Procurement Process Flow & How to Optimize (The 2024 Guide)

What is Procurement?

Procurement is a technique and structured method used to streamline an organization’s procurement process and achieve desired results while saving cost, reducing time, and building win-win supplier relationships. Procurement types can be direct, indirect, reactive, or proactive in nature.

What’s the difference between indirect, direct, and services procurement?

Direct, indirect, and services procurement are subsidiaries of the overarching procurement process and differ in definition, assignments, and more. By taking a deeper look at the difference between these processes and understanding what they comprise, stakeholders will have an easier time taking appropriate measures to fulfill their needs.

Direct ProcurementIndirect ProcurementServices Procurement
Acquisition of goods, materials, and/or services for manufacturing purposesSourcing and purchasing materials, goods, or services for internal useProcuring and managing the contingent workforce and consulting services
Ex: Raw materials, machinery, and resale itemsEx: Utilities, facility management, and travelEx: Professional services, software subscriptions, etc.
Drives external profit and continuous growth in revenueTakes care of day-to-day operationsUsed to plug process and people gaps
Comprises of stock materials or parts for productionUsed to buy consumables and perishablesUsed to purchase external services and staff
Establish long-term, collaborative supplier relationshipsResort to a short-term, transactional relationship with suppliersMaintain one-off, contractual relationships with suppliers

What is a Procurement Process?

The procurement process is a structured method of procuring goods and services needed for an organization. This process saves cost, reduces time, and builds win-win supplier relationships.

The procurement process is the series of processes that are essential to get products or services from requisition to purchase order and invoice approval. Although we use procurement and purchasing interchangeably, they differ slightly.

While purchasing is the overarching process of obtaining necessary goods and services on behalf of an organization, procurement describes the activities involved in getting process comprises the steps that must be followed while reviewing, ordering, obtaining, and paying for goods/services them. The procurement process in an organization is unique to its context and operations.

Regardless of the uniqueness, every procurement management process consists of 3 Ps’, namely Process, People, and Paperwork.

1. Process

Process comprises the steps that must be followed while reviewing, ordering, obtaining, and paying for goods/services.

2. People

These are stakeholders, and their specific responsibility in the procurement cycle is to initiate or authorize every stage of the process. The number of stakeholders involved is directly proportional to the risk and value of the purchase.

3. Paper

This is the paperwork and documentation involved in every stage of the procurement process – all of which are collected and stored for reference and auditing reasons.

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