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Acquisition and Procurement

Updated Jan 30, 2024 ·

Overview​

Acquisition and procurement is a structured process that involves the processes of identifying, acquiring, and managing the goods and services an organization needs to operate efficiently and effectively.

Process​

  • Vendor Selection

    • Evaluates potential suppliers for quality, reliability, and cost-effectiveness.
    • Conducts competitive bidding and negotiations.

  • Contract Management

    • Drafts and manages contracts with suppliers.
    • Ensures compliance with terms and conditions.

  • Purchase Orders

    • Issues formal requests for goods and services.
    • Tracks and manages order fulfillment.

  • Inventory Management

    • Monitors stock levels to avoid shortages or overstocking.
    • Utilizes just-in-time (JIT) inventory systems.

  • Cost Control

    • Manages budgets and seeks cost-saving opportunities.
    • Analyzes total cost of ownership (TCO).

  • Compliance and Risk Management

    • Ensures adherence to regulatory and legal requirements.
    • Identifies and mitigates procurement-related risks.

Difference between the two​

  • Acquisition is the process of obtaining goods and services
  • Procurement refers to the entire process of acquiring goods and services, including all the processes that lead up to the actual acquisition.

Purchase Options​

  • Company Credit Card

    • Provides flexibility for immediate purchases within set limits.
    • Generally good for low cost items that must be purchased very quickly.
    • Facilitates tracking and reconciliation of expenses.
    • Often includes rewards programs and benefits.

  • Individual Purchase

    • Allows employees to purchase items independently.
    • May require reimbursement procedures.
    • Provides control over small, infrequent purchases.
    • Usually done when an employee is asked to travel on behalf of the company.
    • Useful for spontaneous or urgent needs.

  • Use of Purchase Orders

    • Formalizes the request for goods or services from suppliers.
    • Helps in managing and tracking larger, planned purchases.
    • Provides a legal document to ensure terms and conditions are met.
    • Assists in budgeting and financial planning by providing documentation.
    • Company's financial department sends the PO as form of "promise to pay" to the vendor.
    • PO also indicates the terms, e.g. 15 days, 30 days, or 60 days to pay the vendor.

Approval Process​

Before any purchase can be made, an organization may have an internal approval process in place to ensure that the purchase aligns with the company's goals and needs.

  • Define Spending Limits

    • Establishes thresholds for different levels of authority.
    • Ensures purchases are made within budget constraints.

  • Departmental Approval

    • Requires approval from relevant department heads or managers.
    • Aligns purchases with departmental objectives and needs.

  • Budget Review

    • Ensures purchases are within the allocated budget.
    • Prevents financial overrun and maintains financial discipline.

  • Documentation

    • Involves submission of purchase requisition forms.
    • Provides documentation for audit and compliance purposes.

  • Approval Hierarchies

    • Establishes a clear chain of command for approvals.
    • Ensures that purchases are reviewed and approved by appropriate personnel.

  • Compliance Check

    • Verifies that the purchase complies with company policies and legal regulations.
    • Ensures ethical and lawful procurement practices.

  • Vendor Evaluation

    • Assesses potential vendors for reliability and cost-effectiveness.
    • Ensures that the selected vendor meets company standards.