What is Procurement Management?

Procurement management is the process companies use to purchase economic resources and business input from suppliers or vendors. This process helps companies negotiate prices and get the best quality resources for production processes. Smaller businesses do not usually have a department dedicated to procurement since they have much smaller business operations. Usually, small business owners or entrepreneurs are responsible for working with vendors and suppliers to obtain the necessary goods for business operations. Larger companies are able to purchase resources and inputs in large volume quantities; high volume purchases usually require a procurement management process.

Basic economic resources typically include land, labor and capital. Land is the physical resource companies use when producing goods or services for consumers. Physical resources may include natural resources such as timber, wildlife, or oceanic fisheries. Companies typically use procurement management to enter contracts or other legal agreements to purchase the right or access to natural resources for their business operations. Companies may also purchase already harvested physical resources from suppliers and vendors.

Procurement management also involves hiring labor to convert physical resources into consumer products. Most companies attempt to hire employees with direct advertisement of available job opportunities through websites, newspaper ads or other traditional advertisement methods. Recruiters or headhunters may be used if companies need to find individuals with specific skill sets, education or experience. Human resource departments are the primary procurement management function for hiring employees. Human resource departments often are used for this function to ensure regional laws are obeyed when hiring employees. Companies may also choose temporary labor services as a source for short-term employees used in the company’s production processes.

A business's capital resources also are typically acquired through procurement management departments. Individuals in this process may include accountants, business analysts or financial managers responsible for determining the proper mix of bank debt or equity investments for financing company operations. Procurement managers often involve members of the company's financial team in this process, as complex financial information often must be properly presented to banks or investors.

Companies may secure discount prices on business inputs when buying large quantities of economic resources from vendors or suppliers. Using contracts to set fixed prices on future purchases of resources may also lower the acquisition cost of resources. Futures contracts are a hedge against potential future cost increases on the economic resources companies use to produce consumer goods or services.