What Is Procurement?

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

Procurement covers many 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 a step in the larger procurement process. Purchasing is a transactional undertaking involving getting quotes from suppliers and purchasing. Procurement, however, is the larger strategic process involving purchasing as well as a range of additional stages, including identifying the organisation's needs, finding suppliers, negotiating contracts and prices, maintaining relationships, and analysing profits and cost-saving measures. 

Types of procurement

You might categorise 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 contribute directly to the end product and profit of the business. It can include products purchased from a wholesale vendor for resale or raw materials and machinery essential to the business.

Indirect procurement refers to the goods and services obtained to run a business on a day-to-day basis. These don’t contribute to company profit but are essential for business operations. Examples 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.

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

Related terms

• Statement of work

• Continuous improvement

• Minimum viable product

Build project management skills with Coursera

Procurement is an essential part of an organisation’s long-term success. Navigating all the stages, from sourcing products to monitoring performance, helps ensure competitiveness in the market. 

If you are interested in a career in procurement, a great place to start is with a beginner-friendly course such as the Global Procurement and Sourcing Specialisation from Rutgers University on Coursera. You may also explore project management with options like the Google Project Management Professional Certificate. This programme offers courses that cover a range of valuable skills, including budgeting, navigating procurement processes, and working effectively in a project management role.