The procurement function is often misunderstood as just buying things, but it’s so much more than that. Done right, procurement activities play a crucial role in keeping your business efficient, compliant, and competitive.
It’s not just about cost reduction and risk mitigation. It’s about strategic sourcing, strong supplier relationships, crafting a clear request for proposal to get exactly what you need, and managing delivery schedules. It’s also about contract management, navigating regulatory requirements, and safeguarding your business against potential risks that could derail daily operations.
In this post, we break down why procurement matters, how to create effective procurement strategies, and how it can help you make informed decisions, both now and in the long run.
- What is procurement?
- Purchasing vs. procurement: What’s the difference?
- How can procurement support my business?
- How procurement works
- The steps in the procurement process
- Why you should automate the procurement process
- How ProcurementExpress.com can level up your procurement process
What is procurement?
Procurement is more than just buying stuff. It’s the strategy behind getting what your business needs to thrive. It’s about people, processes, and paperwork working together to ensure you spend money wisely.
Where the purchasing process is transactional, procurement is strategic. It covers everything from figuring out what you need and researching suppliers to negotiating contracts and aligning decisions with your business goals.
If we strip down the idea of procurement to its core, it would be that it’s the act of obtaining goods and/or services for business purposes. Procurement also works with your supplier relations, your overall business strategies and objectives, and even your brand.
In other words, the procurement department ensures that the company is getting what it needs to do the job.
This means a procurement strategy is the “what,” “how,” “where,” and “why,” while a procurement plan is the “when.”
To get it right, start by taking stock:
- What are your business goals (like boosting profits or improving efficiency)?
- What resources and supplies do you have, and what’s missing?
- How does your budget and timeline stack up against short- and long-term needs?
From there, you can craft a strategy that prioritizes cost efficiency and savings while considering options like outsourcing. Outsourcing can bring perks—expertise, cost savings, better supplier deals—but it also means less control over quality standards.
Once the strategy is rolling, track your results. Clear metrics help you see what’s working, what’s not, and where to improve. At its best, procurement is a lever for growth, not just a cost center.
What are the different types of procurement?
Procurement isn’t one-size-fits-all. It varies depending on what your business needs and how you operate. Here are the main types to know:
- Direct procurement: Involves goods and services directly tied to your core business operations, like raw materials for manufacturing or inventory for retail.
- Indirect procurement: Covers what keeps the lights on—things like office supplies, software, or facility management.
- Goods procurement: Focuses on physical items your business needs, whether it’s equipment, inventory, or materials.
- Services procurement: Deals with hiring external expertise, such as consultants, IT services, or cleaning crews.
- Sustainable or ethical procurement: Prioritizes suppliers and goods that align with ethical standards via ethical sourcing, environmental impact, etc.
Purchasing vs. procurement: What’s the difference?
People often use “purchasing” and “procurement” interchangeably, but they’re not the same. The difference comes down to tactics vs. strategy.
- Purchasing is transactional. You identify something you need, order it, pay for it, and receive it. It’s about the immediate process—approvals, purchase orders, and payments.
- Procurement, on the other hand, is strategic. It’s the broader process of identifying needs, researching suppliers, negotiating supplier contracts, and creating a system that ensures long-term value. It’s about making informed purchasing decisions to support your business goals.
For instance, if you’re running a bakery and you need a credit card payment system, you research providers, choose one that fits, and buy the software. That’s purchasing. Now, take flour, which is essential to everything you bake. You don’t just buy from the first supplier you find. You evaluate local suppliers, negotiate the best terms, and secure a reliable contract. That’s procurement.
Or put another way, Purchasing is about buying. Procurement is about planning. Both are important, but procurement sets the stage for purchasing to deliver maximum value.
How can procurement support my business?
Regardless of what they do, all businesses have one core objective: to be profitable. In that regard, procurement has multiple ways to help you.
Let’s take a look:
Procurement can help you cut costs.
Procurement is, first and foremost, about finding the best suppliers and getting you the best prices. This could be through a change in your current supplier, renegotiating a contract for better terms, or finding ways to acquire discounts for your purchases. This is the bread and butter of procurement. It goes without saying that reducing your costs will ultimately increase your profit margins.
Procurement can support and enhance your brand.
More than just focusing on cost, procurement also has an interest in helping you achieve your organization’s strategy. If your strategy is having a low-cost product, procurement can help you find the suppliers that allow you to achieve that. The same applies if you want to deliver a high-quality product. Procurement is all about finding the suppliers that align with your organization’s goals.
Procurement reduces risks and helps you grow
For your business to thrive, a healthy flow of your needed goods is necessary. Disruptions in your supply chain can have devastating consequences. Procurement helps reduce that risk by carefully examining and vetting any potential suppliers. They look into their history to ensure that the supplier can handle your requests, and that should an issue arise they’ll be able to navigate it.
Other ways procurement can help your business
In its quest for the perfect supplier, procurement looks into all aspects of a candidate. This includes elements of corporate social responsibility, such as environmental policies and sustainability concerns.
If your brand places a big emphasis on being ethical or environmentally friendly, you’d want to ensure that all materials and services you source come from suppliers that uphold those same values, or you risk damaging your image.
Not only that, but procurement can also help you avoid suppliers that have issues with corruption, child labor, or other unsavory elements.
How procurement works
Procurement often gets reduced to “cutting costs,” but it’s so much more than that. It’s about balancing strategy, planning, and execution to deliver the right results for your business. Enter the Five Rights of Procurement, a simple yet powerful framework that breaks down the process into five key pillars:
1. Right product
This is about sourcing materials or services that meet quality, performance, and business needs. It’s procurement’s job to balance competing priorities: design teams want perfection, CFOs want savings, and suppliers hold their own cards. Success here requires understanding product specs, supplier reliability, and market trends.
2. Right place
Procurement ensures goods are delivered where they’re needed—whether that’s the final destination or a point along the supply chain. This involves market analysis, careful planning for logistics, customs, freight, and even sustainability. A misstep here can mean delays, added costs, or reputational damage.
3. Right quantity
Too little, and you risk stockouts and lost sales. Too much, and you’re stuck with excess inventory, storage costs, or waste. Procurement managers need to nail the procurement planning process which balances demand planning, inventory management, and contingency plans.
4. Right time
Timing is critical. Late deliveries disrupt operations, while early arrivals tie up cash and space. Building flexibility into contracts, sourcing locally when possible, and collaborating with suppliers to avoid bottlenecks can make or break your supply chain management.
5. Right price
Price isn’t everything, but it matters. The “right price” is the one that delivers value when factoring in freight, insurance, supplier reliability, and long-term relationships. The procurement team must weigh risks, negotiate contract terms, and look beyond the sticker price.
The steps in the procurement process
Procurement professionals follow an entire procurement process to ensure optimal supplier performance and timely deliveries.
Here’s how the entire procurement cycle typically unfolds:
- Identify needs. Gather purchase requests and define what’s required.
- Research key suppliers. Evaluate options to find the best fit for quality, cost, and reliability.
- Negotiate payment terms with suppliers. Build strong relationships with reliable suppliers by securing favorable terms.
- Place orders. Ensure purchase requests are accurate and approved.
- Receive goods or services. Verify everything meets the agreed specifications.
- Evaluate procurement KPIs. Review relationships with suppliers, overall financial performance, and all other procurement key performance indicators (KPIs).
Why you should automate the procurement process
Manual procurement processes are slow, error-prone, and hard to scale. Automating procurement helps streamline tasks like vendor selection, purchase orders, and approvals, saving time and reducing mistakes.
With the best procurement software, you can turn procurement into a strategic advantage by:
- Tracking spending in real-time.
- Centralizing supplier data for better decision-making.
- Improving compliance and reducing risks.
- Optimizing inventory and avoiding stockouts.
How ProcurementExpress.com can level up your procurement process
The importance of strong procurement practices in supporting your organization’s daily operations and achieving operational efficiency cannot be overstated. Without an effective procurement process, businesses face increased supply chain risks and missed opportunities to optimize spending.
At ProcurementExpress.com, we help procurement specialists and purchasing managers streamline the purchasing processes, reduce errors, and minimize risks.
Ready to simplify your procurement process? Check out our educational resources. And if you’d like to upgrade your procurement process, reach out to us today.
