What is Procurement? The Guide for Future and New Procurement Professionals

Procurement is the business function that helps an organisation decide what to buy, from whom, on what terms and with what controls. It covers more than purchasing: sourcing, supplier management, contracts, risk, commercial value and the processes that make spending work.

The definition of Procurement is "the process or act of procuring".

You probably expected us to define it as "to buy or purchase a service or an object". But hey, the Dictionary doesn't lie. But we know words have more significant meanings than their literal definition.

Procurement is skilful and artful at times, and it's more than simply buying goods and services if you're doing a decent job of it. And that's the aim we should all have as Procurement Professionals.

Procurement roles reach across sourcing, supplier relationships, commercial risk and contract management. Technology can support the work, but the team still needs to understand the requirement and judge the options.

Procurement is usually discussed in a business context because businesses must buy or procure goods and services to ensure they can operate. However, Procurement has a brand image issue that has been built up of:

You'll also notice that Procurement is often discussed as part of the Supply Chain. Procurement is vital in Supply Chain Management, slotting into the overall Supply Chain Management Process.

Let's explore "Procure: next, which is the verb of Procurement.

To Procure is the act of Procurement. 

To Procure means:

From the above three bullets, you can see that Procurement is much more than a simple act of Purchasing. Purchasing is often looked at as a low-skilled, transactional task. Purchasers will often use a credit card or issue a primary PO out and not worry about everything else that falls within the Procurement Cycle.

Let's make Procurement practical now.

Procurement is the process of involving highly skilled individuals who engage suppliers who have expertise in fulfilling the requirements.

Procurement Pros are some of the most skilled professionals in Business…seriously! Procurement professionals must understand how their business operates to ensure they align with it for maximum value creation. But they also need to know how a Supply Chain works, how its Supply Base operates, and how to deploy effective Contract Management.

A requirement is the Business need that a Procurement Team has created. The Procurement Team uses information provided to it by the internal stakeholders. Or in non-jargon, the internal team is made up of:

Procurement Teams take all of this information and create a requirement document. A Procurement Requirement Document, which contains the procurement specification, is a critical piece of work that Procurement oversee. The Procurement Requirement Document is easily digestible by various suppliers who will offer to undertake the requirement. At least, it should be if the Procurement Professional has done a decent job of drafting it.

Sourcing software can help capture requests, compare responses and organise evidence. AI may support research or a first draft of requirements, but a business owner and the relevant specialists should check the specification before suppliers are asked to respond.

Self-service works when colleagues have clear guidance, approved options and an escalation route. Complex or high-risk purchases still need procurement judgement.

Many Procurement Teams get stuck in the trap of creating jargon-filled requirements that cause confusion and complexity within the bidding supplier teams. The best Procurement Pros do the opposite of this because that approach sucks!

Don't fall foul of this.

The Procurement Requirement Document forms an essential part of the RFX Process within the Sourcing phase of the Procurement Lifecycle.

Procurement will then review, evaluate and select the best Supplier to fulfil the Business Requirements.

It sounds simple, but it is simple when done well and has crazy impactful results for the Business.

Procurement Professionals have various types of Procurement to get stuck into. That's why so many of us love this profession. 

I usually characterise the Procurement activity as being either Indirect or Direct. Then within each of these, we have Goods and Services.  

So we've established that Procurement and that to Procure is more than simply buying.

Procurement includes strategic and transactional work. The team should put effort where value, complexity and risk justify it, while making straightforward purchases easy through clear processes and approved options.

Here are the typical activities that a Procurement Team and Procurement Professionals undertake:

The Procurement team is responsible for extracting the key elements of the Business requirement and working with subject-matter experts to formulate a requirement that a supplier can deliver against.

This is an internal process, and it depends on the type of Procurement, such as Indirect versus Direct Procurement and whether the Procurement Team operates a Category Management Approach).

A Procurement Professional now needs to ensure that their Organisation understands the marketplace. Understanding the marketplace ensures that the wider Supply Chain can meet the requirement.

This may involve conversations with suppliers, the use of data captured by the Organisation and the utilisation of information from external sources/providers.

The Procurement Team needs to understand its Organisation's budget to procure a Supplier's services to fulfil the requirement.

Additionally, depending on the type of Procurement, a make-or-buy analysis might take part.

To keep this general, this would involve a decision-making process as to whether the Organisation should go out to the market for this requirement or use its own internal resources to fulfil the requirements.

Utilising the data captured from the Marketplace Analysis, the Procurement Team will ascertain the budget for this Procurement activity. The budget creation will involve the team requesting the goods or services, the Finance Team, and Procurement.

Use the market analysis to build a realistic supplier shortlist. Check existing approved suppliers as well as new options. Market intelligence tools can speed up discovery, but you still need to validate capability, capacity, commercial suitability and the quality of the evidence.

This will be essential in determining whether this Procurement could be considered a Competitive Procurement, with multiple suppliers invited to bid for the work.

The Procurement Professional needs to look at the existing Approved Suppliers within the Business to see if their requirements can be met by them.

You may also need to look for new suppliers in the marketplace, which will involve building an initial relationship with them.

You may have preliminary conversations with suppliers under a Non-Disclosure Agreement at this stage.

Choose an RFI, RFQ or RFP according to what you need to learn. You may use one or a combination; every purchase does not need all three.

This will include:

It's vital to ensure that you complete this sourcing exercise and get as much value for your budget as possible.

The Procurement Team has selected its preferred Supplier and now enters the Contract Negotiation stage.

You never know; this might be a straightforward contract award without negotiation.

However, some form of negotiation is likely to be instigated by the Supplier, buyer, or both. This stage is finalised once both parties agree to sign the Contract.

Confirm the approved contract version, the authorised signatories and any required internal approvals before signature. Electronic signature can make the workflow easier, where it fits the organisation’s policy and the document’s requirements. Keep the signed agreement and its supporting records accessible.

Depending on the set-up of the Procurement Team, the team will either manage the Contract through to completion or pass the Contract over to a specialist Contract Management Team for them to manage the delivery of the goods and/or services.

This stage is complex and has many processes to govern:

For services-based Procurement, the Contract, usually a Statement of Work, will contain specific deliverables that need to be met. A deliverable is a particular commitment the Supplier has made to the Procurement Team. 

For goods, check the delivered quantity, condition and specification against the order and the agreed acceptance requirements. Record discrepancies promptly and resolve them with the supplier.

For both types, whatever is delivered, you must ensure that the deliverables correlate to what was agreed upon in the Contract. 

First, the Supplier will send you an invoice, and you will need to review this invoice. 

Three-way matching compares the purchase order, the receipt or acceptance record, and the supplier’s invoice. Check quantities, prices and agreed tolerances, then investigate exceptions before payment. For services, the receipt may be evidence that the agreed work or milestone was accepted. Automation helps when the underlying records are accurate.

Once the Business has confirmed that 3-way Matching has been completed, the Supplier's invoice is accepted. You must ensure that the Supplier is paid according to the Contract Payment Terms. 

This merely covers the surface of what Procurement is and does.

You see, it's not a simple definition of simply buying something.

There's a lot to it, and if your Procurement Team isn't operating like this, it's time to start asking WHY?

Now go out there and become the best Procurement Professional you can be. 

No. Purchasing is usually the transactional part of buying. Procurement includes the upstream and ongoing work: supplier selection, commercial terms, contracts, risk and value management.

Its work varies by organisation, but normally includes sourcing, supplier management, contracts, process design, spend analysis, risk and stakeholder support.

It affects cost, resilience, supplier performance, compliance and how easily colleagues can obtain what they need to do their jobs.

Compare procurement, purchasing and supply chain, then read procure-to-pay explained.

For the professional framework, see the CIPS procurement and supply cycle. For the invoice-control detail, see Oracle’s guidance on invoice matching.