Procurement methods are the process a company goes through to purchase goods and services. Three common types of procurement methods are common: direct purchase or acquisition, negotiations, and competitive bidding. Companies will often use one office as a point of procurement, and employees working in this office will use one of the methods to procure goods, services, or jobs under directions from management. Choosing the right procurement method depends on the items needed.
Under the direct purchase or acquisition procurement method, companies will usually submit a purchase order to request items from a vendor. Many companies make purchases from vendors on a frequent basis; to control costs, purchase orders with proper authorization make this possible. An employee will write up a purchase order listing the vendor, quantity of items, description, price, and other pertinent information. A manager will usually either approve or disapprove of the order and send it back to the employee. Direct acquisition procurement methods can have multiple variances based on the company's needs and operating environment, and are one of the most common procurement methods used.
Negotiation as a procurement method works best for large purchases, such as equipment, land, or buildings. Companies will require negotiation as part of the process in order to lower the cost of the assets as much as possible. Procurement methods that require negotiation will often need different competencies from the procurement office. The purchasing director needs the ability to talk openly with other parties, make direct requests when seeking specific action on deals, and to know how and when to walk away from deals. While these competencies may seem easy to find in an employee, companies may go through several different employees before finding the right person.
Procurement methods may also fall under the category of competitive bidding. This process is usually particular to specific industries, such as construction, military contracts, or other large deals involving two or more companies. Competitive bids may be silent or open.
Under a silent bid process, companies will select a written bid. The vendor will open all bids on their own at one time and select the one they deem best for their job. Open bidding allows for more discussion between the two companies. After submitting a bid, each company may come together and have a discussion about the process. In reality, this turns into a hybrid of the competitive bidding and negotiation procurement methods, where each will seek concession for the deal.