{"id":23545,"date":"2024-05-08T19:11:17","date_gmt":"2024-05-08T16:11:17","guid":{"rendered":"https:\/\/fractory.com\/?p=23545"},"modified":"2024-11-08T17:28:30","modified_gmt":"2024-11-08T15:28:30","slug":"what-is-procurement","status":"publish","type":"post","link":"https:\/\/fractory.com\/what-is-procurement\/","title":{"rendered":"Understanding Procurement &#8211; What Is It, Types &#038; Process"},"content":{"rendered":"<p data-pm-slice=\"1 1 []\">Have you ever wondered how that complex bridge gets built or that sleek new gadget gets manufactured? <strong>It all starts with procurement.<\/strong><\/p>\n<p>The success of any engineering project relies on a smooth-running supply chain management system. Procurement is central to this system, making sure the right materials and services are obtained at the right price, on time and with minimal risk through various effective procurement activities.<\/p>\n    <div class=\"shortcode-key-takeaways\">\n        <span class=\"v2-section-title v2-section-title--md\">Key Takeaways<\/span>\n        <ul class=\"shortcode-key-takeaways-list\">\n                                                <li>Procurement goes <strong>beyond cost savings<\/strong>, it delivers strategic value through cost optimisation, quality assurance, risk mitigation and strong supplier partnerships, driving project success.<\/li>\n                                                                <li>Procurement is <strong>more than just purchasing<\/strong>, it manages the entire goods and services acquisition lifecycle \u2013 planning, needs identification, sourcing, negotiation and relationship building.<\/li>\n                                                                <li><strong>Direct procurement<\/strong> focuses on production-related goods (materials, equipment), while <strong>indirect procurement<\/strong> streamlines support services (office supplies, IT).<\/li>\n                                                                <li>Choosing the right procurement method (such as Open Tendering, Request for Proposal, etc.) depends on <strong>project complexity, budget, risk tolerance and desired supplier expertise.<\/strong><\/li>\n                                                                <li>An effective procurement process ensures the <strong>timely acquisition of goods and services at the right price and quality<\/strong> through defined stages: needs identification, purchase request and approval, supplier sourcing, tendering and evaluation, contract formation, order placement, goods receipt and inspection, invoice processing and project completion.<\/li>\n                                                                                                                                                                                <\/ul>\n    <\/div>\n    \n<h2 data-pm-slice=\"1 1 []\">What Is Procurement?<\/h2>\n<p>Procurement, often referred to as strategic sourcing, is the process of acquiring the goods and services a company needs to operate.<\/p>\n<p>In the engineering world, this translates to securing the essential materials, equipment and specialised services required to bring projects to life. It encompasses everything from sourcing high-quality raw materials, like steel and concrete, to procuring specialised machinery and components needed for the production process of a product.<\/p>\n<p>Think of it this way: procurement is the bridge between your engineering needs and the resources that make your designs a reality. Building and maintaining this bridge is where the procurement team comes in. They act as strategic partners, collaborating with engineers, suppliers and other stakeholders to ensure the smooth flow of essential resources throughout the project timeline.<\/p>\n<h2>Procurement vs Purchasing &#8211; What Is the Difference?<\/h2>\n<p>Procurement goes beyond the simple transaction of acquiring goods (placing orders and making payments) \u2013 that is the core function of purchasing. Procurement takes a broader perspective, encompassing the entire lifecycle of acquiring goods and services through well-defined procurement processes.<\/p>\n<p>This strategic approach involves:<\/p>\n<ul>\n<li>\n<p><strong>Identifying Needs: <\/strong>What materials and services are required for the project?<\/p>\n<\/li>\n<li>\n<p><strong>Developing a Procurement Strategy:<\/strong> How will you source these materials and services?<\/p>\n<\/li>\n<li>\n<p><strong>Supplier Research:<\/strong> Who can provide the best quality at the most competitive price?<\/p>\n<\/li>\n<li>\n<p><strong>Negotiating Contracts:<\/strong>\u00a0How can you secure the most favourable terms and conditions in the contract for your organisation?<\/p>\n<\/li>\n<li>\n<p><strong>Managing Supplier Relationship:\u00a0<\/strong>How can you <a href=\"https:\/\/fractory.com\/supplier-relationship-management-srm\/\">build and maintain strong, collaborative partnerships<\/a> with your suppliers?<\/p>\n<\/li>\n<\/ul>\n<p>Ultimately, procurement aims to optimise the entire acquisition process and deliver value beyond just cost savings.<\/p>\n<div style=\"overflow-x: auto;\"><table class=\"table-normal\" style=\"border-collapse: collapse; width: 100%;\">\n<thead>\n<tr>\n<td style=\"width: 33.3333%;\">\u00a0<\/td>\n<td style=\"width: 33.3333%;\">Procurement<\/td>\n<td style=\"width: 33.3333%;\">Purchasing<\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Focus<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Strategic, long-term<\/td>\n<td style=\"width: 33.3333%;\">Tactical, short-term<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Goal<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Overall value creation, cost optimisation, risk mitigation<\/td>\n<td style=\"width: 33.3333%;\">Obtaining specific goods or services at the best possible price<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Activities<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Needs identification, supplier selection, negotiation, contract management, relationship building<\/td>\n<td style=\"width: 33.3333%;\">Creating purchase orders, managing transactions, ensuring timely delivery<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Skills Required<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Market knowledge, negotiation skills, risk management expertise, supplier relationship management<\/td>\n<td style=\"width: 33.3333%;\">Efficiency, attention to detail, knowledge of company purchasing policies<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Impact<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Significant impact on project success, cost efficiency and supply chain resilience<\/td>\n<td style=\"width: 33.3333%;\">Direct impact on immediate costs and transaction efficiency<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\"><strong>Example<\/strong><\/td>\n<td style=\"width: 33.3333%;\">Identifying the most cost-effective and reliable source for high-quality steel for a new bridge project<\/td>\n<td style=\"width: 33.3333%;\">Placing an order for a specific type and quantity of fasteners needed for a production line<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<p data-pm-slice=\"1 3 []\">[ Figure 1: Procurement vs. Purchasing Comparison Table]<\/p>\n<h2 data-pm-slice=\"1 3 []\">Why Is Procurement Important?<\/h2>\n<p>Efficient procurement management practices contribute significantly to the success of business projects, including engineering projects, in several ways:<\/p>\n<ul>\n<li>\n<p><strong>Cost Management: <\/strong>Procurement helps negotiate the best deals with suppliers, optimise inventory levels, and identify cost-saving opportunities. Managing costs translates to stretching the project budget further and <a href=\"https:\/\/fractory.com\/cost-value-engineering\/\">maximising value<\/a>. An often overlooked area is <a href=\"https:\/\/fractory.com\/tail-spend-explained\/\">tail spend<\/a> which generally accounts for low-value but high-volume expenditures, leading to inefficiencies that procurement teams aim to eliminate.<\/p>\n<\/li>\n<li>\n<p><strong>Quality Assurance: <\/strong>The procurement process ensures sourcing high-quality materials and services that meet the project specifications. This minimises defects, rework and project delays.<\/p>\n<\/li>\n<li>\n<p><strong>Risk Mitigation: <\/strong>Procurement mitigates risk by diversifying suppliers, using clear contracts, implementing supplier evaluation and risk assessment, and optimising the supply chain. This proactive approach identifies and addresses potential issues before they disrupt projects.<\/p>\n<\/li>\n<li>\n<p><strong>Enhanced Project Execution: <\/strong>Procurement ensures upholding strong, collaborative partnerships with reliable suppliers. Maintaining supplier relationships is vital for smooth project execution.<\/p>\n<\/li>\n<li>\n<p><strong>Enhanced Project Efficiency: <\/strong>Procurement optimises the supply chain (network of <a href=\"https:\/\/fractory.com\/supplier-tiers-explained\/\">tier suppliers<\/a>, transportation and logistics) through streamlined procurement processes, ensuring timely delivery of materials and services. This minimises disruptions and frees up engineers&#8217; time to focus on core design and development tasks, ultimately enhancing overall project efficiency.<\/p>\n<\/li>\n<li>\n<p><strong>Business Objectives Alignment: <\/strong>Procurement provides a wealth of data that can be used to track and measure performance through Key Performance Indicators (KPIs). These procurement KPIs can help identify areas for improvement and ensure that procurement is aligned with overall business objectives.<\/p>\n<\/li>\n<\/ul>\n<p>In essence, good procurement practices pave the way for smoother project execution, improved quality, and ultimately, a successful business project. This can be further enhanced by leveraging consulting services that specialise in optimising procurement processes and identifying cost-saving opportunities.<\/p>\n<h2>Types of Procurement<\/h2>\n<p>Procurement strategies adapt to business needs. Understanding the <a href=\"https:\/\/fractory.com\/direct-vs-indirect-procurement\/\">two main types of procurement<\/a> helps categorise the needs effectively:<\/p>\n<h3><strong>Direct Procurement<\/strong><\/h3>\n<p>This focuses on acquiring essential goods directly related to production, such as raw materials (steel, concrete) and specialised equipment (welding machines, <a href=\"https:\/\/fractory.com\/non-destructive-testing\/\">testing instruments<\/a>). These directly influence the final product or service being delivered.<\/p>\n<h3><strong>Indirect Procurement<\/strong><\/h3>\n<p>Indirect procurement encompasses goods and services that support day-to-day operational needs but are not directly involved in production. Examples of these goods and services include office supplies (paper, toner), IT equipment (computers, software) and maintenance services (building upkeep, <a href=\"https:\/\/fractory.com\/design-for-maintenance\/\">equipment repairs<\/a>).<\/p>\n<p>Understanding these distinctions is critical for prioritising resource allocation and implementing appropriate procurement strategies tailored to the specific project requirements.<\/p>\n    <div class=\"shortcode-enhanced-cta\">\n        <div class=\"shortcode-enhanced-cta__content\">\n            <span class=\"v2-section-title v2-section-title--md\">Scale Your Manufacturing from Prototyping to Series<\/span>\n\n            <ul class=\"shortcode-enhanced-cta-list\">\n                                                            <li>\n                                                            <div class=\"shortcode-icon\">\n                                    <svg width=\"100%\" height=\"100%\" viewBox=\"0 0 33 32\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M16.4933 23.3059C21.7413 23.3059 25.9956 19.0515 25.9956 13.8036C25.9956 8.55559 21.7413 4.30127 16.4933 4.30127C11.2453 4.30127 6.991 8.55559 6.991 13.8036C6.991 19.0515 11.2453 23.3059 16.4933 23.3059Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M1.16917 30.3724C1.35654 28.4452 2.49414 26.7455 4.20723 25.8488L11.5682 21.9542\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M21.4318 21.9542L28.7928 25.8488C30.5058 26.7588 31.6434 28.4586 31.8308 30.3724\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M12.8798 18.7956H6.10769C4.24738 18.7956 2.74843 17.2967 2.74843 15.4364V12.2243\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M8.28921 9.02567H3.97971C3.29715 9.02567 2.74843 9.57439 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stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M4.70242 9.02568C6.5895 4.35483 11.1667 1.07587 16.4933 1.07587C21.8199 1.07587 26.29 4.27453 28.2173 8.85169\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<\/svg>\n                                <\/div>\n                            \n                                                            <span>Personal account manager<\/span>\n                                                    <\/li>\n                                                                                <li>\n                                                            <div class=\"shortcode-icon\">\n                                    <svg width=\"100%\" height=\"100%\" viewBox=\"0 0 33 34\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M17.5835 26.6203C16.8491 26.0906 15.4887 26.1628 14.959 25.4284C14.4293 24.694 14.9229 23.4299 14.6339 22.5631C14.345 21.6963 13.2133 20.986 13.2133 20.059C13.2133 19.1319 14.3691 18.3976 14.6339 17.5548C14.8988 16.7121 14.4293 15.4119 14.959 14.6895C15.4887 13.9672 16.8491 14.0274 17.5835 13.4976C18.3179 12.9679 18.655 11.6436 19.5218 11.3667C20.3886 11.0898 21.412 11.9566 22.351 11.9566C23.2901 11.9566 24.3375 11.1019 25.1802 11.3667C26.0229 11.6316 26.3962 12.9679 27.1185 13.4976C27.8409 14.0274 29.2133 13.9551 29.743 14.6895C30.2728 15.4239 29.7792 16.688 30.0681 17.5548C30.357 18.4216 31.4887 19.1319 31.4887 20.059C31.4887 20.986 30.333 21.7204 30.0681 22.5631C29.8032 23.4058 30.2728 24.7061 29.743 25.4284C29.2133 26.1508 27.8529 26.0906 27.1185 26.6203C26.3841 27.15 26.047 28.4743 25.1802 28.7512C24.3134 29.0281 23.2901 28.1613 22.351 28.1613C21.412 28.1613 20.3646 29.0161 19.5218 28.7512C18.6791 28.4864 18.3059 27.15 17.5835 26.6203Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M22.351 25.5729C25.3963 25.5729 27.8649 23.1042 27.8649 20.059C27.8649 17.0137 25.3963 14.545 22.351 14.545C19.3058 14.545 16.8371 17.0137 16.8371 20.059C16.8371 23.1042 19.3058 25.5729 22.351 25.5729Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M17.6919 26.7046L15.3322 30.0755C15.1396 30.3524 15.3322 30.7377 15.6693 30.7617L17.7521 30.8821C17.8484 30.8821 17.9447 30.9303 18.0169 30.9905L19.1847 32.0138C19.4375 32.2305 19.8348 32.0981 19.895 31.773L20.5451 28.679\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M26.9981 26.7046L29.3698 30.0876C29.5625 30.3645 29.3698 30.7497 29.0448 30.7738L26.8055 30.9303C26.7092 30.9303 26.6129 30.9785 26.5406 31.0507L25.5294 31.9897C25.2765 32.2185 24.8792 32.0861 24.807 31.761L24.1569 28.691\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M14.7062 24.7181H3.91912C2.59481 24.7181 1.51129 23.6466 1.51129 22.3103V3.73391C1.51129 2.4096 2.58277 1.32608 3.91912 1.32608H22.5075C23.8318 1.32608 24.9154 2.39756 24.9154 3.73391V11.3186\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M15.4646 1.32608H10.9379V9.81366H15.4646V1.32608Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<\/svg>\n                                <\/div>\n                            \n                                                            <span>Quality assurance<\/span>\n                                                    <\/li>\n                                                                                <li>\n                                                            <div class=\"shortcode-icon\">\n                                    <svg width=\"100%\" height=\"100%\" viewBox=\"0 0 35 27\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M17.576 22.1218H4.47786C3.039 22.1218 1.87455 20.7126 1.87455 18.9994V4.93701C1.87455 3.20888 3.039 1.81451 4.47786 1.81451H26.1796C27.6184 1.81451 28.7829 3.20888 28.7829 4.93701V9.53916\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M1.87084 5.5081H28.7866\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M1.87084 11.2636H18.0618\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M6.22453 17.019H10.4299\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M24.5182 25.63C29.2739 25.63 33.1292 21.7747 33.1292 17.019C33.1292 12.2633 29.2739 8.40808 24.5182 8.40808C19.7625 8.40808 15.9072 12.2633 15.9072 17.019C15.9072 21.7747 19.7625 25.63 24.5182 25.63Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path d=\"M24.5182 11.0967V17.019L27.7519 20.2528\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<\/svg>\n                                <\/div>\n                            \n                                                            <span>Payment terms for companies<\/span>\n                                                    <\/li>\n                                                                                <li>\n                                                            <div class=\"shortcode-icon\">\n                                    <svg width=\"100%\" height=\"100%\" viewBox=\"0 0 31 33\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<g id=\"Layer_1\" clip-path=\"url(#clip0_874_1102)\">\n<path id=\"Vector\" d=\"M4.02589 18.9188H26.9832V26.7685C26.9832 27.6336 26.282 28.3257 25.426 28.3257H5.58309C4.71798 28.3257 4.02589 27.6245 4.02589 26.7685V18.9188Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_2\" d=\"M26.9832 18.9188H4.02589L6.52106 8.96545C6.67587 8.3371 7.24046 7.89999 7.88702 7.89999H23.1312C23.7777 7.89999 24.3423 8.3371 24.4972 8.96545L26.9923 18.9188H26.9832Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_3\" d=\"M10.9468 28.3257H6.20233C5.77484 28.3257 5.42828 28.6723 5.42828 29.0998V31.0394C5.42828 31.4669 5.77484 31.8135 6.20233 31.8135H10.9468C11.3743 31.8135 11.7208 31.4669 11.7208 31.0394V29.0998C11.7208 28.6723 11.3743 28.3257 10.9468 28.3257Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_4\" d=\"M24.6702 28.3257H19.9257C19.4982 28.3257 19.1517 28.6723 19.1517 29.0998V31.0394C19.1517 31.4669 19.4982 31.8135 19.9257 31.8135H24.6702C25.0977 31.8135 25.4442 31.4669 25.4442 31.0394V29.0998C25.4442 28.6723 25.0977 28.3257 24.6702 28.3257Z\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_5\" d=\"M4.02589 23.8727H2.96955C2.20461 23.8727 1.59447 23.2534 1.59447 22.4976V5.01325C1.59447 3.14643 3.10614 1.63477 4.97296 1.63477H26.0544C27.9212 1.63477 29.4328 3.14643 29.4328 5.01325V22.4885C29.4328 23.2534 28.8136 23.8636 28.0578 23.8636H27.0014\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_6\" d=\"M4.02589 25.2295H10.1181L9.6992 23.8089C9.38048 22.7344 8.39698 22.0059 7.27689 22.0059H4.02589\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_7\" d=\"M26.9832 25.2295H20.891L21.3099 23.8089C21.6286 22.7344 22.6121 22.0059 23.7322 22.0059H26.9832\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_8\" d=\"M15.5 7.89999V10.6501\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<path id=\"Vector_9\" d=\"M12.4858 10.6501H18.5142\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n<\/g>\n<\/svg>\n                                <\/div>\n                            \n                                                            <span>On-time delivery by Fractory<\/span>\n                                                    <\/li>\n                                                                                    <\/ul>\n\n            <a class=\"c-button c-button--sm\" href=\"https:\/\/app.fractory.com\/quotes\/new?lng=en\">Get a quote<\/a>\n        <\/div>\n\n        <div class=\"shortcode-enhanced-cta__media\">\n                            <video class=\"shortcode-video\" autoplay loop muted playsinline>\n                    <source src=\"https:\/\/fractory.com\/wp-content\/uploads\/2023\/01\/homepage-vid-v2.mp4\" type=\"video\/mp4\">\n                <\/video>\n                    <\/div>\n    <\/div>\n    \n<h2>Procurement Methods<\/h2>\n<p>There are several common procurement methods used by procurement teams to select the best suppliers and acquire goods and services for their projects. Here are six frequently used methods:<\/p>\n<ol>\n<li>\n<p><strong>Open Tendering: <\/strong>This method is a competitive bidding process open to all interested suppliers who meet the basic qualifications. A public announcement is made outlining the project requirements and specifications. Suppliers then submit bids detailing their proposed price, terms and qualifications. The contract is awarded to the supplier offering the most competitive bid that meets all the requirements.<\/p>\n<\/li>\n<li>\n<p><strong>Restricted Tendering:<\/strong> Similar to open tendering, this goods procurement method involves a bidding process. However, instead of being open to all, invitations to bid are sent only to a pre-selected list of qualified suppliers. This approach can be used when specific expertise or experience is required for the project.<\/p>\n<\/li>\n<li>\n<p><strong>Request for Proposal (RFP): <\/strong>An RFP is a formal document outlining the project scope, requirements and evaluation criteria. Companies seeking complex goods or services issue RFPs to qualified vendors. The RFP allows for a more in-depth <a href=\"https:\/\/fractory.com\/how-to-choose-manufacturing-sub-contractor\/\">evaluation of a supplier&#8217;s capabilities<\/a>, beyond just price, such as their technical expertise, project experience and past performance.<\/p>\n<\/li>\n<li>\n<p><strong>Two-Stage Tendering: <\/strong>This goods procurement method is a variation of open tendering with an added qualification stage. In the first stage, potential vendors submit basic information about their qualifications and experience. Based on this information, a shortlist of qualified suppliers is created. Only shortlisted suppliers are then invited to submit formal bids in the second stage.<\/p>\n<\/li>\n<li>\n<p><strong>Request for Quotation (RFQ):<\/strong> An RFQ is a simpler method used to obtain price quotes from a small number of pre-selected suppliers for well-defined goods or services. Unlike an RFP, an RFQ focuses primarily on price and may not involve a detailed evaluation of supplier capabilities.<\/p>\n<\/li>\n<li>\n<p><strong>Single Source Procurement:<\/strong> This method involves purchasing goods or services from a single pre-selected supplier without a competitive bidding process. This approach may be justified in specific situations, such as when a supplier has unique expertise or holds a patent on a required technology. However, it&#8217;s important to have a strong justification for using single-source procurement due to the lack of competition.<\/p>\n<\/li>\n<\/ol>\n<div style=\"overflow-x: auto;\"><table class=\"table-compact\" style=\"border-collapse: collapse; width: 100%; height: 920px;\">\n<thead>\n<tr style=\"height: 24px;\">\n<td style=\"width: 14.2857%; height: 24px;\">\u00a0<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Open Tendering<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Restricted Tendering<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Request for Proposal (RFP)<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Two-Stage Tendering<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Request for Quotation (RFQ)<\/td>\n<td style=\"width: 14.2857%; height: 24px;\">Single Source Procurement<\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr style=\"height: 104px;\">\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><b>Supplier Selection<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Open to all qualified<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Pre-selected list<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Based on the proposal evaluation<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Two-stage qualification<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Pre-selected list<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Pre-determined single supplier<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 80px;\">\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><b>Competition Level<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">High<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate\/low<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Low<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">None<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 56px;\">\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><b>Transparency<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">High<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Low<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">None<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 80px;\">\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><b>Cost Efficiency<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Potentially most cost-effective<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Can be cost-effective<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Potentially cost-effective<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Not typically<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 80px;\">\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><b>Complexity of Goods\/Services<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Standardised<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Complex\/customised<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Highly specialised<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Standardised<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Well-defined<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Proprietary\/unique<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 80px;\">\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><b>Complexity of Process<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Simpler process<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate complexity<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">More complex<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Moderate complexity<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Simpler process<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">No bidding process<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 80px;\">\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><b>Evaluation Criteria<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Primarily price<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Price &amp; qualifications<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Expertise, solution &amp; price<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Qualifications, then price<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Primarily price<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 80px;\">\n<p><span style=\"font-weight: 400;\">Negotiation-based<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 56px;\">\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><b>Timeframe<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Long<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Long<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Moderate<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Faster than RFP<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 56px;\">\n<p><span style=\"font-weight: 400;\">Fastest<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 104px;\">\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><b>Suitability<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Simple projects,\u00a0 standardised goods<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Complex projects, customised goods<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Unique or specialised projects\/services<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Complex projects with qualification needs (shortlist)<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">Well-defined needs (goods\/services)<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 104px;\">\n<p><span style=\"font-weight: 400;\">No alternatives, unique or proprietary items<\/span><\/p>\n<\/td>\n<\/tr>\n<tr style=\"height: 176px;\">\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><b>Remarks<\/b><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Offers the most competition but can be time-consuming due to the large number of bids<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Provides a balance between competition and expertise selection<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Ideal for complex projects where expertise is crucial<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Good for open competition with an added layer of qualification screening<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Efficient for obtaining quick price quotes on well-defined needs from a few suppliers<\/span><\/p>\n<\/td>\n<td style=\"width: 14.2857%; height: 176px;\">\n<p><span style=\"font-weight: 400;\">Limited use cases and requires strong justification due to lack of competition<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<p data-pm-slice=\"1 3 []\">[ Figure 2: Procurement Methods Comparison Table]<\/p>\n<p data-pm-slice=\"1 3 []\">The procurement methods represent different approaches to acquiring goods and services:<\/p>\n<ul>\n<li>\n<p><strong>Distinct characteristics:<\/strong> Each method has a unique process, level of competition and focus area (price vs expertise).<\/p>\n<\/li>\n<li>\n<p><strong>Independent application: <\/strong>Each method can be used independently based on project needs. For instance, a project might utilise an Open Tender for standard materials and an RFP for a specialised service.<\/p>\n<\/li>\n<\/ul>\n<p>There are, however, some similarities between certain methods:<\/p>\n<ul>\n<li>\n<p><strong>Open Tendering and Restricted Tendering:<\/strong> These methods are similar in structure (bidding process) but differ in the pool of invited suppliers, and hence, level of competition. Open tendering is open to all qualified suppliers, while restricted tendering invites only pre-selected suppliers.<\/p>\n<\/li>\n<li>\n<p><strong>Two-Stage Tendering: <\/strong>This method combines the elements of Open Tendering and Restricted Tendering. In the first stage, similar to Restricted Tendering, prospective suppliers are pre-qualified based on their capabilities. Then, only shortlisted candidates participate in a competitive tendering process (like Open Tendering) for the final selection. This ensures receiving bids from qualified suppliers while maintaining a competitive element.<\/p>\n<\/li>\n<li>\n<p><strong>Request for Proposal (RFP) and Request for Quotation (RFQ): <\/strong>Both involve soliciting information from suppliers, but RFPs go beyond price to evaluate supplier capabilities, while RFQs are simpler, primarily focusing on quotes for well-defined goods or services.<\/p>\n<\/li>\n<li>\n<p><strong>Single Source Procurement: <\/strong>This method stands alone as it bypasses competition entirely, relying on a single pre-selected supplier.<\/p>\n<\/li>\n<\/ul>\n<p>Choosing the most suitable procurement method depends on several factors:<\/p>\n<ul>\n<li>\n<p>Project complexity and requirements<\/p>\n<\/li>\n<li>\n<p>Budget and timeline constraints<\/p>\n<\/li>\n<li>\n<p>Level of competition and desired supplier expertise<\/p>\n<\/li>\n<li>\n<p>Risk tolerance and project criticality<\/p>\n<\/li>\n<\/ul>\n<p>By carefully considering these factors, procurement teams can select the method that offers the best balance of <a href=\"https:\/\/fractory.com\/project-management-triangle-cost\/\">cost efficiency, timeliness and quality<\/a> for their specific project needs.<\/p>\n<h2>Procurement Process<\/h2>\n<p>A well-established procurement process ensures that the goods and services needed by a company to operate are obtained at the right price, quality and time to meet project needs. Here is a breakdown of the stages of a rather typical procurement process:<\/p>\n<ol>\n<li>\n<p><strong>Needs Identification: <\/strong>This stage initiates the process by identifying the specific goods or services required for a project. This involves understanding project requirements, specifications and quantities.<\/p>\n<\/li>\n<li>\n<p><strong>Requisition &amp; Approval: <\/strong>A formal purchase request is created, detailing the required goods or services, estimated cost and justification for purchase. This requisition is submitted for approval by authorised personnel.<\/p>\n<\/li>\n<li>\n<p><strong>Supplier Sourcing &amp; Selection:<\/strong> Once needs are identified and procurement requisition is approved, the process of assessing potential suppliers is commenced. The prospective suppliers are researched, evaluated and qualified based on factors like quality, price, reliability and past performance.<\/p>\n<\/li>\n<li>\n<p><strong>Tendering Process &amp; Quotation Evaluation: <\/strong>Proposals are requested for comparison and evaluation using the suitable procurement method. Multiple suppliers submit quotes outlining their proposed technical specifications, price, terms and delivery schedule. The quotes are then evaluated to identify the most advantageous option.<\/p>\n<\/li>\n<li>\n<p><strong>Negotiation &amp; Contract Formation:<\/strong> After evaluation, negotiations with the chosen supplier(s) take place to finalise pricing, terms and delivery conditions. A formal contract is then established by the procurement department with the involvement of applicable stakeholders, like Legal Counsel, Accounts Payable as well as Health, Safety and Environment (HSE) and others as needed, outlining the agreed-upon terms.<\/p>\n<\/li>\n<li>\n<p><strong>Order Placement &amp; Order Management: <\/strong>Once the contract is signed, a purchase order is issued to the supplier, formally placing the order. Order management involves monitoring order status and ensuring delivery according to the contract.<\/p>\n<\/li>\n<li>\n<p><strong>Goods\/Services Receipt &amp; Inspection: <\/strong>Upon delivery, the received goods or services are inspected to ensure they meet the contract specifications and quality standards.<\/p>\n<\/li>\n<li>\n<p><strong>Invoice Processing &amp; Payment: <\/strong>Once goods or services are received, inspected and approved, the supplier&#8217;s invoice is reviewed by accounts payable for accuracy and processed for payment according to the agreed-upon terms. However, some agreements may require pre-payment, partial payment upfront, or other tailored payment conditions depending on the specifics of the transaction.<\/p>\n<\/li>\n<li>\n<p><strong>Project Completion: <\/strong>Once payment is completed, the project is officially closed out and a Final Acceptance Certificate is issued to the supplier.<\/p>\n<\/li>\n<li>\n<p><strong>Record-keeping &amp; Performance Management: <\/strong>Throughout the procurement cycle, all relevant documents and records are maintained for future reference and performance evaluation of various aspects, including supplier performance.<\/p>\n<\/li>\n<\/ol>\n<h2 data-pm-slice=\"1 1 []\">To Sum It Up<\/h2>\n<p>Understanding the procurement cycle empowers various stakeholders, including engineers, to actively contribute to project success. By strategically acquiring resources through a well-defined procurement process, organisations can gain a significant edge.<\/p>\n<p>Effective procurement process practices not only optimise costs, ensure quality and <a href=\"https:\/\/fractory.com\/risk-management-in-epc-projects\/\">manage risks<\/a>, but also foster strong vendor relationships that can be leveraged for future projects. This collaborative approach throughout the supply chain ultimately paves the way for efficient project execution, improved time-to-market and a higher chance of achieving a successful outcome.<\/p>\n<p>As the business landscape continues to evolve, procurement will play an increasingly critical role in ensuring organisational agility and responsiveness to changing market demands. By continuously <a href=\"https:\/\/fractory.com\/procurement-transformation\/\">refining strategies and embracing innovative procurement technologies<\/a>, organisations can further optimise their resource acquisition processes and gain a lasting competitive advantage.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Have you ever wondered how that complex bridge gets built or that sleek new gadget gets manufactured? It all starts with procurement. The success of any engineering project relies on [&hellip;]<\/p>\n","protected":false},"author":29,"featured_media":23548,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6536],"tags":[],"yst_prominent_words":[130,789,880,1725],"class_list":["post-23545","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"acf":[],"_links":{"self":[{"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/posts\/23545","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/users\/29"}],"replies":[{"embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/comments?post=23545"}],"version-history":[{"count":10,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/posts\/23545\/revisions"}],"predecessor-version":[{"id":24259,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/posts\/23545\/revisions\/24259"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/media\/23548"}],"wp:attachment":[{"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/media?parent=23545"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/categories?post=23545"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/tags?post=23545"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/fractory.com\/wp-json\/wp\/v2\/yst_prominent_words?post=23545"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}