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The Evolution of Procurement

 


The use of the term “Procurement” has expanded exponentially in the business and public sector landscape.

Originally known as “Buying”, then “Purchasing”, and now modified to “Procurement”. Many people and organisations use these terms interchangeably, when in fact “Procurement” should be considered as a broader concept than “Buying” or “Purchasing”.

The idea behind the concept of procurement is that the goods and services acquired by a business or organisation have an ongoing cost of ownership, or relationship and management costs. Therefore there is an ongoing need to manage performance and cost. This could be thought of as lifetime cost and performance management. This compares to a basic purchasing function which would theoretically be focussed upon the initial transaction or acquisition cost.

The function of Procurement has also grown enormously in perceived importance and stature in organisation structures. There are a number of reasons why this has happened.

Globalisation
Markets have globalised and companies have responded by modifying their competitive strategies to reflect global challenges and conditions. The costs of procured goods and services have become greatly more significant in creating competitive advantage in global markets.

Whole Cost Focus
Businesses are focussing upon the total cost of acquiring and using a product or service, rather than just the initial acquisition cost. Businesses now understand that procurement is not all about price.

Contribution Recognition
The very significant contribution that effective procurement contributes to profitability is now recognised and valued by most organisations. A 10% increase in sales may only contribute a small percentage increase at the profit level, but a 10% reduction in procured goods and service costs will go straight to the profit line.

Professional Status
Procurement has become an accepted professional discipline with its own unique skill set.

 

 

 

 

 

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