Procurement

Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Purchasing generally involves making buying decisions under conditions of scarcity. If good data are available, it is good practice (and good commerciality) to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.

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

Based on the consumption purposes of the acquired goods and services, purchasing activities are often split into two distinct categories. The first category being direct, production-related purchasing and the second being indirect, non-production-related purchasing.

Direct purchasing occurs in manufacturing settings only. It encompasses all items that are part of finished products, such as raw material, components and parts. Direct purchasing, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect purchasing activities concern operating resources that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardised low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services.