What is Procurement and Procurement Method?
Procurement, as we know it, is the overall process of acquisition of needed goods or services for it to operate. Basically, it is what makes the business move. Without it, the business will not grow as it can never operate without the needed materials.
The procurement method is used by the procurement team of a company to streamline the acquisition of goods. The names of each method may vary depending on the company but its process remains the same.
The type of procurement method you will use is dependent on the conditions of your procurement. Additionally, procurement methods should be carefully utilized about the type of goods or services that you will acquire.
All procurement methods that you may use follow a strict legal framework to make sure that all standards are met in the selection process.
6 Typesof Procurement Method
There are six types of procurement methods used by a procurement team or department of an organization. Below is the list of the 6 types of procurement methods:
1. Open Tendering
Open tendering is also called competitive bidding. It allows companies to bid on goods in an open solicitation or open competition. Open tendering entails the company the following:
- Locally advertise
- Be unbiased and consistent with technical specifications
- Be objective with the evaluation measures
- Open to all qualified bidders
- Be granted to the least-cost provider
The open tendering method encourages an effective competition to acquire goods that emphasize value for money.
Nonetheless, many procurement experts think that this is not suitable for the large or complex acquisition of goods or services. This is due to the great focus it requires on the output process rather than following the standards strictly.
2. Restricted Tendering
Restricted tendering is the opposite of open tendering. Restrict tendering limits the number of requests for tenders that will be sent to suppliers or service providers. It is also called selective bidding because of its selective process nature.
Restricted tendering is a competitive method but it is limited to suppliers or service providers the procurement team invited. The procurement team should establish guidelines to effectively select the suppliers or service providers on the invitation list.
Having a random selection will not work for restricted tendering. It is selective to get the best and most qualified entities for the acquisition of needed supplies or services.
Restricted tendering is also done as a way for the procurement team or manager to save time and money. It saves the organization time and money due to the limited invitation list in the procurement process.
3. Request for Proposals (RFP)
Request for proposals is usually seen in every transaction in the business world. This kind of method is compelling as it states in the document why it’s the best match for the company.
A request for proposal is used when proposing the goods or services to the procurement team or manager for review.
The suppliers or service providers who are writing the RFP submit a two-envelope proposal to the procurement manager. The two envelopes allow the manager to review thoroughly the proposal without knowing the financial component.
The financial proposal is then sealed in the second envelope. It should only be opened once the content of the first envelope is approved or rejected.
This eliminates the persuasion regarding the cost and focuses to look at the quality of the materials or services. Furthermore, the proposal with the best qualifications and price will be selected.
4. Two-Stage Tendering
As the name suggests, two-stage tendering has two procedures under it. Each of the procedures also has two-stage processes.
The first procedure is similar to the request for proposal method. The procurement department receives a proposal with two envelopes. The first one contains the proposal and the second one contains the financial component.
The difference is that the bidder needs to submit a technical proposal highlighting their solutions. This is necessary to fulfill the requirements specified by the procurement team. The proposal is scored based on the relevance of the solution the procurement team needs.
Once an agreement is reached, the bidder is invited to submit their financial proposal for further discussion. After the terms have been discussed, the procurement team may now negotiate the contract.
The second procedure is similar to the first procedure. However, a partial proposal will be submitted instead of the full technical proposal. The methodology and technical specifications will be included but not to their full extent which allows room for customization.
Once a bidder is selected, they will be required to submit the complete technical proposal together with the financial component. The financial proposal will be opened only if the technical proposal is evaluated.
The combined evaluated score of the technical and financial proposal will be the deciding factor if the bidder will be chosen.
5. Request for Quotations
Request for quotations is usually used for small-valued goods or services. This is by far the most simple among the other procurement methods available. Requests for quotations are used to make sure that there will be less paperwork and a faster procurement process.
Request for quotation has no formal proposal drafted from either party. The procurement department only selects a few suppliers or service providers they wanted to get the quotation from.
Once the quotation is received, it will be then analyzed by the procurement team or manager. The selection of the quotes will solely be based on compliance with the requirements.
6. Single-Source
Single sourcing is a non-competitive method that is only used in specific circ*mstances. Single sourcing occurs when the organization only wants to acquire materials or services from a single source.
This method is carefully evaluated by the management team as there are many factors that might affect single sourcing. Read more about this in sole sourcing vs single sourcing.
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Procurement Expert’s Advice on Procurement Methods
For this article, we asked a seasoned procurement professional to share his insights regarding procurement methods.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example about procurement methods? What can readers learn from this?
“As a purchaser of high-rotation, low-value food products, my experience lies primarily with RFQs. Participants in the tender were selectively invited based on their ability to meet specifications, ensuring efficient procurement.”
2. What should readers know about procurement methods?
“The procurement method is the process that streamlines the acquisition of goods or services. There are 6 types of procurement processes and the best type of procurement method to be used depends on your company’s needs, type, and size of the company.”
Follow-up Question: Are there any factors or considerations that commonly influence the choice of procurement method, regardless of company size or industry?
“Certainly, various factors influence the choice of procurement method across industries and company sizes. These include the type of product or goods, company size, and specific procurement needs.”
3. What is the biggest misconception about procurement methods? What do most people get wrong about this topic?
“There is no ‘one-size-fits-all’ tender. Variations could be determined by industry, product or service required from the supplier, requirements, and scope of services, duration of the agreement.
One misconception is the perception that SMEs have little chance of winning public tenders.
Another misconception concerns the prejudice that existing suppliers have a preference and advantage in retendering a contract.”
4. How can companies evaluate and select the most effective procurement method for their operations?
“To evaluate and select the most effective procurement method, companies should implement various strategies first. Once executed, they can analyze data, assess supplier performance, identify gaps, benchmark best practices, and compare results to make informed decisions.”
Follow-up Question: Could you elaborate on how companies can identify and address gaps in their procurement processes?
“The key aspect is evaluation. In every tender or operational process, it is crucial to assess the outcomes and draw insights for continuous improvement. Applying a one-size-fits-all approach from product H to product I is not feasible, given the unique dynamics and specifics of each process. However, what often seems lacking in many businesses is a commitment to thorough evaluation and learning from each experience.”
5. Is there a single procurement method that suits all companies?
“No, there is no single method. The selection of the method depends on the type of goods, the role, and importance of the goods for the company, and the type, and size of the company.”
6. Is it okay for procurement professionals to adopt their own methods, or should their strategies always align with the organization’s principles?
“He or she should always align the strategy with the organization’s principles but it should also fit the objectives of the tender.”
