Production or Procurement of Goods and Services

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Production or Procurement of Goods and Services

Production or Procurement of Goods and Services

The production or procurement of goods and services is a vital process for businesses and organizations across various industries. Understanding the difference between these two approaches is crucial for efficient resource allocation and decision-making. Whether a company chooses to produce or procure a product depends on factors such as cost, quality, time, and expertise.

Key Takeaways:

  • Production and procurement are two different approaches to acquiring goods and services.
  • Production involves creating or manufacturing products internally, using the company’s own resources and facilities.
  • Procurement involves purchasing products or services from external suppliers or vendors.
  • The decision between production and procurement depends on cost, quality, time, and expertise.


In the production approach, companies utilize their own resources and facilities to create or manufacture goods and services. This involves acquiring raw materials, employing skilled labor, and investing in machinery and technology. By producing internally, companies have more control over the entire production process, ensuring quality and customization according to their specific needs. *However, production also requires substantial initial investments and ongoing operational costs.*


Procurement is the process of purchasing goods and services from external suppliers or vendors. In this approach, companies rely on the expertise and capabilities of external partners who specialize in the required goods or services. By procuring externally, companies can access a wider range of products and services, take advantage of suppliers’ expertise, and potentially reduce costs. *Nevertheless, companies may face challenges such as quality control, supply chain issues, and dependency on external parties.*

Factors Influencing the Decision

Several factors influence the decision to produce or procure goods and services for a business. These factors include:

  1. Cost: Comparing the costs of production versus the costs of procurement is essential. Companies need to consider factors such as labor costs, material costs, overhead expenses, and the potential for economies of scale in production.
  2. Quality: Examining the quality levels achievable through production versus procurement is crucial. Companies need to assess if their internal capabilities can meet the desired quality standards or if partnering with external suppliers would provide better quality products or services.
  3. Time: Evaluating time considerations is important for businesses. Companies must determine if they have the resources and capacity to produce goods or services within the required timeframe or if procuring externally would be a more time-efficient option.
  4. Expertise: Considering the expertise required for the production or procurement process is critical. Companies need to assess if they have the necessary skills and knowledge internally or if external suppliers possess the specialized expertise required.

Comparing Production and Procurement

Table 1 below provides a comparison between production and procurement based on various factors.

Production Procurement
Cost Higher initial investment and ongoing operational costs. Potential for reduced costs through competitive bidding and economies of scale.
Quality Full control over quality standards. Dependent on supplier’s quality practices and standards.
Time Potential delays in production timeline. Quicker turnaround time by leveraging supplier capabilities.
Expertise Internal expertise and control over product customization. Access to specialized expertise provided by suppliers.


The decision to produce or procure goods and services is a strategic choice that depends on a variety of factors. Companies must carefully evaluate the costs, quality requirements, time considerations, and expertise needed before making this decision. By understanding the benefits and drawbacks of each approach, businesses can optimize their operations and achieve their goals effectively.

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Common Misconceptions

Common Misconceptions

Title: Production and Procurement of Goods and Services

There are several misconceptions that people often have regarding the production or procurement of goods and services. These misconceptions can prevent individuals from fully understanding the complexities and nuances involved in these processes.

  • Production and procurement are the same thing.
  • Production and procurement do not involve environmental considerations.
  • Production and procurement are entirely separate and unrelated.

Title: The Role of Technology

Another common misconception is that technology has eliminated the need for human involvement in the production or procurement of goods and services. While technology has certainly revolutionized these processes, it has not completely replaced human input.

  • Technology has made production and procurement completely automated.
  • Humans are not required in the production or procurement of goods and services anymore.
  • Technology has eliminated the need for specialized skills in production or procurement.

Title: Globalization and Outsourcing

Globalization has often led to misconceptions about the impact of outsourcing and international trade on the production or procurement of goods and services. While globalization has undoubtedly influenced these processes, it is important to understand the realities behind it.

  • All production and procurement activities have been outsourced to other countries.
  • Outsourcing only benefits developed countries and harms developing nations.
  • Globalization has made it impossible for local businesses to compete in production or procurement.

Title: Cost as the Sole Determinant

Many people mistakenly believe that cost is the only factor considered in the production or procurement of goods and services. While cost is certainly important, other factors such as quality, sustainability, and social responsibility also play significant roles.

  • Cost is the only consideration in the production or procurement of goods and services.
  • Quality or sustainability has no impact on the production or procurement processes.
  • Businesses do not take social responsibility into account when producing or procuring goods and services.

Title: Production and Procurement’s Impact on the Economy

Lastly, some individuals erroneously believe that the production or procurement of goods and services has no significant impact on the overall economy. In reality, these processes are vital in stimulating economic growth, job creation, and innovation.

  • Production and procurement have no bearing on the economy.
  • Job creation and economic growth are unaffected by the production or procurement of goods and services.
  • Innovation is not influenced by production or procurement activities.

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Cost of Production by Country

In this table, we explore the cost of production in various countries. The data represents the average cost for producing goods and services, including labor, materials, and overhead expenses.

Country Cost of Production (USD)
United States 50,000
China 30,000
Germany 40,000
India 20,000
Japan 45,000

Procurement from Sustainable Sources

The table below showcases the percentage of goods and services procured from sustainable sources by different companies. It highlights their commitment to social and environmental responsibility.

Company Percentage of Sustainable Procurement
Company A 80%
Company B 60%
Company C 75%
Company D 90%
Company E 65%

Global Annual Revenue in the Manufacturing Sector

Here, we present the annual revenue generated in the manufacturing sector worldwide. The figures indicate the monetary value of goods and services produced by manufacturers across different countries.

Year Annual Revenue (USD)
2015 12 trillion
2016 13.5 trillion
2017 14.8 trillion
2018 16.2 trillion
2019 17.6 trillion

Top Manufacturing Industries by Employment

This table illustrates the top manufacturing industries based on employment. It provides insights into sectors that have a significant workforce engaged in the production of goods and services.

Industry Number of Employees
Automotive 10 million
Textile 8.5 million
Electronics 7.2 million
Food & Beverage 6.8 million
Chemical 5.5 million

Percentage of Outsourced Services

In this table, we examine the percentage of services outsourced by companies. It demonstrates the extent to which organizations rely on external providers for certain business functions.

Business Function Outsourcing Percentage
IT 45%
Human Resources 30%
Customer Service 55%
Accounting 25%
Marketing 40%

Global Procurement Expenditure by Industry

This table presents the procurement expenditure by different industries on a global scale. It reflects the financial investments made for the acquisition of goods and services.

Industry Procurement Expenditure (USD)
Manufacturing 5 trillion
Information Technology 2.5 trillion
Transportation 1.8 trillion
Healthcare 2 trillion
Construction 1.2 trillion

Percentage of Services Exported

This table demonstrates the percentage of services exported by different countries. It indicates the degree to which nations contribute to the global services industry through the export of services.

Country Percentage of Services Exported
United States 15%
China 22%
Germany 10%
United Kingdom 12%
India 8%

Factors Influencing Procurement Decisions

Through this table, we highlight the key factors that influence procurement decisions in organizations. These factors play a crucial role in shaping the strategies and choices made while procuring goods and services.

Factor Influence Rating (1-10)
Cost 9
Quality 8
Supplier Relationship 7
Sustainability 6
Innovation 8

Importance of Localization in Manufacturing

This table emphasizes the importance of localization in the manufacturing sector. It highlights the benefits gained by manufacturers by establishing production facilities closer to their target markets.

Benefit Impact Rating (1-10)
Reduced Transportation Costs 9
Improved Supply Chain Agility 8
Enhanced Customer Service 7
Local Employment Opportunities 9
Minimized Trade Barriers 8

The production or procurement of goods and services plays a crucial role in global economic activities. The tables presented above encompass various aspects of this field, including cost of production, sustainability, employment, outsourcing, and more. Understanding these dynamics aids policymakers, businesses, and relevant stakeholders in making informed decisions, fostering economic growth, and promoting sustainable practices. By analyzing the data, it becomes apparent that production and procurement are complex and interconnected processes, influenced by factors such as cost, quality, localization, and supplier relationships. By considering these factors and leveraging the insights gained, organizations can optimize their operations and contribute to a thriving global economy.

Production or Procurement of Goods and Services : Frequently Asked Questions

Production or Procurement of Goods and Services

Frequently Asked Questions

What is the difference between production and procurement?

Production refers to the process of creating or manufacturing goods and services, whereas procurement involves the acquisition of goods and services from external suppliers or vendors.

Why would a business choose production over procurement?

A business may choose production over procurement if they have the resources, expertise, and capacity to manufacture their goods and services in-house. This allows for better control over quality, cost, and customization.

When would procurement be a better option than production?

Procurement may be a better option than production when a business lacks the necessary resources or expertise to manufacture goods and services in-house. Procuring from external suppliers can save time and cost, particularly for specialized or non-core items.

How can production efficiency be improved?

Production efficiency can be improved by implementing lean manufacturing techniques, optimizing workflow processes, investing in modern machinery, training employees, and continuously reviewing and improving production strategies.

What factors should be considered when procuring goods and services?

When procuring goods and services, factors such as cost, quality, reliability of suppliers, delivery time, contractual terms, and compatibility with existing systems or processes should be considered to make an informed decision.

How can a business ensure product quality when procuring from external suppliers?

To ensure product quality, a business can conduct thorough supplier evaluations, request product samples or prototypes, establish quality control measures and standards, enforce compliance with specifications, and regularly communicate and collaborate with the suppliers.

What are some advantages of outsourcing procurement?

Outsourcing procurement can provide benefits such as cost savings, access to specialized expertise, improved supplier management, reduced administrative burden, increased efficiency, and the ability to focus on core business activities.

What risks are associated with outsourcing procurement?

Risks associated with outsourcing procurement include supplier reliability, quality control issues, supply chain disruptions, potential loss of control over the procurement process, and dependency on external vendors. Effective risk management strategies should be implemented to mitigate these risks.

Can a business utilize both production and procurement strategies?

Yes, many businesses utilize both production and procurement strategies. They may manufacture certain products or services in-house while procuring others from external suppliers, depending on factors such as cost, expertise, demand, and core competencies.

How can a business determine the most cost-effective approach between production and procurement?

To determine the most cost-effective approach, a business should conduct a thorough analysis considering factors such as fixed costs, variable costs, economies of scale, supplier quotes, production capacity utilization, market conditions, and internal capabilities. Cost-benefit analysis can help in making informed decisions.