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Understanding the First Stage of Procurement


In the complex world of procurement, the journey to a successful purchase commences with an essential phase – understanding the requirement. Let's explore in-depth into what this stage entails and how it can shape the subsequent steps in the procurement process.

Engaging Stakeholders

Stakeholders play an important role in identifying the genuine requirements for procurement. By understanding their needs, concerns, and perspectives, we can ensure that the procurement process aligns with the objectives of the organization.

Who are the stakeholders?
They can range from internal departments, end-users of the purchased goods/services, suppliers, and even regulators.

What Type of Procurement Is It?

Before leaping into action, it's crucial to identify the nature of the procurement:

  • Direct procurement involves items directly related to the production of goods and services.
  • Indirect procurement deals with the acquisition of goods and services needed to keep the business running smoothly.

Have We Bought It Before?

Answering this question offers insights into:

  • Previous suppliers
  • Past contract terms
  • Issues encountered
  • Feedback from end-users

What Are the Business Requirements?

Distinguishing between wants and needs is vital. By asking specific questions and determining the core requirements, we prevent overspending and ensure alignment with business goals.

Business Requirements: Worked Example Imagine a company looking to procure a new CRM system. Instead of focusing on features like 'AI capabilities' or 'innovative interface', the core requirement might be 'ability to handle 10,000 contacts' or 'seamless integration with existing email platform'.

How Do We Specify Our Requirements?

There are different ways to specify the needs:

Different Types of Specification.

  1. Technical Specification: Details about the technical aspects of the product.
  2. Functional Specification: Describes what the product is supposed to accomplish.
  3. Performance Specification: Focuses on the outcome.

Outcome Specification Example
Rather than specifying the kind of technology a server should employ, an outcome specification might state: "The server must handle 100,000 simultaneous users without crashing."

Working Up the Specification

Moving towards Performance Outputs
Instead of rigidly defining every detail, specifying the desired output or performance can often result in better solutions. Suppliers are given the freedom to propose innovative solutions that still meet the business needs.

Developing Specifications

Specifications serve as the foundation upon which procurement decisions are made. Collaborating with stakeholders, referencing past procurements, and focusing on the end goals can aid in creating a comprehensive specification.

Blockers to Standardization

Standardization can streamline the procurement process, but certain barriers can hinder its implementation:

  • Diverse stakeholder needs
  • Rapidly changing technology
  • Geographical differences in requirements

Supply Positioning Example: Pharmaceuticals/ Nutraceuticals

For something as critical as pharmaceuticals, the procurement strategy may lean towards partnering with a trusted supplier. The high criticality and high value of these items may call for close relationships and stringent quality checks.

Dynamic Supply Positioning

The supply positioning strategy should evolve as the market, business needs, and technological advancements shift. What was once a routine purchase might now become a strategic one, demanding more attention and resources.

Understanding the requirement is the keystone of procurement. By effectively engaging stakeholders, delineating clear specifications, and continuously adapting to the dynamic business environment, organizations can lay a strong foundation for successful procurement endeavors.

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