Procurement Definition: Operational and Strategic Procurement simply explained

In this article, we will simply explain the definition and meaning of operational and strategic procurement to give you a better understanding of this core component of business processes. We'll focus on the differences between the two approaches and how they can impact your organization's efficiency, profitability, and competitiveness.

Definition of procurement

Procurement (English “procurement”) means the process of Planning, organization, execution and control all activities that are necessary to procure goods and services for a company or organization. The aim of procurement is to obtain the required resources in the right quality, quantity and at the best price to meet the company's needs and maximize added value. Effective procurement contributes significantly to the success of a company and requires close cooperation between various departments and suppliers.

Objective of procurement

• The goal of procurement is to provide the right materials at the right time in the required quantity and quality. This is the case with the materials management not only about minimizing costs, but also about aspects such as supplier reliability and sustainability.
• An effective procurement strategy makes a significant contribution to the company's success. Cost savings can be achieved through optimized processes — whether by negotiating low prices with suppliers or by taking advantage of discount options for payment transactions.
• In addition, a strategic orientation of procurement enables long-term partnerships with selected suppliers build up. This promotes stable relationships and joint development projects in the sense of a win-win situation for both sides.
• Last but not least, modern technologies make an important contribution to this: automation helps to simplify work processes and reduce sources of error; digital solutions support real-time communication across all parties involved (supplier interfaces) — this ultimately leads to more efficient and transparent procurement.

Overall, the objective of procurement is therefore complex. It is about reducing costs, ensuring quality, building supplier relationships and optimizing processes — an indispensable factor for a company's success in a globalized economic environment.

Procurement tasks

1. The scope of procurement includes all activities that are necessary to procure goods and services that are required to fulfill the purpose of the company. This is not only about getting the best possible price, but also about Quality Assurance and legal aspects.
2. One of their main tasks is to select suitable suppliers and negotiate contracts with them. Various factors must be considered here: The reliability of the supplier in terms of punctuality and product quality plays a decisive role. In addition, potential risks associated with the purchasing process should be analysed.
3. Another important focus is on Optimizing logistical processes such as warehousing or transportation cost management. Saving potential can be realized through efficient planning — for example through just-in-time deliveries or minimizing warehouse-related costs.

types of procurement objects

‍

An important type of procurement object is feedstocks. These form the basis for production and influence not only the quality of the manufactured goods, but also their cost structure. When procuring raw materials, it is therefore crucial to conclude long-term supply contracts and carry out regular quality controls.

Auch operating equipment represent significant procurement objects. This includes all machines, devices or tools that are required to carry out the production process. The selection of these objects should be done carefully as they can have a big impact on efficiency and productivity. Long-term partnerships with reliable suppliers are essential here.

In addition, it also includes services about the procurement objects. These include, for example, transport or logistics services as well as IT services or consulting services. When choosing such properties, particular attention should be paid to ensuring that they meet the individual needs of the company and offer added value.

The various types of procurement objects are closely interwoven and influence each other. Effective procurement therefore requires a holistic view of all properties and the creation of a clear connection between operational and strategic procurement. This is the only way a company can achieve its goals and ensure long-term success.

Excursus indirect procurement

At the indirect procurement Is it about the purchase of goods and services that do not go directly into the production process, but are essential for the company. This could be office supplies, IT infrastructure or marketing services, for example. These tasks are often referred to as “overhead” because although they are not directly related to the core business, they are still essential for the smooth running of the company.

In contrast to operational procurement, the focus is on indirect procurement less on short-term fluctuations in demand or supplier negotiations. Instead, the focus here is on the long-term optimization of processes. For example, by concluding contracts with suitable suppliers or bundling joint orders, cost savings can often be achieved.

Individual procurement, inventory procurement and just-in-time procurement

At the Individual procurement goods or services are only ordered when required. This principle offers flexibility and enables companies to react quickly to changes. However, it also involves risks such as longer delivery times or higher costs due to buying in small quantities.

In contrast, the Supply procurement. Here, goods are purchased and stored in advance in large quantities. As a result, low prices can be achieved and the company is less dependent on short-term fluctuations in the market. However, there is a risk of storage costs or inventory aging.

Another important principle is Just-in-time procurement (JIT). Purchasing is carried out as promptly as possible before actual demand in order to minimize inventory and capital costs. However, this method requires precise planning and close cooperation with suppliers, as there are no buffer stocks.

In addition to these three main principles, there are purchasers other procurement options, such as outsourcing or consignment storage. Each principle has advantages and disadvantages that need to be considered.

Operational Procurement vs. Strategic Procurement simply explained

When it comes to procurement, many companies are faced with an important decision: Should the procurement strategy be more operational or strategic? Both approaches have their advantages and disadvantages and should be considered carefully.

Operational procurement

Operational procurement is an essential part of a company's overall procurement strategy. It comprises the concrete implementation and execution of purchasing activities, from needs analysis to supplier ordering.

A central aspect of this is ensuring a smooth supply of the required goods or services at the right time, in appropriate quality and at competitive prices. It is important to maintain efficient procurement logistics and clear communication channels between companies and suppliers.

In order to be able to guarantee this, it is necessary well-thought-out processes, for example when selecting suppliers, or even negotiating conditions and scope of services. Close cooperation with other departments within the company — such as controlling or production — also often plays a decisive role as part of these operational activities.

Through targeted monitoring, existing business relationships are analyzed and potential risks are identified at an early stage. This not only makes it possible to identify cost optimization potential but also to establish and expand long-term partnerships.

Overall, operational procurement therefore forms a An indispensable component for an efficient procurement process and makes a significant contribution to a company's competitiveness.

Strategic sourcing

Strategic procurement is an important aspect of corporate procurement. It plays a decisive role in the long-term planning and orientation of a company on the market. In contrast to operational procurement, which deals with short-term purchasing activities to meet the company's daily needs, strategic procurement is about long-term decisions and measures.

A central factor in strategic procurement is the selection of suitable suppliers. Not only is it ensured that prices are competitive, but other criteria such as quality, reliability and sustainability are also taken into account. By developing long-term relationships with selected suppliers, the company can strengthen its position on the market and benefit from synergies.

It also includes the Minimize risks on the goals of strategic procurement. By carefully analyzing the market, potential risks can be identified at an early stage. Alternative sources of supply can be identified or contracts can be negotiated with specific clauses to cushion potential negative influences on the company.

The strategic procurement strategy should be closely linked to the company's overall business goals. Effective collaboration between different departments such as purchasing, production and sales is therefore essential. This is the only way to meet the company's needs and ensure sustainable competitiveness.

Excursus: e-procurement

e-procurement stands for electronic procurement or the use of internet-based technologies to support the entire procurement process. It covers all activities from ordering to payment processing — everything is done online.

• This form of procurement offers numerous advantages over traditional methods. On the one hand, it enables significant cost savings through automation of various processes and better negotiation conditions with suppliers due to greater transparency in market activity.
• On the other hand, e-procurement makes a significant contribution to more efficient cooperation between all stakeholders involved — whether internally within a company or externally with suppliers — as information can be exchanged in real time.

In addition, modern Procurement platforms including sustainability, for example by avoiding paper-based documents.

An overview of the procurement process

In principle, the Procurement process be roughly divided into six steps: needs analysis, research of potential suppliers, submit requests for offers (and compare), conduct negotiations, place an order with the selected provider/seller, and goods acceptance or performance control.

1. The first phase starts with a careful analysis of the actual need for products or services. At the Needs assessment It is about determining what quantity is required and when it must be available.
2. This is followed by Search for suitable suppliers on the market. Various sources, such as trade fairs or the Internet, can be used to identify potential partners.
3. The next step is concrete Requests for quotations with these potential partners/suppliers. The incoming offers should be thoroughly checked and compared with each other — both in terms of quality and pricing.
4. Once suitable providers have been identified, another important stage takes place: Negotiations between buyers/buyers and sellers. This involves negotiating optimal conditions for both sides.
5. Following a successful agreement, the Placing an order to the provider with the best offer (or even several suppliers).
6. After all, the last step of the procurement process is Check or check the quality and quantity of the goods delivered or services provided in accordance with the original order.

Procurement strategy overview

When it comes to procurement, an effective and well-thought-out strategy is of great importance. Obtaining the necessary resources for a company can have a significant impact on its success. It is therefore worthwhile to take a closer look at the various aspects of a good procurement strategy.

There are different types of procurement strategies: Make-or-buy decisions (self-production versus external procurement), single sourcing (concentration on a few suppliers), multiple sourcing and more. Each method has its pros and cons; therefore, it should be well analysed before choosing one!

A well-thought-out procurement strategy can help your company cut costs while ensuring the quality of your products or services. It is therefore essential to keep an eye on these aspects and to work continuously to adapt your strategies in order to ensure long-term success in the long term.

Conclusion

Procurement is an essential part of every company's success, as it provides the products and services that help achieve the goals set. If you internalize how to differentiate between operational and strategic procurement and what benefits it can have for your company, you should now be able to approach the process correctly.

We are happy to answer any questions you may have about exciting e-procurement.