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The term business procurement is used to describe the activities related to purchasing of goods and services for a business entity. Procurement or purchasing is an important administrative function that employs the use of cost reduction and long-term strategic planning techniques to manage outgoing costs. The field of business procurement has three primary areas of focus: tendering, vendor management, and strategic purchasing.
People who work in business procurement are known as procurement professionals. There are three main job titles in procurement: buyer, procurement officer, and procurement manager. A buyer is responsible for managing the purchase of commodities from selected suppliers. The procurement officer manages the tendering and vendor selection process. The main responsibility of the procurement manager is the overall operation of the department and negotiations with large dollar value suppliers.
Tendering is the process of inviting potential suppliers to review a detailed requirements document and to submit their bid for the business. The requirements document contains the total dollar value and length of the contract, the type of product or service required, quality requirements, and contract terms. A significant amount of civil lawsuits are based on flaws or perceived bias in the tendering process. Following appropriate business process and ensuring a fair and transparent tender is very important.
There are three terms commonly used in business procurement: request for proposal (RFP), request for information (RFI), and request for quotation (RFQ). The type of response required is indicated in the body of the document, along with the dates and contact information. All three terms are used to describe a process when vendors are either invited to respond or the requirements are posted on a public website or procurement tool, allowing a wide range of suppliers to respond. Dates are very important in this process, and ignoring deadlines or missing them will exclude the response from consideration. Make sure to get a receipt with the time and date stamp indicating when the documents were received by the purchasing department, to avoid exclusion.
Vendor management includes ensuring contract compliance, acting as the primary contact for issues related to service and dispute resolution, as well as managing any payments or clauses negotiated into the contract. Although a lot of effort is focused on the initially tendering and writing of the contract, vendor management is the only method of ensuring that the company actually obtains the expected savings. Effective management results in lower operating costs, efficient services, and a stronger bargaining position during the next round of negotiations.
Strategic purchasing is the process of planned purchasing. In a typical organization, each department submits its planned purchases for the year to the budget or procurement department. Staff look for commonalities, or opportunities to bundle related products together. These smaller purchases can then be put out to tender, allowing multiple suppliers the opportunity to provide these goods and services. Overall, this process results in lower purchasing costs to the organization.