What is Procurement and how did it start

Procurement is the process of collectively seeking and setting business terms for procured goods, services, or labor from external sources, usually defined by tender or auction. They enable the business to operate both profitably and ethically.? This is the definition given by CIPS (Chartered Institute of Procurement and Supply) which sets global standards and certifies the best procurement professionals. Procurement is a tactical part of a wider phenomenon, the buying process, which also includes the operational part (Purchasing) and the strategic part (Strategic Sourcing, SS).

Procurement is divided according to the criteria of direct use in the company's manufactured goods or indirect use. In addition to this obvious division, each of these types is characterized by distinct features of the business model, as I have outlined in Table 1 below.

The Institute of Supply Management (ISM) defines Strategic Sourcing (SS) as the process of identifying sources that could provide the necessary components, products and services required for the organization to last and grow. According to ISM, the term Procurement is used to reflect the entire process, or buying cycle, not just its tactical components. Procurement defined in this way defines the department as the part of the organization responsible for co-developing product specifications, product value analyses, supplier market analyses, business negotiations and purchasing activities, contract administration, inventory management.

Procurement is a relatively new element of supply chain management. The process is believed to have its origins in 17th century military logistics, when instead of the previous looting applied directly by soldiers, procurement was handled by professional quartermasters. The first formal descriptions of the processes that can be considered modern operational procurement can be found in railway books from the 19th century:

“The intelligence and fidelity exercise in the purchase, care and use of railway supplies, influences directly the cost of construction and operating, and affect, therefore, the reputations of officers and the profits of owners. (…)”

An equally early reference can be found in a 1922 entry which explains that:

“The modern purchasing agent is a more important man by far than he was in older days when purchasing agents were likely to be more of the nature of “rubber stamps” of “buffers”, or were bargaining for an extra penny of advantage. A purchasing agent of the modern breed is a creative thinker and planner and a student of many elements of business. Very justifiably he now regards his work as a profession, because he now applies professional standards and methods to his task.”

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This article is a translated fragment of my post-graduate Paper: " Procurement digitalization in business. Concept, Problems and Opportunities for Improvement" submitted in 2021 at Warsaw School of Economics (SGH).

NEXT WEEK: How it started, how it’s going: four industrial revolutions and Procurement 1.0 to 4.0

Reference:

https://www.cips.org/cips-for-individuals/what-is-procurement/ [access 7 August 2021]

J. L. Cavinato Supply Management Defined Institute for Supply Management Approved by the ISM Board of Directors, January 2010

M.M. Kirkman The Handling of Railway Supplies: Their Purchase and Disposition C.N. Trivess, Chicago 1887, p. 10

H. Hysell The Science of Purchasing Appleton, New York 1922, p. V