KEY TYPES OF DIRECT PROCUREMENTS

KEY TYPES OF DIRECT PROCUREMENTS

Resources or inputs that will be directly used in an organization’s primary activities as opposed to its support activities are referred to as direct procurements. Remember primary activities are the activities associated with the making or production of the goods or services the customers are paying for. The key types of direct procurements include: production materials, commodities and goods for re-sale.

Production materials 

The procurement profession is very critical since failure to obtain high quality production materials at the required time will lead to, as mention in my past post, disruption in manufacturing operations and that means incurring significant costs. Most materials used in manufacturing are often classified as: raw materials, which are materials sold to manufacturers mainly as unprocessed, e.g, mineral, iron ore, and petroleum agricultural produce. Components and Assemblies which are outputs of another manufacturer then sold to the buying organization to incorporate in their productions. This makes up part of the upstream operations in the supply chain network, for instance, buying spare parts to assemble into a whole car. Finally we have work in progress which refers to part of the finished output yet to be completed.

Commodity procurement

Commodity is a product that is generic and in a way has some basic value as all similar items, for instance, oil prices tend to be more or less the same with various dealers. Primary commodities, for example, coffee, tea and even iron ore, which are items that occur in nature, provide raw material for the business to use or incorporate in their products.

These commodities are not always found in the local market and that means international sourcing which can create a set of risks in relation to aspects such as currency exchange, transport issues etc. Their prices are also subject to fluctuations due to international market issues, weather condition, government policy etc all of which are factors to take into account when procuring them.

Goods for Re-sale

Not all businesses are going to be manufacturing businesses, in fact most are retail, wholesale or even brokerage in which buyers acquire finished goods for resale on wards to customers. While things like quality control, service level and supplier relationship will be important in the procurement of goods for re-sale, just as they are in other key types of direct procurements, the following are some factors to have in mind:

1. Think bottom line because there isn’t much value addition in retail hence margin is the key issue. Buyers tend to focus on what gives them a good profit margin.
2. Do your research. Wholesaler and Retailers try to have variety of goods to meet clients’ needs. Do not be overwhelmed, make sure you monitor prices, quality and supplier terms.