Financial Accounting

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Project Desciption

Why is Procurement Important in Business?

Procurement is important in business because it directly impacts a company’s profit. For an organization to be profitable, the cost of procuring goods needs to be less than the amount it sells those goods for, minus whatever costs are associated with processing and selling them.

Enacting the best procurement procedures will ensure that the buyer (i.e. the company) is acquiring goods, services, or works at the best possible price at all times.

In addition, procurement is linked to several core business functions within an organization. So it should always be considered a critical part of any organization’s corporate strategy.

To understand this, consider how procurement can influence the four pillars of corporate strategy.

  • Corporate Identity
    • What does our company do and stand for?
    • What beliefs inform our business model?
  • Market Placement
    • Who are our customers?
    • What do they want?
    • What do they believe in?
  • Company Capabilities
    • What are our strengths and weaknesses?
    • Do our strengths support our long-term goals?
    • How do we want to grow?
  • Management Issues
    • Do we need to hire/develop talent to lead us to our goals?
    • Does the company have the resources needed to achieve our goals?

Procurement touches on each of these components.

For instance, procurement and corporate identity can be intertwined. If your business is building (or has built) its identity around an environmentally conscious ethic, then your procurement strategy should reflect that decision. Policies should be in place to ensure you are sourcing from companies with similar ethics, or that you are sourcing materials that are not environmentally hazardous.

A company’s procurement strategy should also be shaped with its market placement, company capabilities, and management issues in mind. The company needs the right people in place to put into action the beliefs/philosophies you want your business to be governed by. Dealings with vendors should reflect company philosophy.

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