Procurement - Definition and Overview

The acquisition of goods or services at the best possible total cost of ownership, in the right quantity, at the right time, in the right place for the direct benefit or use of the governments, corporations, or individuals generally via, but not limited to a contract.

A key question in procurement is what to buy, given a limited budget. A manager in a health service may have a large choice of possible health technologies which could be purchased. Is it better to buy an MRI scanner for a hospital or an advertising campaign to encourage parents to have their children vaccinated? A military officer may wish to choose between buying more fighter aircraft or more trucks. If good data is available it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

An important distinction is between analyses made without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of expected value should be employed.

Another common procurement issue is the 'timing' of purchases. Kanban or Just-in-time is a system (commonly used by Japanese companies but widely adopted by many global manufacturers from the 1990s onwards) of timing the purchases of consumables so as to keep inventory costs low.