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Procurement: Principles, Process & Strategy Video

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  • 0:01 Spending Money for a Living
  • 0:51 Why Procurement Is Important
  • 1:36 How It Is Done
  • 2:35 Managing Procurement
  • 3:34 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Ever wonder how companies get what they need to make their products? In this lesson, we look at procurement, or the process by which companies buy what they need to do business.

Spending Money for a Living

As the head of procurement for a widget factory, you have a job that many would find enviable. You get to spend money for a living. However, it's not all it's cracked up to be. In reality, it's not like you're getting to spend money on you. Instead, you have to spend money to make sure your company is able to continue producing widgets. Namely, you're in charge of making sure there is a supply of raw materials to turn into widgets, as well as machines and tools to get them there. Then, there's all the needs of the office staff, janitorial, landscaping. In short, it's not just about spending money for a living; you've got to be smart about it.

Luckily, this lesson will help you do just that. By the end of this lesson, you'll better understand that procurement, the practice of acquiring what is necessary to do business, is more than just buying on a whim.

Why Procurement Is Important

Like I said, you're the head of a widget firm; now while you sit there, watching this lesson, I want you to make a widget, solely by what you have in your hands. You can't do it, can you? In fact, you need a variety of raw materials in order to make a widget. This is why procurement is so important. Without procurement, no goods can be made because there are no raw materials. However, it is about more than just raw materials. Try taking a pile of paperclips and making a widget; again, it can't be done because you don't have the tools to do it.

Procurement also provides us with the tools we need to perform the tasks at hand in an economical manner. That economic manner is important; you may be able to turn paperclips into a widget but it would take longer than just getting a machine to do it.

How It Is Done

Contrary to what you may think, procurement isn't just about running around with the company credit card, buying everything at once. Instead, there is a process. Very often, when a company needs to procure something, it will take one of two approaches. If it is a relatively minor procurement, like a few hundred pens, the procurement officer will simply go to a store or order them. They may not always get the best price, but the amount of time saved by having a standard procedure and supplier, more than makes up for the extra expense of a few dollars.

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