What is procurement in business? Procurement is the full process a business uses to find, choose, buy and manage the goods and services it needs, from office supplies to software to raw materials. It covers more than placing orders: it includes identifying needs, picking suppliers, negotiating contracts, receiving goods, paying invoices and managing supplier relationships.
What does procurement mean at work?
When someone says “send it through procurement,” they mean the team or process that controls company spending with outside suppliers. Procurement makes sure the business gets the right items, at a fair price, from reliable vendors, while following budget and approval rules.
There are two broad kinds:
- Direct procurement: buying things that go into the product the company sells, such as materials and components.
- Indirect procurement: buying things that keep the business running, such as software, marketing services, travel and office equipment.
In small businesses, the owner or office manager often handles procurement. Larger companies have dedicated procurement or “sourcing” teams and use purchasing software.
The procurement process step by step
- Identify the need. A team realizes it needs something, such as a new design tool.
- Submit a purchase request. The team explains what it needs, why and the estimated cost.
- Find and evaluate suppliers. For bigger purchases, procurement may send an RFI, RFQ or RFP.
- Negotiate and sign a contract. This may include an MSA, SOW or SLA.
- Issue a purchase order (PO). The official order sent to the supplier.
- Receive and check the goods or services. Confirm what arrived matches the order.
- Pay the invoice and review the supplier. Accounts payable pays, and procurement tracks supplier performance for next time.
Examples of procurement in emails and messages
Employee to manager: “I found a project management tool we need. Should I send it to procurement for approval?”
Procurement email: “Any purchase over $5,000 needs three competitive quotes before we can issue a PO.”
Slack: “Procurement is still negotiating the vendor contract, so we can’t start until next month.”
Finance update: “Procurement saved 12% on our cloud contract by consolidating suppliers.”
Procurement vs purchasing
| Procurement | Purchasing | |
|---|---|---|
| Scope | The whole process, from need to supplier management | The buying step: placing and paying for orders |
| Focus | Strategy, value, risk, relationships | Transactions |
| Timeframe | Long-term | Short-term |
Purchasing is one part of procurement.
How to work with procurement correctly
- Involve procurement early. Bringing them in before you promise a vendor anything saves time and avoids rework.
- Explain the business need, not just the product. Procurement may know a cheaper or already-approved option.
- Know your approval limits. Many companies require extra sign-off above certain amounts.
- Don’t sign contracts yourself unless you are authorized to.
- Plan for lead time. Large purchases with legal review can take weeks.
Related terms
See more in our Business and Finance hub.
FAQ
What is procurement in simple words?
Procurement is how a business gets the things it needs from outside suppliers, including choosing the supplier, agreeing on terms, buying and paying.
What does a procurement team do?
A procurement team finds suppliers, compares quotes, negotiates contracts, issues purchase orders and manages supplier relationships to control costs and risk.
What is the difference between procurement and purchasing?
Purchasing is the act of ordering and paying for goods. Procurement is the broader process that includes sourcing, negotiating and managing suppliers.
What is a purchase order?
A purchase order (PO) is an official document a buyer sends a supplier listing what is being ordered, the quantity, price and delivery terms.
What are direct and indirect procurement?
Direct procurement buys materials that go into the products a company sells. Indirect procurement buys goods and services that support operations, such as software or office supplies.
