What Is Procurement?  

Procurement involves sourcing, purchasing, vetting, negotiating, and managing partner relationships.

  • No business can operate without offering a product or service. Before you open your doors to customers, you need to identify a problem worth solving—then choose a product or service that addresses it.

    Even if you plan to manufacture the product yourself, you’ll still need to source materials. Procurement in business involves finding and purchasing the materials, products, or services your business needs.

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Tailored Procurement Strategy

Your procurement needs depend on your role in the supply chain (e.g., manufacturer vs. retailer).

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Partner Evaluation

Procurement specialists vet suppliers and logistics partners for reliability, cost, and stability.

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Strategic Purchasing

This includes negotiating pricing and managing supplier relationships, essential parts of the procurement process. 


Examples of Purchasing in the Supply Chain

  • Purchasing raw materials from a copper mine to refine
  • Purchasing refined copper to shape into wire, tubing, and other materials
  • Purchasing copper wiring to use in smartphone production
  • Purchasing smartphones to sell at a retail wireless location
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Steps in the Procurement Process   

The basics of the procurement process include three steps: 1. identify needs and demands; 2. select suppliers; and 3. negotiate and finalize contracts. One of the most basic parts of doing business is identifying what your customers want. You need to understand your customers before you begin.  

Once you know what your customers want, find the best way to supply it. Do your research to find a supplier that offers the best product at a reasonable price. Finally, negotiate contracts with your supplier to meet the supply and demand. The procurement process is necessary for starting and continuing your business operations. 

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1. Identify Needs and Demands

Get started by identifying who your customers are and what they want. Whether you are targeting a specific group or a wide range of customers, you need to do market research. This research helps you understand what they want in a product or service. 

Learn about the problems your customers face. Use surveys, focus groups, interviews, social media, and other research methods. 

It can help to create an avatar of your ideal customer. This avatar should include their age, gender, income, location, and any other important details.  

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2. Select Suppliers 

Not all suppliers are equal. You’ll find some suppliers source better materials but might be less focused on their customer service. Identify your pressure points and weigh your options before you start. Here are some things to consider when shopping for suppliers: 

  • Product quality—Your customer will neither continue to purchase a substandard product, nor will they return for inadequate service. 
  • Reliable delivery—Replenish your inventory before your shelves become empty. 
  • Communication—Good communication is the key to every successful relationship. 
  • Pricing—You need to worry about your margins while staying competitive in your industry. 
  • Financial stability—A supplier facing insolvency will not remain reliable for long.  
  • Capabilities—Whether you’re selling a physical product or a service, you need to know if your partner can keep up with your demand. 
  • References—Check references with companies they’ve worked with previously.  
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3. Negotiate and Finalize Contracts 

Once you’ve chosen your supplier, begin negotiating contract terms. Consider points like pricing, delivery schedules, conditions for late or missed orders, and other conditions specific to your business.  

When you reach an agreement on terms, draw up a contract. Have your legal team review the contract before you sign it. This will help protect your business. It also helps to ensure everything with your new partner goes well. 

The contract should include points like delivery, production turnaround, quality assurance, late penalties, and similar conditions. A thorough contract protects your business and helps ensure that suppliers deliver quality products on time. 

Types of Procurement

Procurement can be broken into three types: indirect procurement, direct procurement, and strategic procurement. Each plays a necessary role in keeping your business moving. This is true whether you are planning for long-term success or daily operations or for getting products to sell. The procurement process ensures you cover your bottom line while offering customers quality products and timely service. 

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1. Indirect Procurement

It takes plenty of peripheral items to keep your business running every day. Indirect procurement includes obtaining these items from a preferred supplier.  

Indirect procurement includes office supplies, equipment, and advertising. An example of indirect procurement is the furniture in the waiting area. It also includes the computers used by employees and the coffee in the break room at a car dealership.  

Indirect vendors can have a monthly or quarterly supply delivery. They can also provide one-time expenses for your office. While indirect procurement items are important for your daily operations, they do not impact customer service or boost profits.

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2. Direct Procurement  

Direct procurement is likely the first thing that comes to mind when considering day-to-day business operations. 

Purchasing inventory for a retail store is a part of direct procurement. Hiring logistics services is another aspect of direct procurement. The items and services you directly procure will have an immediate effect on your bottom line. 

Let's revisit the car dealership example: The dealership obtains the vehicles for sale on the lot through direct procurement. A good procurement process will balance product quality and supply chain partners. This helps you offer your customers fair prices. 

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3. Strategic Procurement    

Strategic procurement is important for the long-term success of your business. This is different from direct and indirect procurement, which focus on immediate needs. Strategic procurement involves making your procurement strategy, managing contracts, sourcing, and managing your suppliers. 

These activities help you complete the initial procurement of supplies. They also help you maintain relationships and products over time. 

Our car dealership will plan vehicle transport, auto parts delivery, and coffee supply via strategic procurement. A clear vision for the future is important when building business relationships. This includes suppliers, logistics companies, and others in your supply chain. 

Power Your Supply Chain With GS1 US  

Track products seamlessly with GS1 Standards for consistent, accurate supply chain management. Use Global Trade Item Numbers (GTINs) in barcodes like UPC, EAN®, and GS1 DataMatrix to help ensure precise counts and reporting in transit.