L2M1 — Introducing Procurement and Supply

What is procurement?

Procurement is the full process of identifying a need, sourcing suppliers, agreeing contracts, ordering goods or services, receiving them, paying suppliers, and managing supplier performance.

What is the difference between procurement, purchasing and buying?

Procurement is strategic and covers the full supply process, while purchasing or buying is more transactional and usually means ordering and paying for goods or services.

What is the purpose of procurement?

The purpose of procurement is to obtain the right goods or services at the right quality, quantity, price, time and source, while managing risk and value for money.

What are the five rights of procurement?

The five rights are: right quality, right quantity, right price, right time and right place/source.

What is a supply chain?

A supply chain is the network of organisations, people, processes and resources involved in producing and delivering goods or services to the final customer.

What is the difference between direct and indirect procurement?

Direct procurement is buying goods or services used in the organisation’s final product or service delivery, while indirect procurement supports the organisation’s operations but does not become part of the final product.

What is the difference between goods and services?

Goods are tangible items that can be physically owned or stored, while services are intangible activities performed for the buyer.

What is the difference between capital and revenue expenditure?

Capital expenditure is spending on long-term assets, such as vehicles, machinery or buildings, while revenue expenditure is day-to-day operating spend, such as fuel, stationery, cleaning or maintenance.

What is value for money?

Value for money means achieving the best overall balance of cost, quality, service, risk and whole-life value.

What is total cost of ownership?

Total cost of ownership is the full cost of owning or using something over its life, including purchase price, delivery, installation, operation, maintenance, repairs, training and disposal.

What is a specification?

A specification is a clear description of what the buyer requires from a supplier, including quality, quantity, performance, technical requirements, timing or standards.

What is the basic sourcing process?

The basic sourcing process is: identify the need, define the specification, research suppliers, request quotes or tenders, evaluate responses, award the contract, place the order and manage performance.

What is a request for quotation?

A request for quotation, or RFQ, asks suppliers to provide a price for a clearly defined requirement.

What is an invitation to tender?

An invitation to tender, or ITT, is a formal request asking suppliers to submit detailed offers against a defined requirement.

What is a purchase order?

A purchase order is a formal document issued by the buyer to the supplier confirming what is being ordered, including quantity, price, delivery details and terms.

What is invoice matching?

Invoice matching is checking the supplier invoice against the purchase order and delivery record before payment is made.

Why are approvals and delegated authority important?

They ensure that only authorised people can commit the organisation to spend, usually within set financial limits.

What is separation of duties?

Separation of duties means different people are responsible for different parts of the procurement process, such as requesting, approving, receiving and paying.

What is ethical procurement?

Ethical procurement means buying in a way that is fair, honest, transparent and responsible, avoiding bribery, corruption, conflicts of interest, forced labour and exploitation.

What is responsible procurement?

Responsible procurement considers the wider social, environmental and economic impacts of buying decisions.