What Is Procurement? (And How to Manage It Effectively)

Key takeaways

• Procurement is the process of acquiring the goods and services an organization needs to operate. This includes items like office supplies and services such as equipment maintenance.

• By purchasing from reliable suppliers at competitive prices, businesses can control costs, improve profit margins, and remain competitive.

• Understanding procurement is important because it helps organizations make informed purchasing decisions that support efficiency and long-term success.

You can learn more about procurement through hands-on experience, online courses and training, and industry research. If you're interested in earning credentials for your study, consider enrolling in Rutger's University's Global Procurement and Sourcing Specialization. In as little as four weeks, you'll learn to analyze supply markets, sharpen your negotiation skills, and earn a certificate for your resume.

What is procurement?

Procurement is the process of planning, sourcing, and acquiring the goods and services a business needs. It involves evaluating suppliers, negotiating contracts, and ensuring that purchases meet quality, cost, and timing requirements. Procurement covers several key stages, including sourcing products and services, negotiating prices and terms, making purchases, and monitoring supplier performance. Effective procurement helps organizations operate efficiently, control costs, and maintain strong relationships with reliable suppliers.

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

Procurement can be categorized in different ways depending on the type of item being acquired and how it is used in the business:

• Direct procurement covers products and services that are used in the production process and directly contribute to a company’s revenue and end product. Examples include raw materials, machinery, or wholesale goods purchased for resale.

• Indirect procurement includes goods and services needed to support daily operations. These items do not directly generate profit but are essential for running the business, such as office furniture, consulting services, security software, and utilities.

• Goods procurement involves acquiring physical products for business use. This can include finished products, raw materials, or software. Goods procurement can be either direct or indirect.

• Services procurement refers to anything provided by people or organizations, such as consultants, contractors, software support, security, or external training. Services can also be direct or indirect, depending on their role in the business.

What is procurement software used for?

Procurement software is used to manage and automate the purchasing process within an organization. It helps businesses handle tasks such as sourcing suppliers, requesting and approving purchases, managing contracts, tracking orders, and monitoring spending. By centralizing these activities, procurement software improves efficiency, increases visibility into costs, ensures compliance with company policies, and supports better purchasing decisions.

Procurement software examples

• Coupa: spend management, procurement, and invoicing

• SAP S/4HANA: enterprise resource planning, purchasing, supplier and contact management

• Ariba: enterprise sourcing, supplier management, and spend analysis

• GEP SMART: end-to-end procurement and supply chain management

Related terms

• Statement of work

• Continuous improvement

• Minimum viable product

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