials. Then, there are all of the other things that you need to run a business, the indirect materials. In a car factory, their indirect materials would include things like tools, brooms, and paper towels.
You’ll often find different teams managing the direct and indirect procurement functions. The things that you buy often are called commodities and commodities can be organized into categories or segments. Within each category, purchasing analysts can study trends and anticipate potential shortages. Another important role in procurement are the buyers. The buyers interact directly with your suppliers and they manage those relationships. They get permission from your company to buy something by having a requisition approved, and then, they tell your supplier to ship the products by sending them a purchase order or a PO.
There are also supplier quality professionals who ensure that the material you’re receiving meets your standards. It’s also important for purchasing to align with the values of your company. Many companies have commitments to buy from small businesses, from diverse companies, from companies that commits to treating their workers well, and from companies that operate in responsible way.
The people in charge of meeting these goals could have titles like supplier development, supplier diversity, and supply chain sustainability. When companies use an analytical approach to manage their procurement process, it’s often called strategic sourcing.
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Procurement is the link that connects your company to your suppliers.
Learning the language of procurement can help you ensure that your sources of supply meet the company’s short and long terms needs and support the needs of the entire supply chain.
Do you know how the procurement organization in your workplace is structured?
Does your organization use a strategic sourcing approach? Go and check this out.