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What is Procurement?
Procurement is the process by which organizations acquire goods, services, or works from external suppliers to support operations and strategic objectives.
Definition
Procurement is the structured process of sourcing, purchasing, and managing supplier relationships to obtain goods and services at optimal value.
Key Takeaways
- Covers sourcing, purchasing, contracting, and supplier management.
- Focuses on value, cost, quality, and risk—not just price.
- Plays a strategic role in efficiency and competitiveness.
Understanding Procurement
Procurement extends beyond simple purchasing. It involves identifying needs, evaluating suppliers, negotiating contracts, managing risks, and ensuring compliance with policies and regulations.
Modern procurement functions emphasize strategic sourcing, supplier partnerships, sustainability, and digital procurement systems. Effective procurement can reduce costs, improve quality, and strengthen supply chain resilience.
In both public and private sectors, procurement is governed by policies designed to ensure transparency, fairness, and accountability.
Real-World Example
A manufacturing company uses procurement teams to source raw materials from multiple suppliers, negotiate long-term contracts, and ensure continuity of supply while managing cost volatility.
Importance in Business or Economics
Procurement directly affects profitability, operational continuity, and risk management. At a macro level, public procurement influences economic development, market competition, and infrastructure delivery.
Types or Variations
Direct Procurement: Purchase of raw materials and components.
Indirect Procurement: Acquisition of services and non-production goods.
Strategic Procurement: Long-term sourcing aligned with business goals.
Public Procurement: Government purchasing under regulatory frameworks.
Related Terms
- Supply Chain Management
- Strategic Sourcing
- Vendor Management
Sources and Further Reading
- Investopedia — Procurement
- Chartered Institute of Procurement & Supply (CIPS) — Procurement Best Practices
- World Bank — Public Procurement Frameworks
Quick Reference
- Acquires goods and services from suppliers.
- Goes beyond purchasing to strategic value creation.
- Critical for cost control and supply resilience.
Frequently Asked Questions (FAQs)
How is procurement different from purchasing?
Purchasing is transactional, while procurement is strategic and end-to-end.
Why is procurement important?
It affects cost, quality, risk, and supplier performance.
Is procurement only for large organizations?
No. Organizations of all sizes benefit from structured procurement practices.
