Procurement

DEFINITION of 'Procurement'

Procurement is the act of purchasing or otherwise taking possession of something, especially for business purposes.

BREAKING DOWN 'Procurement'

Procurement is essentially the acquisition of products and services. Both individuals and corporations have certain items which they must acquire; procurement is the name for the process by which they do so and that takes into account budgeting, supply chain and payment, among other factors. 

Procurement decisions involve many additional factors, including shipping and delivery, the marginal benefit of the good compared to the cost of procuring it, and the fluctuating prices of many goods and services. With good information, a consumer can analyze the costs and benefits of their acquisition and make the best decision. The expected benefits of procurement vary widely depending on the purchase; the value a household will reserve from a package of dish soap is very predictable compared to most large-scale investments. For a wholesaler, procuring products for retail entails the risk that the market value will drop before they can be sold.

Major corporate procurements can be a complex and lengthy process. Most companies employ a Chief Procurement Officer, or CPO, to handle major acquisitions for the company. Typically in business, procurement involves identifying company needs, identifying and evaluating potential suppliers and negotiating with them over price and quantity to find the best fit for the company.

These procurements can be categorized as direct or indirect. Direct procurements are a part of the product that the company sells – a processor needed to assemble a printer, for example.  Indirect procurements – like office supplies – help the company function internally. Procurement is a term commonly used in the energy industry as many retailers must procure gas, electricity and/or other energy sources through trading activities, such as buying futures contracts.  

Procurement is also the term used for purchasing goods and services on behalf of the government.  Government procurement accounts for more than 10% of the global GDP, though the proportion varies from country.  Most countries have strong government procurement laws to protect against fraud or local protectionism.

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