Types of Procurement

Procurement can be classified in several ways: direct or indirect procurement, depending on how the company will use the purchased items. Alternatively, it can be classified as procurement of goods or services, according to the items being purchased.

Direct procurement refers to obtaining everything required to produce a finished product. For a manufacturing company, this includes raw materials and components. For a retailer, this includes any item purchased from a wholesaler for resale to customers.

Indirect procurement usually involves purchases of items that are essential to ongoing operations but do not directly contribute to the company’s bottom line. This can include anything from office supplies and furniture to advertising campaigns, consulting services, and equipment maintenance.

Procurement of goods largely refers to the procurement of physical items, but it can also include items such as software subscriptions. Effective procurement of goods usually relies on good supply chain management practices (may include direct and indirect procurement)

Procurement of services focuses on purchasing people-based services. Depending on the company, this may include hiring individual contractors, contingent labor, law firms, or on-site security services (may include direct and indirect procurement)

How Procurement Works

The procurement process usually includes several stages. The business identifies certain goods and/or services it needs, finds the suppliers that will help the company achieve its business goals, negotiates terms and costs, and then purchases and receives the relevant items. A small business may have only one person handling the procurement of all goods and services. Larger companies may have a team of people specializing in dealing with different suppliers or assisting specific departments within the organization. For certain items, the team may need to gather information from several different departments to determine the company’s overall requirements. It is important to remember that procurement is not made up of a series of isolated actions — it is an ongoing process. For example, businesses usually strive to create ongoing relationships with major suppliers in order to obtain the best service and the lowest possible costs, which ultimately translates into higher profit margins. Companies may also need to conduct regular quality assurance checks and performance analysis to make sure suppliers consistently meet expectations.