Procurement refers to the process of a company acquiring goods and services from an external third party. In essence this means purchasing raw materials to be turned into end product, or arranging the services of third-party companies for a special project or on-going task. To some extent procurement is an aspect of just about all companies and businesses. Thus, many companies may have a special in-house procurement or purchasing department, while other companies may integrate these job responsibilities into various employees’ job descriptions. However, for some companies it is beneficial to outsource procurement to a company that specializes in procurement services such as an EPC firm.
The Types of Procurement
As briefly mentioned above, procurement services are a part of the EPC (engineering, procurement, and construction) triad. EPC companies are hired to build or renovate facilities and structures. Thus it makes sense for procurement to be a part of this process because building materials, supplies, and contractors will all be needed for the process.
However, other times procurement is needed on an on-going basis at operational facilities. This type of procurement can be broken down into two main types: direct procurement and indirect procurement.
- Direct Procurement – Direct procurement refers to procurement that is done for the direct purpose of manufacturing a product. For example a furniture company will likely need to procure wood or a clothing company will need to procure cloth or cotton. The manufacture of more complex products with many various constitutient parts and materials will naturally require a greater depth of procurement. In essence direct procurement is a fundamental part of overall supply chain management.
- Indirect Procurement – By contrast, indirect procurement refers to a type of procurement that is done with the purpose of acquiring parts and components that are not used directly in the company’s end product, but that are still crucial to facilitate business functions. For example furniture or office supplies in an office would be a type of indirect procurement since these items are crucial to the function of the office but don’t end up in a final product. Likewise indirect procurement would be tasked with arranging for other businesses to assist the company.
Why Some Companies May Want to Outsource Procurement
Many companies will simply task particular employees with procurement responsibilities, or in the case large companies will create their own departments to handle procurement. However, these options are not always realistic or optimal. For example smaller companies may not have the resources to create procurement departments or hire dedicated procurement employees. Similarly they may not have the manpower to effectively oversee procurement without a dedicated team. This can lead to all kinds of problems. For example busy employees may forget to order essential products and services, or they may order too much or too little of something.
Even larger companies with more resources may not want to take on the responsibilities of day-to-day procurement. Procurement involves a great deal of logistics, careful research, and thorough management. Many companies may not have the inclination to handle these responsibilities in-house or they may find that they can save money by hiring a third-party procurement company.
How Procurement Services Benefit Companies
Procurement services can benefit companies in the following keys:
- Finding lower costs on goods and services
- Streamlining inventory
- Conducting thorough research
- Enhancing quality
- Overseeing logistics
- Developing vendor relationships
Polaris offers reliable procurement services. We are determined to help our clients get the most benefits and rewards from outstanding procurement services while at the same time helping them smooth out logistics. Procurement is a crucial part of operations, but often it is a part best left to dedicated procurement company.