Procurement: Definition & Benefits

Procurement is a lever that you can use to effectively improve throughput in your company. Nothing is worse than having orders that cannot be executed because the raw materials, semi-finished goods, components or merchandise are not available on time.

For companies that develop, manufacture and market series products, a distinction must be made between purchasing and procurement planning. Purchasing is primarily involved in the product development phase (“time-to-market” process) to find suitable suppliers and integrate them into the product development. Procurement planning is responsible for the availability on call of components developed jointly with suppliers in day-to-day operations in the order-to-delivery-process.

Close integration of procurement with operational sales and, where appropriate, with production planning in a holistic, networked approach can help to avoid such problems as well as processes capable of learning by feed-back loops.

Purchasing can remain flexible by contractually agreeing with suppliers on suitable delivery availability for critical items. Additional own stockpiling and/or certain consignment stocks at suppliers can increase flexibility and give purchasing security. Alternative procurement sources – including procurement cooperations with competitors – can not only improve your company’s negotiating position with suppliers, but also increase flexibility. In fact, that may be the more important benefit. In cases where procurement is critical, it may even be worth considering completely different manufacturing processes in order to be able to use completely different raw materials or components that are more readily available or easier to plan for.

Additional costs for such measures should be considered and evaluated in connection with a better supply capability of the enterprise. In addition to pure procurement costs, these are also important criteria for assessing the benefits of the purchasing service for your company.


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