What Is Procurement?

What Is Procurement?

Let me explain procurement directly to you: it's the process of buying or obtaining goods or services, usually for business or government needs and on a larger scale. People often mix it up with purchasing, but procurement is more strategic and less about just transactions.

Key Takeaways

You should know that procurement is strategic, involving the purchase of goods or services. It stands apart from purchasing, which is mainly transactional and just one piece of procurement. The process includes steps like specifying requirements, soliciting bids, negotiating prices and contracts, handling the purchase, and processing payments. It can involve various departments in an organization, and bigger businesses or governments often have dedicated procurement teams.

How Procurement Works

In business, procurement is key to your strategy because getting enough materials or services at the right price can decide if your operations make a profit. Governments must watch procurement closely to stay within budgets. You typically have a set budget for procuring what you need.

Broadly, procurement covers every step from preparing a request to receiving the item and approving payment. In detail, this means setting standards for goods and services, forecasting needs, researching suppliers, arranging financing, negotiating deals, completing transactions, making payments, and managing inventory. You'll often need support from different internal departments and good coordination for success.

Depending on their roles, departments might handle choosing goods based on strategic needs, getting quotes from suppliers, working out prices and terms, or receiving shipments and paying for them. Procurement fits right into supply chain management.

Competitive Bidding and Procurement

Businesses and governments have their own ways to pick suppliers, often involving multiple options and competitive bidding. For goods, suppliers submit proposals with per-unit prices, shipping, and delivery details. For services, it might cover team size, technical support, and more. To start, they issue a request for proposals (RFP) outlining needs.

In the end, the organization picks suppliers based on cost and other factors—not always the cheapest bid wins.

Types of Procurement

Procurement breaks into four main types, with some overlap. Direct procurement covers goods or services directly in production, like raw materials for manufacturers. Indirect procurement is for operational needs not in production, such as office supplies or marketing services.

Goods procurement includes any physical items, whether direct like raw materials or indirect like furnishings. Services procurement can be direct, like production labor, or indirect, like security services. Note that companies usually handle direct and indirect costs with different budgets and processes.

Procurement vs. Purchasing

Both lead to acquiring goods and services, but there are clear differences. Purchasing is transactional, focused on buying to meet immediate needs and getting the best price. It's part of procurement, not the same thing.

Procurement is strategic, involving multiple steps where purchasing is just one. It emphasizes long-term value to your business, building lasting supplier relationships over one-time deals.

Accounting for Procurement

Procurement costs get folded into your company's financial accounting since they support revenue goals. Depending on size, you might have a procurement manager or specialist leading this. Larger firms are adding chief procurement officers (CPOs) to oversee standards, work with accounts payable for payments, and join teams on bid decisions.

What Is Meant by Procurement?

Procurement means the full process of sourcing what a buyer like a business or agency needs for work, including goods or services.

How Is Procurement Done?

You can do procurement in various ways, like encouraging bids from many suppliers or sticking with a few exclusive ones or even a single source.

What Is Public Procurement?

Public procurement is just government procurement, where agencies buy from the private sector.

Is Procurement the Same as Purchasing?

They're similar, but purchasing is just the buying act, while procurement includes setting specs, vetting suppliers, and steps before and after the purchase.

The Bottom Line

Procurement is a strategic acquisition process for goods and services. Done right, it can mean the difference between profit and loss or staying on budget.