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Procurement plays a foundational role within any organization, as it serves in the process of sourcing goods and services. When a company purchases a product or service, the purchase undergoes a procurement procedure. While “procurement” mainly refers to the purchase itself, the overall procurement process is what ensures compliance and product/service quality through specialized management. A procurement management strategy with a base in contract management is conducive to an efficient procurement process, and this is because businesses are required to use contracts to maintain internal and external accountability.
Contract management plays a key role in every procurement cycle. Contracts serve as a determining factor in terms of how business relationships will function between suppliers, vendors, and other partners. It’s necessary for any company to have and optimized, well-planned, and effective approach to contract management in procurement.
What is procurement? Procurement is the process of obtaining goods or services from an external source that are essential to the growth of your organization. Companies worldwide engage in the procurement process through a tendering or a bidding process. Procurement is often confused with common purchase; this confusion could arise due to an unfamiliarity in the domain. Procurement is the process of sourcing and obtaining the goods and services required for the company to fulfill its business objectives through a series of negotiation and strategic decisions, purchasing is the process of buying goods and services. An example of a procurement item is a quantity of sugar purchased by an ice cream manufacturer to add to the ingredients of the ice cream they sell. An example of a purchase is when a consumer shops at a grocery store to buy a pint of ice cream to eat. Procurement items are essentially ingredients to make other products or services to sell, in the middle of the item's life cycle. Purchase items are essentially consumed or used in full, at the end of the item's life cycle.