What Is Procurement?

Procurement is the essential process of acquiring goods and services that a company or organization needs to function effectively. Every business requires various products, such as office supplies, and services, like copy machine maintenance, to support its operations. To ensure maximum profitability, it is crucial to buy equipment, services, and stock from reliable suppliers at competitive prices. This enables businesses to optimize their profit margins and thrive in the marketplace. 

Procurement covers a number of stages including:

• Sourcing products and services

• Negotiating prices and terms

• Purchasing products and services

• Monitoring performance

Procurement vs. purchasing

While the terms purchasing and procurement are sometimes used interchangeably, purchasing is actually a step in the larger procurement process. Purchasing is a transactional undertaking that involves getting quotes from suppliers and making a purchase. Procurement, however, is the larger strategic process involving purchasing as well as a range of additional stages, including identifying the needs of the organization, finding suppliers, negotiating contracts and prices, maintaining relationships, and analyzing profits and cost-saving measures. 

Types of procurement

You might categorize procurement a few different ways depending on whether the procured item is a product or service (and how you plan to use it): 

Direct vs. indirect procurement

Direct procurement relates to products and services that you use during a production phase and so contribute directly to the end product and profit of the business. This could be products purchased from a wholesale vendor for resale or raw materials and machinery essential to the business.

Indirect procurement is the goods and services obtained to run a business on a day-to-day basis. They don’t contribute to company profit but are essential for business operations. This might include office furniture, consulting services, security software, and utilities.

Goods vs. services procurement

Goods procurement is any physical entity that is obtained for use in the business. This could be a finished product, such as machinery, or a raw product. Goods procurement can also include things like software. Goods procurement can be direct or indirect.

Services procurement is anything that is delivered by people. This could be external consultants, building contractors, or services from a software company, security, or external training. Like goods procurement, services procurement can be direct or indirect. 

Related terms

• Statement of work

• Continuous improvement

• Minimum viable product

Build project management skills with Google

Are you interested in a career in procurement? A great place to start is with a certificate in project management such as the Google Project Management Professional Certificate. This program offers courses that cover a range of valuable skills, including budgeting, navigating procurement processes, and working effectively in a project management role.