Ideally, a procurement audit systematically reviews an organization’s procurement processes and related activities. An ideal procurement audit evaluates a procurement function’s compliance, effectiveness, efficiency, risk management, transparency, and accountability.

The main objectives of a procurement audit are to help ensure that:

1. All procurement activities abide by the established procedures, policies, guidelines, laws, and contractual terms.
2. The procurement function is achieving its strategic and business objectives through a procurement strategy, such as maximizing cost savings, improving supplier relationships, and more.
3. All resources are utilized optimally with a streamlined process and zero waste or delays.
4. The current risk strategy is capable of identifying, assessing, and mitigating potential procurement risks effectively.
5. All procurement decisions and transactions are transparent, justifiable, and well-documented.

Direct procurement is the process of purchasing goods and services that are essential for the production process of a company’s final product. These items could include raw materials, components, or services that will help create a finished product that could be sold to a customer.

The examples of direct procurement in manufacturing are raw ingredients, automobile spare parts, apparel fabrics, dyes, and any packaging materials required to get the product done. When it comes to construction, it could be anything from bricks and cement to plumbing fixtures and electrical wiring services.

In the case of software development, direct procurement could be made for specialized software libraries, API license keys, or computing infrastructure that must be integrated into the finished product.

However, indirect procurement involves the purchase of goods and services that are critical for the day-to-day operations of an organization, although they don’t become a part of the final product or service sold by them.

Examples of indirect procurement could be facility management services, marketing and sales outsourcing operations, office supplies, IT equipment, utilities, software subscriptions or licenses for internal business operations, training programs, employee benefits, and professional consulting services, which clearly highlight the difference in direct vs indirect procurement.

Related pages:

Procurement vs Purchasing
Purchase Order vs Invoice
Sourcing vs Procurement
Vendor Performance Management vs Supplier Relationship Management

RFQ stands for Request for Quotation and is used as a part of the strategic sourcing process to obtain competitive pricing from multiple suppliers. An RFQ is a formal document that invites a group of selected suppliers to submit a quote for supplying specific goods or services within a stipulated timeframe.

Before an RFQ is created, the buyers need to have a clear and well-defined understanding of their exact needs, from specifications and quantity requirements to delivery terms and conditions. RFQs are usually used when the buying requirements are clear and the only differentiating factor between suppliers will be the price and payment terms.

Procurement sets the stage with its upstream processes, which help identify the need and strategically acquire goods and services. Contract management is a downstream process that ensures the play unfolds as initially envisioned during the sourcing phase.

As we know, the procurement process comprises steps from identifying needs and sourcing a supplier strategically to negotiating and securing the contract. On the other hand, contract management is a part of the larger procurement umbrella, which focuses on managing legally binding agreements that were created through procurement.

Procurement focuses on establishing the relationship between two parties (buyer and supplier) and outlines the terms of the contract. Contract management ensures that all parties involved adhere to the contractual terms by monitoring supplier performance and procurement KPIs regularly.

In short, procurement ensures that the best deal is found and a contract is signed, whereas contract management sees the contract through and ensures that it performs as promised.