Procurement management is an extremely important function in an organization, be it for project purchasing needs or for their regular on-going purchasing needs. Procurement management involves purchasing goods, materials and services from an outside organization. Procurement management involves two entities, a purchaser and a seller. The purchaser or the buyer examines the needs for purchasing various items for the project or other work in the organization. Purchaser then looks for the right sellers or suppliers who are capable to fulfil the purchasing needs.
Hence procurement management turns into a buyer-seller relationship. Since they are two different legal entities, they do not have direct control over each other. During procurement both the buyer and the seller have expectations from each other; they both will have responsibilities and obligations to fulfil. Hence in order to protect the rights of both the buyer as well as the seller, generally a legal contract or agreement is used. The legal agreement will lay down a framework defining the requirements of the buyer, responsibilities of both buyer and seller and the various terms and conditions.
Since two different legal entities come together in case of procurement, and there is a legal contract binding both sides, there is a legal side to this whole process. Hence procurement management needs to be carried out diligently.
Generally a very well defined set of processes are used for procurement management. Below is a life cycle explaining the flow of activities that happens during procurement. It is all explained from the viewpoint of the purchaser or buyer.
All the above activities are carried out through three processes of procurement management as below:
The team may also like to do their own independent cost estimation for the work, so that they will have a clear idea of the expected cost of their purchase which they can use during proposal evaluation.
When the seller completes all the work as per the contract, the buyer evaluates, gives acceptance and also completes all payments to close the contact. Finally an audit may be conducted to understand the lessons learnt during this particular procurement relationship.
Procurement management will involve a lot of administrative work such as looking for capable sellers, floating the bid documents, soliciting responses and proposals, evaluating the proposals etc. Generally a procurement department exists in most of the organization which can assist in carrying out all these activities saving the project managers and other managers effort so that they can focus on their core project work. The procurement department will also take care of drafting and signing of contracts taking necessary legal help.
Procurement management is a very important function. Every project will require some amount of purchasing. In some cases, just purchasing some materials or goods and in some cases outsourcing the entire project work to a third party service provider. Procurement management involves contract management as well. Hence procurement management must be carried out very diligently.
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