Procurement Meaning: Here’s What It Means and How To Use It

If you’re in business, knowing the definition of procurement is absolutely essential. In a world of supply chain management, purchase orders, stakeholders, and social responsibility, procurement covers many grounds. From purchasing goods and services to meeting the company’s needs and maximizing the bottom line, procurement is one of the most most important aspects of modern business. 

If you want to make sure all business partnerships are successful and ensure your business’s life cycle is as healthy as possible, you should know what procurement functions are. Knowing how to effectively communicate in the world of business is half of the battle to finding success, and learning how to clearly understand procurement is critical. 

Here is everything you need to know about procurement activities, how procurement is different from purchasing decisions, and how to use this language in the proper context. 

What Is Procurement? 

The term procurement (prəˈkjʊəmənt) comes from the word procure, which means “to obtain or get by care and effort.”

When people use procurement in business, they’re referring to obtaining goods or services. In other words, procurement is how you manage your company’s purchasing department. The procurement goal is to find the best deals on items like office supplies and raw materials for your manufacturing facilities. You can also use procurement when buying services like IT support from an outside vendor.

In business, procurement is when you obtain goods along the supply chain. The goods are purchased from a supplier and can include anything from food and clothing to vehicles and machinery. Procurement is part of the supply chain.

Many larger companies have a very detailed and intensive procurement process that ensures the act of procuring is handled by a specific procurement department. These processes and procurement strategies are essential to ensuring that finished products get to customers and maintaining healthy supplier relationships. 

To use procurement properly in your business, you must understand its meaning. Here are some synonyms for procurement, along with their definitions:

• Acquisition – The act of getting something or someone to join a team or organization
• Fetching – To pull something from another location or person and bring it to the requester (i.e., “I’ll fetch my purse from the car.”)
• Sourcing – Obtaining goods or services, in addition to where they come from

Indirect Procurement vs. Direct Procurement

Indirect procurement is when you buy goods or services from a third party, such as a supplier, distributor, broker, or agent. Direct procurement refers to buying goods or services directly from the manufacturer, producer, or other direct providers. A procurement team handles these procurement cycles, almost always led by the chief procurement officer or the CPO. 

For example, suppose your company sells its products through retail outlets (such as Walmart). In that case, indirect procurement will be used because you purchase products from the supplier that distributes them to retailers like Walmart. 

Direct procurement would be used if your company manufactures its own development and sells directly to retailers (for example, Clorox buys bleach made by Clorox). This is because Clorox is purchasing bleach directly from itself rather than indirectly through another company. 

What Is the Difference Between Procurement and Purchasing? 

Many people interchange procurement with purchasing. There is a subtle difference between these two words. Procurement is obtaining goods and services for a company, whereas purchasing is the act of paying for goods and services.

Purchasing encompasses all of the steps involved in buying what you need to run your business. It includes:

• Finding suppliers that can provide what you need at the right price
• Negotiating prices with suppliers (if there are multiple bids)
• Reviewing supplier contracts to ensure they comply with legal requirements

Purchasing refers to the act of receiving something in return for payment. Procurement means to obtain or get something through a process. The process of procurement involves several steps, such as:

• Identifying an item that is needed
• Creating a specification sheet (also called a request for proposal or RFP)
• Issuing the RFP with information about the item and its specifications to multiple suppliers (who may then submit bids on their ability to provide that item)
• Evaluating each bid according to its cost, quality level, and other factors such as availability and delivery date, making sure no one company dominates any aspect of this evaluation

How Does Procurement Happen?

While procurement used to be a tedious and time-consuming process, modern technology has made procurement management much more manageable. E-procurement and procurement software enables businesses of all sizes and types to accurately assess procurement costs and focus more energy on competitive bidding in the public sector. 

While the various kinds of procurement software may vary, almost all of these pieces of software make it much easier to handle all of the essential purchasing needs of a company in a simple way. If you’re looking for procurement software for your own business or organization, take a look at several options to find the one that suits your needs best. 

Conclusion

The modern business world has proven that it’s essential to be a skilled communicator, no matter who you are or what you do. If you want to truly advance to your maximum potential as a person, learning how to communicate effectively is absolutely essential. 

That’s precisely why The Word Counter exists—to provide a resource for virtually anyone to learn how to effectively communicate with ease. If you have ever gotten confused by strange grammar rules or frustrating phrases, spending time with The Word Counter can help you truly maximize your potential as a person. 

Check out our blog for more articles and ways that you can learn how to effectively use language to your advantage every day of your life! 

Sources: 

Procurement Definition & Meaning | Dictionary.com

PROCUREMENT | Cambridge English Dictionary

Procurement Definition | Investopedia