3.2 The Role of Procurement

What is "procurement"?

Procurement is the act of obtaining or purchasing goods or services, typically for business purposes.

A business should consider price, quality, and reliability when choosing a supplier.

Price

How much is the business willing to pay for supplies? A business must decide whether it wants to manufacture…

A lower-quality product which is cheaper for customers to buy, or
A higher-quality product, but is expensive

If it chooses lower-priced material…

Lower-quality products, or slower delivery times
Quality of final product / service is reduced
Potentially higher sales, but at a lower selling price

If it chooses higher-priced material…

Higher-quality products, or faster delivery times
Quality of final product / service is improved
Potentially lower sales, but at a higher selling price

Quality

Quality should be consistent. Inconsistent raw material quality will cause manufacturing problems, slowing down or halting production.

Customers expect the next product they buy from you to be the same as the last. They won't be happy if they're different.

Example: imagine a business which makes teddy bears. If the stuffing thickness varies, it may get stuck in the filling machine; some bears may split; others may require additional stuffing. Each of these scenarios will require production to be slowed so adjustments can be made.

Reliability

A supplier must be reliable. They must deliver the correct materials, to the correct quality and specification, at the correct time.

If they are unable to achieve this, production may be stopped until the materials arrive. This will prevent the manufacturer from selling their final product, and they will lose income.