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How do I Choose the Right Procurement Methods?
Procurement methods are the process a company goes through to purchase goods and services. Three common types of procurement methods are common: direct purchase or acquisition, negotiations, and competitive bidding. Companies will often use one office as a point of procurement, and employees working in this office will use one of the methods to procure goods, services, or jobs under directions from management. Choosing the right procurement method depends on the items needed.
Under the direct purchase or acquisition procurement method, companies will usually submit a purchase order to request items from a vendor. Many companies make purchases from vendors on a frequent basis; to control costs, purchase orders with proper authorization make this possible. An employee will write up a purchase order listing the vendor, quantity of items, description, price, and other pertinent information. A manager will usually either approve or disapprove of the order and send it back to the employee. Direct acquisition procurement methods can have multiple variances based on the company's needs and operating environment, and are one of the most common procurement methods used.
Negotiation as a procurement method works best for large purchases, such as equipment, land, or buildings. Companies will require negotiation as part of the process in order to lower the cost of the assets as much as possible. Procurement methods that require negotiation will often need different competencies from the procurement office. The purchasing director needs the ability to talk openly with other parties, make direct requests when seeking specific action on deals, and to know how and when to walk away from deals. While these competencies may seem easy to find in an employee, companies may go through several different employees before finding the right person.
Procurement methods may also fall under the category of competitive bidding. This process is usually particular to specific industries, such as construction, military contracts, or other large deals involving two or more companies. Competitive bids may be silent or open.
Under a silent bid process, companies will select a written bid. The vendor will open all bids on their own at one time and select the one they deem best for their job. Open bidding allows for more discussion between the two companies. After submitting a bid, each company may come together and have a discussion about the process. In reality, this turns into a hybrid of the competitive bidding and negotiation procurement methods, where each will seek concession for the deal.
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![Procurement methods may include bidding on construction contracts.]()
By: JackFProcurement methods may include bidding on construction contracts. -
![Many companies make purchases from vendors on a frequent basis.]()
By: Monkey BusinessMany companies make purchases from vendors on a frequent basis.
Discussion Comments
If an automobile industry produces their own engine and purchases mirrors from independent suppliers, what methods of procurement should it use?
Having procurement procedures in place eliminates the need to use petty cash blindly and is one of the control methods of cash flow. There can be a habit of buying and using cash, especially in public institutions, and that is why the Malawi government established a procurement department for all public institutions as a guide.
Negotiation can be either really helpful or totally futile, depending on the type of company you try to negotiate with. I work for a car dealership, so I overhear tons of negotiation each day that often winds up being successful.
However, my boss recently tried to negotiate with the local newspaper on an ad price. He frequently runs large color ads in the paper, and though they value his business, they do have policies to maintain.
He tried to get the sales representative to lower her price. She kept telling him that she was not authorized to do that. He told her that the paper was ripping him off because he had been such a good client all this time.
He was only trying to get a bargain, but in this case, negotiation was useless. I think he has just gotten so used to negotiation deals with people buying cars all the time that he doesn't realize it won't work in all situations.
My husband is a builder, and he is familiar with construction procurement methods. Though his boss is the one who actually talks to clients and secures the deals, he is always informed of the process.
They make bids on big jobs. Anytime a new business is interested in coming to town, they usually run an ad in the classifieds announcing that they will be taking bids for who gets to work on the project.
My husband's boss usually underbids his competition. He only has three employees, so his overhead costs are not excessive.
When a construction company's bid is accepted, they get the privilege of good publicity. After they have constructed a place of business, they usually are allowed to put up a small sign stating that they built the place.
This year, my friend and her husband opened up a party supply store in a town that needed it. They had only a few months to prepare before they opened, so they used the direct purchase procurement method.
They checked out several vendors and selected the best products from each one. It was a simple matter of completing an order online and paying for the goods, which were delivered in a couple of weeks to the store.
Since their business is small and they are the ones running it, they continue to use this procurement method. It is simple and appropriate for their needs.
Antone who is struggling with sourcing or other procurement methods might consider hiring a procurement consultant. These professionals are dedicated to coming up with procurement solutions for businesses both big and small. Often they will work within a specific industry and have specialized expertise. Drawing on this expertise can be a huge benefit to companies which are struggling with a process that can be prohibitively complicated.
Can anyone suggest effective means for online procurement? My business has grown a lot recently and we have increasingly turned to suppliers we have found online to meet our needs. We have had mixed results to say the least.
Before, we had worked with an established group of suppliers that we knew and trusted. But now that we are working with a lot of new suppliers we have had a difficult time evaluating which are the most reliable and equipped to meet our needs. Anyone that has any advice on wading through this weird process would be much appreciated.
Really the key to having a good procurement policy is to have a consistent and efficient means of procuring things. This department needs to be well run, well documented and audited often.
The specific forms of procurement will depend a lot on the types of goods you are buying and what they will be used for. For this reason the policy must also be dynamic. It must be flexible enough to respond to an ever varying set of circumstances but it must also be clear and rigid enough to suggest a course of action in uncertain circumstances.
A good policy is hard to come by but with a lot of work and consideration it can be done. Making this work well will benefit all areas of your business.
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