What on Earth is Procurement?

Eight years ago, I don't think I knew what the word procurement meant. Four years ago, I thought of purchasing merely as the process through which I acquire something in life in exchange for something else (usually money). Fast forward to 2020 and somehow I find myself a buyer at Volvo Cars in their Indirect Procurement group. It was an interesting path that led me to a role in procurement, but that's another story for another day.

When I started with Volvo nearly four years ago, I was in an engineering role and learned about this group called Procurement that would buy things on behalf of me, the stakeholder. At the time it was pretty baffling.

Why do I need someone to buy things for me? I buy things every day!

To this day, I feel like anyone can learn Purchasing. It's something we do every day, but with a caveat: most people aren't great at buying things. But they're not great at buying things because they're bad at facilitating the transaction. No, they're bad because they don't understand leverage, negotiations, economics, and basic price theory. Ultimately, most people don't understand that they have options. And options build leverage. Without options, you're stuck paying the price the market will bear. And if you're the only one buying the good and there is only one person selling it, you don't have a whole lot of leverage. If you don't have leverage, you have to find ways to generate it.

At this point in my Procurement 'career', I have a few favorite ways to build leverage. But all of them come down to options: a purchasing motivation without options can, in theory, lead to an infinite price if you have infinite funds. But as a consumer, you generally don't have infinite funds. With a company, that's a different story. Corporate pockets tend to be a whole lot deeper than an individual's pockets, which is why industrial goods are so much more expensive than consumer goods. It's also why the US is such a litigious society: the size of the prize is enormous.

What I find most rewarding about Procurement is that it is one half of the core of business: the purchase. The other half is the foil of Purchasing: sales. With Purchasing being so integrally tied to the fundamentals of business, there are an absolute treasure trove of incredibly important business lessons that I observe in my day to day work. Everything from understanding top line growth to the risks of thin profit margins. Overall, if you ever have a chance to participate in a formalized procurement process, I would highly recommend it. You'll get firsthand lessons in everything from leverage to pricing structures to negotiations. And it will make you a more well-rounded businessperson as a result.