Everything You've Ever Wanted to Know About the Procurement Industry

VISHWAJEET

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23 March, 2022

This spring equinox, March 21, 2022, marked the first-ever World Sustainable Procurement Day on this planet. The day was observed by the Sustainable Procurement Pledge (SPP), a non-profit organisation driving awareness and knowledge on responsible procurement practices. As the global supply chain stands rattled firstly by the Covid pandemic and now by the Russia-Ukraine war, procurement has come to the centre of the debates around the world. Procurements are at the driving seats of our economies because corporations, public bodies, governments, organisations, businesses, all of them, procure! Consequently, contracts are required for a seamless procurement delivery. Over the years, Procurement and Contract Management (PCM) has evolved as a discipline that standardised the entire procurement process. In its current form, it's much more than just the procurement & the contracts, as many of you might think! Today, as PCM opens its gates to numerous career opportunities, we delve into the essential know-how of the field.

What is Procurement and Contract Management?

Before going into the details of the entire PCM process, let’s simplify and understand the key terms individually:
Procurement: In general terms, Procurement is the process of acquiring the required goods and services for your organization. Organizations are usually categorized as Public and Private depending on their nature and end-users.

Contract: A contract ensures a legal and fair transmission of goods and services from a supplier to the contractor. It documents the price list, delivery conditions, and other terms about liability and breaches.

PCM/PM: PCM is alternatively known as just Procurement Management (PM) because contracts essentially constitute one of the processes under procurement management. Eight major PCM processes include planning, supplier selection, negotiation and contracting, order placement, order expedition, purchase inspection, invoice clearing, and record maintenance.

As both Procurement and Supply Chain Management involve the acquisition of goods and services for businesses, one might think that both mean the same. But conceptually, that's not the case. The procurement process ends when an organization successfully takes in the supplies it had asked from the vendors. But the responsibility to utilize these inputs for the making of the end product lies with the supply chain management process. Thus, it becomes clear that SCM is much broader in its scope and ambit when compared to PCM. However, this fact doesn't bring down the operational utility of PCM. Reasons? Check below.

Why is PCM so integral to Businesses?

It goes without saying that Procurement is the backbone of business operations. Without Procurement, their funds, functions, and functionaries would be virtually useless. Similarly, Contracts are essential as they serve to be the legal records of commitment between both parties. Hence the question needs to be restructured as - Why is Effective PCM so integral to businesses?

Capped Spendings: Effective PCM can significantly bring down the Maverick spending or rogue spending, which results from not following the defined purchasing policies. This has a direct effect on the profitability of the business.

Increased Efficiency: Swift procurement and smarter contracts contribute to the efficiency of an organization. Six determining factors of its efficiency are - Cost, Time, Quantity, Quality, Specificity, and Source of Procurement.

Are Purchasing and Procurement the same? What’s the difference between Contract and Agreement?

Purchasing vs. Procurement:

The Procurement and Purchasing processes have generally been used synonymously by commoners as both involve buying goods & services. However, there lies a significant difference in their scope and function. In fact, the Purchasing process is a section of activities that falls under the broad spectrum of the Procurement process. It begins with order placement and ends at its fulfillment. Conversely, the Procurement process is a complete set of activities from Planning to Delivery audit and supplier compliance.

Contract vs. Agreement:

The most striking difference between an Agreement and a Contract is its enforceability. A contract is legally binding and can be enforced in a court of law. Even though the Agreement is a larger entity among the two, it is primarily an informal arrangement and hence not legally binding in most cases. Thus, all contracts are agreements, but all agreements are not contracts.

Catch a glimpse of a sample contract for the supply of goods here: http://iom.by/data/uploads/2015/07/Supply-contract1.pdf

3P3C: 3 Procurement types, 3 Contract Methods:

3 Procurement types	3 Contract Methods
1. Direct Procurement: Businesses directly make purchases of raw materials, machines, and equipment in Direct Procurement. The procured material goes into the making of the final product. E.g., Items bought by retailers from a wholesaler for reselling.	1. Fixed-Price Contract: Alternatively known as Lump-sum contracts, FPCs are agreements whereby a price is fixed at the start of the procurement and do not depend upon the time or resources utilized by the Contractor. E.g., Website design contract between a designer and company
2. Indirect Procurement: Items bought under Indirect Procurement do not directly result in making up the final product. Instead, they are consumed by the everyday operations of the Organization. E.g., Stationery and furniture supplies to Offices	2. Cost-Plus Contract: In CPC, an additional payment over the cost incurred is provided to account for the profits. Generally, this takes the form of a fixed percentage fee or other incentives. Hence the total amount is not fixed & gets decided at the end of the contract. E.g., Construction of an office building
3.Good & Services Procurement: This classification is simply based on the nature of the items procured. Goods are tangible items, while Services are intangible. E.g., Goods: Automobiles, appliances, consumer goods Services: Insurance, legal support, marketing	3. Time & Materials Contract: T&M contracts are employed when contractors are uncertain about the exact quantum of time and materials required to complete a certain project. Thus the cost is not fixed. However, there's a cap on the maximum payable amount. E.g., An app development contract where frequent updations are required

3 Procurement types

3 Contract Methods

1. Direct Procurement: Businesses directly make purchases of raw materials, machines, and equipment in Direct Procurement. The procured material goes into the making of the final product.

E.g., Items bought by retailers from a wholesaler for reselling.

1. Fixed-Price Contract: Alternatively known as Lump-sum contracts, FPCs are agreements whereby a price is fixed at the start of the procurement and do not depend upon the time or resources utilized by the Contractor.

E.g., Website design contract between a designer and company

2. Indirect Procurement: Items bought under Indirect Procurement do not directly result in making up the final product. Instead, they are consumed by the everyday operations of the Organization.

E.g., Stationery and furniture supplies to Offices

2. Cost-Plus Contract: In CPC, an additional payment over the cost incurred is provided to account for the profits. Generally, this takes the form of a fixed percentage fee or other incentives. Hence the total amount is not fixed & gets decided at the end of the contract.

E.g., Construction of an office building

3.Good & Services Procurement: This classification is simply based on the nature of the items procured. Goods are tangible items, while Services are intangible.

E.g., Goods: Automobiles, appliances, consumer goods
Services: Insurance, legal support, marketing

3. Time & Materials Contract: T&M contracts are employed when contractors are uncertain about the exact quantum of time and materials required to complete a certain project. Thus the cost is not fixed. However, there's a cap on the maximum payable amount.

E.g., An app development contract where frequent updations are required

Preparing for Jobs of the Future: e-Procurement

Digital Revolution has spread its wings to nearly everything. e-Procurement softwares have entered the market to boost supplier performance and avoid invoice delays. This, in addition to the traditional process, has created numerous roles to serve in the procurement industry. Some of the top positions include Procurement Manager, Procurement Specialist, Category Buyer, Purchasing Agent, E-procurement Manager, and others.

Procurement managers of the future need not be dependent on traditional choices to pursue a career in Procurement. Online EdTech platforms like UniAthena have designed various academic and short courses that take care of learners' ultimate requirements. It offers a total of 7 courses, including a Masters Program & two PG Diplomas in association with the Guglielmo Marconi University Italy and Cambridge International Qualifications UK. With respect to PG Certifications, there’s a program to pursue Procurement & Contracts Management by Cambridge International Qualifications UK. Besides, it has Short Certification courses with a Basic, a Mastering, and an Executive Diploma module which has attracted mass registrations. These courses are completely online and are delivered through a series of pre-recorded video lectures. The flexible and stackable programs can be completed in 6 to 32 hours and follow a "Pay as you Go" module. You can enrol in the professional courses here.