Procurement

Looking at its meaning in a dictionary, procurement means finding by searching, or providing. When its meaning is considered, it can be thought of as a department in an organization. This department is responsible for the purchasing of materials in line with the production flow. Meeting the need for materials is thought as part of the purchasing function. The pro-curement department is responsible for purchasing the kind and amount requested of the items in the material request lists that are prepared by the production control, engineering, and other departments which are autho-rized to request materials. The procurement unit is usually within the pur-chasing department in a business organization.

Although the procurement department seems to perform only purchas-ing and outsourcpurchas-ing, unlike a simple purchaspurchas-ing transaction, its person-nel should have a good command of information such as technical details about the material to be purchased, production costs, and quality of ma-terials. Instead of procuring only the materials requested, if they compre-hend the specifications of the materials in their full sense by holding good

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dialogues with the concerned units and suppliers, this will help them better evaluate the available alternatives before the actual purchasing stage and thus fulfill their procurement and supply functions thoroughly as shown in Figure 8.1.

The main duties of procurement can be divided into the following groups (Şen, 1992):

1. Standardizing the specifications of required materials as much as possible and checking the material that best fits the intended pur-pose before purchasing

Figure 8.1. Procurement and Supply

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2. Selecting the most appropriate supply sources and setting out pur-chasing conditions, including delivery, and presenting purpur-chasing orders to the concerned departments

3. Monitoring whether the delivery is made as scheduled and the quality and amount are as requested

4. Supervising and directing the signing of a contract between the concerned departments and suppliers for procuring all types of ma-terials related to purchasing

5. By acting as an intelligence and information collecting agent in the market, sourcing continuously new and more effective suppli-ers, and new materials and products in order to reduce costs or to raise the quality of firm products

As shown in Figure 8.2, the requisition prepared for consumables or spare machine parts by the concerned departments, or by marketing if they are not needed by other units, is reviewed by the procurement

de-Figure 8.2. The Procurement and Supply Process

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partment in coordination with the production and planning department.

After sourcing, the supplier is selected and the order is placed through ei-ther a tender process or opening a purchase order depending on the order amount and material. After going through an approval process, the pur-chase order is sent to the supplier. Following the period it takes for the supplier to have the products ready, the process of delivery starts. Payment is made if the product delivered is in fact the product ordered.

Depending on the request received, the process of accepting the de-livery of materials to be obtained from suppliers, checking them, and ac-counting for them takes place. Material movement and information flow is provided throughout the whole process.

Supply chain management is actually management of a flow. It man-ages information, money, and product flows. As one of the most impor-tant points within this chain, the procurement department establishes the firm’s connection with the outer world. The effectiveness of the procure-ment system depends on the information flow from the various functions of the firm and sources external to the procurement department and from the procurement department to the other functions of the firm.

This information flow has become more accurate and speedy today with the widespread use of computers and installation of computer networks in companies. A procurement system supported by an enterprise resource planning (ERP) system increases the quality of customer services, mini-mizes information loss, and provides good integration.

When procuring materials, the procurement department follows some principles (Şen, 1992):

1. The goal should be to minimize the time between the procurement of materials and turning the materials into products, releasing them into the market, and selling them (turning them into sales income).

This is possible only by placing the materials on the production line for processing without keeping them waiting in stocks.

2. As in all other production factors, materials must also be used eco-nomically. To achieve this, materials should be made ready for pro-duction in a certain order of flow, in satisfactory quality and quan-tity, at the right time and place, they should be used and consumed in production without delay, and they should be utilized in an op-timum manner.

3. The goal is production without stocking; that is, placing the cured materials directly in the change/conversion process in

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duction and starting to process them in an uninterrupted order of flow without going to stocks.

There are two major problems with the efficient use of materials: The problem of time and the problem of obtaining the optimum benefit from the materials.

The problem of time in the efficient use of materials arises from stock-ing, that is, having on hand, and interruptions during production. The in-terruptions (halt/delay/idleness) in the material flow mean that the cap-ital tied to material is delayed to return to the business as sales income because the sale of the end-product to be manufactured with this material will have been delayed as well. Therefore, it is essential that the time be-tween the procurement and the return of the product sales income to the business is kept as short as possible. Any time lost in material movement will increase the costs because it also ties the capital tied to material. The need to keep these types of costs at a minimum and the need to keep the business ready for production must be balanced. Appropriate solutions may involve optimizing the order amounts and order times (Metz, 1998).