Procurement and Supply Principles
Defining the terms
Procurement is the whole process of acquiring goods, works and services, from identifying a need through to contract end and disposal. Purchasing is narrower: the transactional act of buying. Supply chain management goes wider still, covering flows across multiple tiers of suppliers and through to the customer. Questions frequently test this ladder of definitions, so be precise about which term is being used.
Core principles
- Value for money - the best combination of whole-life cost and quality to meet the need. It is not the lowest price.
- The five rights - right quality, quantity, time, place and price (some texts add right supplier or source).
- Fairness, transparency and competition, particularly in public procurement where equal treatment is a legal duty.
- Ethics and integrity - conflicts of interest, gifts and hospitality, bribery, modern slavery and fair treatment of suppliers, as set out in the CIPS Code of Conduct.
- Sustainability - environmental, social and economic impact considered across the whole life cycle.
Traps
The most common trap is equating value for money with cheapest. Lowest purchase price ignores total cost of ownership: running costs, maintenance, spares, training, disposal and the cost of poor quality. Other traps include 'procurement is just buying', and 'more suppliers always means more competition and less risk' - both are false; too many suppliers dilute leverage and increase administration.
Rule of thumb
Use profit leverage to express procurement's contribution in business language. A saving on bought-in spend falls straight to the bottom line, so it is worth far more than an equal-sized sales increase. Equivalent sales needed = saving ÷ net margin. If spend is £4m and you save 5% (£200k), at a 4% net margin you would need £5m of extra sales to earn the same.