What is a procurement system, and what methods can be used to assess procurement systems?
Procurement involves finding, acquiring, or buying goods, services, or works. The procurement process seeks to ensure the buyer receives the best possible price, comparing competitor’s quality, quantity, time, and location. Multinational and other large organizations often use a shared procurement system to lower purchasing costs. Procurement systems often refer to software used to manage organizational spending. Typically, larger organizations have used procurement software, but software companies are beginning to cater products to smaller businesses that see the benefits of standardization.
The benefits of procurement systems for organizations include ease of administration, long-term cost savings, easier monitoring of spending, and greater control of organization-wide spending. Procurement software systems usually address requisitions by creating purchase orders, following up with vendors, receiving goods or services with an inventory of goods, and creating transactions as goods are received as a means of financial settlement.
In a procurement system assessment, an assessor reviews and evaluates an organization’s system to diagnose strengths and weaknesses to improve procurement procedures. Three major procurement system assessment methodologies are OECD’s Methodology for Assessment of National Procurement Systems, World Bank’s Assessment of Agency’s Capacity to Procure Health Sector Goods, and Global Fund’s Procurement and Supply Management (PSM) Assessment Tool. An assessment team would identify stakeholders to interview, review the chosen assessment methodology, and develop performance indicators.
A procurement system is meant to facilitate more efficient buy/sale strategies by "processing purchase orders, purchase requisitions, goods received and invoicing." This is usually achieved by the storing of supplier information, which includes relevant contracts and catalogs. Other business practices like invoicing and payment, buying and tendering, and so on, are also stored by procurement systems, the goal of which is to promote cost effective strategies through the use of automation. To assess a procurement system, business managers may analyze the spending tendencies of employees. For example, if an employee uses company money on a personal dinner, this would fall under the category of extraneous expenditures. Another way to assess the system would be to analyze the written rules that pertain to procurement procedures. Still another, would be to compare spending decisions to the overall procurement strategy. If there is no recognizable strategy in place, money may be wasted as a result of a lack of focus.
Procurement system refers to the collection of procedures and methods used in an organization for purchase of goods and services required by it. It includes activities such as ascertaining the specifications and quantities of items to be procured, authorization for procurement, identification and selection of sources of supply or vendors, finalization of terms of procurement with the vendors, placement of purchase orders, follow up for supply of items ordered, inspection and approval of goods and services received against orders placed, and approval of payment for the same.
The method for assessing procurement system will consist of:
- Identifying and defining the objectives of procurement, the inputs used for meeting these objectives, and developing parameters of measurement of efficiency and effectiveness in terms of these objectives and input resources.
- Installing a system for collecting data on actual results obtained and resources used, analysing the data to determine the levels of performance in terms of the defined parameters of measurement.
- Making the analysed information available to the concerned persons by way of periodical reports, as well as special reports and on-line information, made available on demand.