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Blog

What types of procurement processes are there?

June 15, 2021

Blog

What types of procurement processes are there?

June 15, 2021

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Onderwerp: Gids

Niveau: Gemiddeld

3 minuten leestijd

Procurement is a general word referring to the purchase and supply of goods in a business context. It can mean the simple, final act of purchasing, but can also refer to the entire procurement process from start to finish. Yet, there are different types of procurement processes that may be best suitable for different types of transactions and goods. This article will differentiate between the six main types of procurement: single procurement, stock procurement, Vendor Managed Inventory (VMI), Just-in-time (JIT) procurement, Just-in-sequence (JIS) procurement, and Ship to Line.

Types of procurement processes

Single procurement

When purchasing a (custom) order from a producer initiates the supplier’s production process.

Stock procurement

In stock procurement, a good’s stock is replenished intermittently through demand forecasting. Stock procurement can be applied by first defining the minimum stock level. Knowing this is important for both the purchaser and the supplier; when the stock level falls below this limit, the procurement process can be initiated in order to ensure stock is received on time. This oftentimes does not require the buyer’s specific order each time. While the procurement costs tend to be higher with this type of procurement, it provides customers with more flexibility to ensure their needs are met.

Vendor Managed Inventory (VMI)

This type of procurement process passes on the responsibility to the supplier in terms of ensuring the purchasing company’s stock needs are being met. As such, the supplier is responsible for optimizing inventory, often being carried out at the buyer’s location. This close-knit network between buyers and suppliers creates a smoother and more optimized purchasing process, lower costs, and more flexibility, while also improving the buyer’s relationship with the suppliers.

Just-in-time (JIT) purchasing

This procurement process entails purchasing products as they’re needed to meet the buyer’s customer demand. In such cases, the purchaser orders the minimum number of items based on their customer’s demand. JIT purchasing often means there’s less amount of product with the purchaser at a given time. This is beneficial to the purchaser as smaller but more frequent orders are more cost-effective and induce more lean and balanced processes. One thing to note is that JIT purchasing works best when the supplier’s location is at most 100 km away from the purchaser. Moreover, it’s important that collaboration and communication between suppliers, transport, and logistics are managed properly to ensure coordination.

Just-in-sequence (JIS) purchasing

Is an extension of JIT purchasing. It’s definition extends beyond supplying customers the products at the right time, and involves supplying the customers the requested products in the correct sequence. This is especially crucial for final goods that require a special assembly sequence.

Given that the production sequence is normally made concrete a couple of days before the actual assembly begins, JIS purchasing can also work if suppliers are located far away. Yet, to ensure that close collaboration and communication is established (despite large distances), systems such as EDI (electronic data interchange) should be used. These systems entail an automated, electronic exchange of business documents between two companies––hence decreasing time and making processes leaner.

Ship to Line

In this form of procurement, the products from the supplier’s last value-added process are directly sent to the customer’s first value-added process.

Choosing the right procurement for each customer and supplier’s relationship, the product being purchased, and (if applicable), the end product the goods are used for, is crucial to ensuring firms fulfill their duties correctly and in a timely manner.

Procurement is a general word referring to the purchase and supply of goods in a business context. It can mean the simple, final act of purchasing, but can also refer to the entire procurement process from start to finish. Yet, there are different types of procurement processes that may be best suitable for different types of transactions and goods. This article will differentiate between the six main types of procurement: single procurement, stock procurement, Vendor Managed Inventory (VMI), Just-in-time (JIT) procurement, Just-in-sequence (JIS) procurement, and Ship to Line.

Types of procurement processes

Single procurement

When purchasing a (custom) order from a producer initiates the supplier’s production process.

Stock procurement

In stock procurement, a good’s stock is replenished intermittently through demand forecasting. Stock procurement can be applied by first defining the minimum stock level. Knowing this is important for both the purchaser and the supplier; when the stock level falls below this limit, the procurement process can be initiated in order to ensure stock is received on time. This oftentimes does not require the buyer’s specific order each time. While the procurement costs tend to be higher with this type of procurement, it provides customers with more flexibility to ensure their needs are met.

Vendor Managed Inventory (VMI)

This type of procurement process passes on the responsibility to the supplier in terms of ensuring the purchasing company’s stock needs are being met. As such, the supplier is responsible for optimizing inventory, often being carried out at the buyer’s location. This close-knit network between buyers and suppliers creates a smoother and more optimized purchasing process, lower costs, and more flexibility, while also improving the buyer’s relationship with the suppliers.

Just-in-time (JIT) purchasing

This procurement process entails purchasing products as they’re needed to meet the buyer’s customer demand. In such cases, the purchaser orders the minimum number of items based on their customer’s demand. JIT purchasing often means there’s less amount of product with the purchaser at a given time. This is beneficial to the purchaser as smaller but more frequent orders are more cost-effective and induce more lean and balanced processes. One thing to note is that JIT purchasing works best when the supplier’s location is at most 100 km away from the purchaser. Moreover, it’s important that collaboration and communication between suppliers, transport, and logistics are managed properly to ensure coordination.

Just-in-sequence (JIS) purchasing

Is an extension of JIT purchasing. It’s definition extends beyond supplying customers the products at the right time, and involves supplying the customers the requested products in the correct sequence. This is especially crucial for final goods that require a special assembly sequence.

Given that the production sequence is normally made concrete a couple of days before the actual assembly begins, JIS purchasing can also work if suppliers are located far away. Yet, to ensure that close collaboration and communication is established (despite large distances), systems such as EDI (electronic data interchange) should be used. These systems entail an automated, electronic exchange of business documents between two companies––hence decreasing time and making processes leaner.

Ship to Line

In this form of procurement, the products from the supplier’s last value-added process are directly sent to the customer’s first value-added process.

Choosing the right procurement for each customer and supplier’s relationship, the product being purchased, and (if applicable), the end product the goods are used for, is crucial to ensuring firms fulfill their duties correctly and in a timely manner.

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