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Procurement methods for purchasing goods and services include direct purchase, negotiation, and competitive bidding. The right method depends on the items needed. Direct purchase involves submitting a purchase order, negotiation works best for large purchases, and competitive bidding is used in specific industries.
Procurement methods are the process a business goes through to purchase goods and services. Three common types of procurement methods are common: direct purchase or acquisition, negotiations, and competitive bidding. Businesses will often use an office as a procurement point, and employees working in this office will use one of the methods to procure goods, services, or jobs under direction from management. Choosing the right sourcing method depends on the items you need.
Under the direct purchase or procurement method, businesses typically submit a purchase order to request items from a vendor. Many businesses shop from sellers on a frequent basis; to control costs, purchase orders with proper authorization make it possible. An employee will write a purchase order listing the supplier, quantity of items, description, price, and other pertinent information. A manager usually approves or disapproves the order and sends it back to the employee. Direct capture capture methods can have multiple variations depending on your business needs and operating environment, and are one of the most common capture methods used.
Negotiation as an acquisition method works best for large purchases, such as equipment, land or buildings. Companies will require negotiation within the process in order to reduce the cost of the assets as much as possible. Procurement methods that require negotiation often require different skills than purchasing. The Purchasing Director needs the ability to speak openly with other parties, make direct requests when seeking specific action on deals, and know how and when to drop deals. While these skills may seem easy to find in one employee, companies can go through several employees before finding the right person.
Acquisition methods can also fall under the category of competitive bidding. This process is usually particular to specific industries, such as construction, military contracts, or other large deals involving two or more companies. Competitive bidding can be silent or open.
Under a silent bidding process, companies will select a written bid. The vendor will open all offers themselves and select the one they think is best for their job. The open bidding allows for further discussions between the two companies. After submitting a bid, each company can come together and discuss the process. In reality, this turns into a hybrid of competitive procurement and negotiation methods, where each will seek the concession for the deal.
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