A procurement process gives businesses a structured way to identify needs, select suppliers, negotiate terms, and complete purchases.
When it’s streamlined, it helps procurement teams control spending while making sure purchases meet business, financial, and operational requirements.
As organisations work with more suppliers and manage increasingly complex purchases, procurement can quickly become difficult to manage manually. Standardised workflows and procurement technology can help teams maintain visibility and control throughout the purchasing lifecycle.
What Is Procurement?
Procurement is the process of sourcing and acquiring the goods and services an organisation needs to operate. It can cover everything from office supplies and professional services to software, raw materials, and large-scale equipment.
The process goes beyond simply buying something. Procurement teams assess what the business needs, identify suitable suppliers, compare offers, negotiate terms, and make sure purchases are approved and aligned with company requirements.
For larger or recurring purchases, they may also manage the supplier relationship and monitor performance over time.
Depending on the purchase, procurement may involve teams such as finance, IT, legal, and the department making the request. Their involvement helps ensure purchases meet business requirements, stay within budget, and comply with internal policies.
The way procurement is managed varies between organisations. Some rely on emails, spreadsheets, and manual approvals, while others use dedicated procurement software to centralise information, automate workflows, and give teams better visibility over spending.
→ 💻 For more on streamlining the procurement process, read our guide on procurement optimisation.
Procurement vs purchasing
Procurement and purchasing are closely related, but they are not the same thing.
Procurement | Purchasing |
|---|---|
Covers the entire process of acquiring goods and services | Focuses on the transactional act of buying goods and services |
Starts by identifying a business need | Usually starts once a purchasing decision has been made |
Includes supplier sourcing, evaluation, and selection | Includes placing orders and coordinating deliveries |
Involves negotiating prices, contracts, and terms | Follows the agreed pricing and purchasing terms |
Includes supplier relationship and performance management | Focuses mainly on completing individual transactions |
Has a broader, more strategic role in the organisation | Has a more operational and administrative role |
Example: comparing SaaS vendors, negotiating a contract, and selecting a supplier | Example: creating a purchase order and processing the supplier invoice |
Purchasing focuses mainly on the transactional side of buying goods or services. This includes placing orders, receiving goods, processing invoices, and making payments.
Procurement is broader and more strategic. It includes everything from identifying a business need and sourcing suppliers to negotiating contracts, managing supplier relationships, and evaluating performance.
In other words, purchasing is one part of the broader procurement process.
4 Types of procurement process
Businesses use different procurement processes depending on what they are buying and how strategically important the purchase is.
1. Direct procurement
Direct procurement involves purchasing goods and services that directly contribute to the production of a company's products or services.
For example, an automobile manufacturer purchasing steel, tyres, or electronic components for its vehicles is engaging in direct procurement.
Because these purchases directly affect production, procurement teams often need to maintain close relationships with suppliers and carefully manage availability, pricing, quality, and delivery schedules.
2. Indirect procurement
Indirect procurement covers goods and services that support business operations but do not become part of the final product.
Examples include:
- SaaS subscriptions
- Office equipment
- Marketing services
- Recruitment services
- Business travel
- Cleaning services
For example, a company purchasing a project management platform for its employees is carrying out indirect procurement.
Indirect procurement can become difficult to control because purchases are often distributed across multiple departments and involve a large number of suppliers.
3. Strategic procurement
Strategic procurement focuses on purchases that can have a significant financial or operational impact on the organisation.
For example, a company selecting a new cloud infrastructure provider may compare several suppliers, negotiate pricing and service levels, assess security requirements, and sign a multi-year contract.
Strategic procurement takes a long-term view of supplier relationships and aims to maximise value rather than simply complete a purchase.
4. Operational procurement
Operational procurement focuses on the day-to-day execution of purchasing activities.
For example, once a company has selected a supplier for office equipment, operational procurement may involve creating purchase orders, confirming deliveries, checking invoices, and processing payments.
While strategic procurement determines how and from whom a company should buy, operational procurement ensures those decisions are carried out efficiently.
8 Steps in the procurement process
While the exact workflow differs between organisations, most procurement processes follow a similar sequence.
Step 1: Identify the need
The process starts when a department identifies a need for a product or service.
The requester should define what is required, why it is needed, when it is needed, and any relevant specifications or budget constraints.
For example, an IT team may need a new cybersecurity platform. Before looking for suppliers, it may define the number of users, required security features, integration requirements, and available budget.
Clearly defining the need helps prevent unnecessary purchases and gives procurement teams clear criteria for evaluating suppliers.
Step 2: Submit a purchase request
Once the need has been established, the employee or department submits a purchase request.
The request may include the product or service required, estimated cost, business justification, preferred supplier, and budget information.
The request can then be routed to the relevant stakeholders for approval.
A standardised purchase request process prevents employees from making purchases without the necessary oversight and gives procurement teams visibility into upcoming spending.
Step 3: Source and evaluate suppliers
If a suitable supplier has not already been selected, procurement teams can begin the sourcing process.
Depending on the purchase, this may involve researching suppliers, requesting quotes or proposals, and comparing potential vendors.
Suppliers can be evaluated based on:
- Price
- Quality
- Experience
- Capabilities
- Security and compliance
- Delivery times
- Payment terms
- Customer support
The cheapest supplier is not necessarily the best option. Procurement teams should consider the total value and potential risks associated with each supplier.
Step 4: Negotiate pricing and terms
Once procurement teams have identified suitable suppliers, they can negotiate commercial and contractual terms.
Negotiation is not limited to asking for a lower price. Teams can also negotiate contract length, payment terms, discounts, renewal conditions, service levels, usage limits, implementation fees, and termination clauses.
What should you say when negotiating with a supplier?
A good procurement negotiation should be based on evidence rather than simply asking a supplier to "give us a better price."
For example, instead of saying:
"Can you give us a discount?" → "We've reviewed the proposal against our budget and current market pricing. If we commit to the annual contract today, can you offer a 10% reduction?"
You can also use alternatives to create leverage:
"We're currently evaluating two other suppliers. We'd prefer to work with you, but we'd need you to improve the commercial terms to make the proposal competitive."
Or negotiate several terms together:
"If we commit to a two-year agreement, could you reduce the annual price and include premium support at no additional cost?"
Enter negotiations with a clear target, supporting data, and an understanding of what you are willing to trade.
→ 💻 For more tips on negotiating with SaaS vendors, see Najar's guide on how to handle SaaS contract negotiation.
Step 5: Approve the purchase
After the supplier and terms have been selected, the purchase usually needs to receive the required internal approvals.
Approval requirements can depend on the purchase value, department, supplier, or type of product or service.
A small software subscription may only require a manager's approval, while a large technology contract could require procurement, finance, legal, IT, and security teams to review it.
A defined approval workflow helps organisations maintain financial control without unnecessarily slowing down purchasing.
Step 6: Create a purchase order
Once the purchase is approved, the organisation can issue a purchase order (PO) to the supplier.
The PO documents the purchase details, including the products or services being purchased, quantities, prices, delivery information, and agreed terms.
It provides both the buyer and supplier with a clear record of what has been ordered.
Step 7: Receive the goods or services
The organisation then confirms that the supplier has delivered what was agreed.
For physical products, this may involve checking quantities and inspecting the goods.
For services or software, the organisation may need to confirm that the agreed scope has been delivered, the service is functioning correctly, or the required users have received access.
Any discrepancies should be recorded and addressed with the supplier.
Step 8: Review supplier performance
The final stage is reviewing the supplier's performance, particularly for recurring or strategic purchases.
Teams can evaluate factors such as:
- Product or service quality
- Delivery performance
- Responsiveness
- Pricing
- Contract compliance
- Support
- Overall value
These reviews can help procurement teams determine whether to renew a contract, renegotiate its terms, or look for an alternative supplier.
What are the common principles of procurement?
Although procurement processes vary between organisations, several principles generally guide effective procurement.
- Value for money: Procurement should consider the total value of a purchase rather than focusing only on the lowest initial price.
- Transparency: Purchasing decisions should be documented and traceable, particularly for significant or sensitive purchases.
- Fair competition: Where appropriate, organisations should compare multiple suppliers to create competition and identify the strongest offer.
- Compliance: Purchases should follow internal policies as well as relevant legal, regulatory, security, and contractual requirements.
- Accountability: Roles and responsibilities should be clearly defined so that the right people are responsible for requesting, approving, purchasing, and managing goods and services.
- Risk management: Procurement teams should consider financial, operational, security, and supplier risks before committing to a purchase.
These principles help ensure procurement decisions are consistent and aligned with the organisation's wider objectives.
How is AI enhancing procurement?
AI is changing procurement by helping teams analyse large amounts of purchasing, supplier, and contract data more quickly.
Instead of relying entirely on manual analysis, procurement teams can use AI to identify patterns and potential opportunities across their procurement activity.
Automate procurement tasks
AI can help automate repetitive activities such as categorising spend, extracting information from documents, summarising contracts, and routing purchase requests.
This reduces the amount of manual administrative work procurement teams need to perform.
Identify savings opportunities
AI can analyse spending patterns to identify potential savings opportunities, such as duplicate suppliers, unused subscriptions, unusual price differences, or opportunities to consolidate purchases.
For example, if several departments purchase similar services from different suppliers, AI can flag the pattern for further investigation.
Improve supplier analysis
AI can help procurement teams compare supplier information and identify relevant factors when evaluating vendors.
It can analyse information across suppliers and help teams identify potential risks or opportunities that might otherwise take significant time to uncover manually.
Support negotiations
AI can also support supplier negotiations by analysing historical spending, contract terms, usage data, and pricing information.
This can help procurement teams understand where they have leverage and which terms may be worth negotiating.
AI does not replace procurement expertise, but it can give teams better information and reduce the time required to analyse it.
Manage your procurement process with Najar
Managing the entire procurement process manually can quickly become difficult as an organisation grows.
Purchase requests may arrive through email, approvals may happen in chat, supplier information may sit in spreadsheets, and contracts may be stored in different locations. This makes it harder to maintain visibility from the initial request through to the final payment.
Procurement software can connect these stages in a single workflow.
With a platform like Najar, businesses can centralise purchase requests, streamline request approvals, source vendors, manage contracts, optimise expenses, and much more using AI.
Technology can also automate repetitive steps, provide better visibility into spending, and give procurement teams the data they need to make better purchasing and negotiation decisions.
With centralised workflows and visibility into procurement activity, teams spend less time chasing requests and more time focusing on strategic purchasing and savings opportunities.
Book a demo with Najar to see how it can help you manage your procurement process.
Najar can help you manage your procurement process.
