Procurement from A to Z: the complete guide.

Procurement vs. purchasing: where's the difference?

Purchasing stands for the operational and contract-closing activities: finding markets and suppliers, negotiating, ordering, administering. Procurement is the larger frame: it ensures the required goods arrive in the company as needed, and includes procurement logistics. The old, purely administrative purchasing is limited to the ordering activity. Modern purchasing shapes: it optimises the price-performance ratio instead of just the price.

How does the order process run?

Every company orders differently, but always on the basis of the same reference process. Depending on the value and criticality of the goods, steps are skipped or refined:

Goods receipt: central or decentralised?

The goal in goods receipt is short throughput times, short information paths and low total costs. Central goods receipt bundles inspection and putaway in one place and remains the right choice for most retailers. Decentralised concepts, where goods are delivered directly to production, come from production-synchronous procurement (just in time, kanban) and only pay off when suppliers hit quantities and dates to the day.

Which sourcing concept fits?

Single sourcing bundles an article with one supplier: best terms, full failure risk. Dual and multiple sourcing spread the risk across several sources, at the price of more effort. Global sourcing opens up international procurement markets and brings customs, transport times and currency risks. In modular sourcing, ready-to-install assemblies are procured instead of raw materials, sometimes including planning and quality assurance by the supplier. The choice is a risk decision per article group, not a matter of principle. How to identify critical articles is shown by the article on supply security.

How does supplier management work?

The best order process is worthless if the wrong suppliers were selected beforehand. Selection works like a funnel: from publicly available information and questionnaires through scoring to on-site audits for strategically important articles. After that the real work begins: continuously evaluating suppliers on hard data (on-time delivery, quantity accuracy, quality) and taking the results into the supplier conversation. It's not about dwelling on the past, but about shaping the future together.

Where do you start with digitalisation?

In phases, not all at once: first master data and processes have to be right, otherwise you automate errors. Then come automated order proposals for the routine articles, as computed nightly by inventory optimisation. Lastly the electronic exchange with suppliers. What that concretely means for your purchasing is in the article on Purchasing 4.0.

The order is no accident: first the process, then sourcing, then suppliers, lastly automation. Anyone who reverses it and introduces software first digitalises a process they haven't understood.