An independent guide to source-to-pay.

What does procurement mean?

In everyday English, to procure something is to obtain it. In an organisation, procurement is the set of activities that turns a need into a delivered good or service from an outside supplier, paid at the agreed price. It starts before any order is raised, when someone decides what is needed and how much can be spent, and it ends after the supplier is paid and its performance has been recorded.

Formal definitions say the same thing in their own words. EU public procurement law (Directive 2014/24/EU, Article 1(2)) defines procurement as the acquisition, by means of a public contract, of works, supplies or services by contracting authorities from economic operators they choose. The US federal rules use the word acquisition and, in FAR 2.101, state that it begins when the agency's needs are established, then runs through the description of requirements, the selection of sources, the award of the contract and its administration. A private company has no such legal definition, but it uses the word with the same scope.

The word also names the function: the procurement team, or procurement department, is the group that runs these activities, sets the buying rules and negotiates with suppliers, while budget holders across the organisation express the needs and approve what is bought.

Is procurement the same as purchasing?

Procurement and purchasing are not the same thing. Purchasing is the transactional part of procurement: raising the requisition, issuing the purchase order, receiving the goods and paying the invoice. Procurement is wider: it includes deciding how to buy a category, choosing the supplier through sourcing, negotiating and managing the contract, and managing the supplier over time. Sourcing sits between the two, as the part of procurement that selects the supplier. A separate guide comparing procurement, purchasing and sourcing in detail is being written.

How does procurement work from end to end?

Seen from a distance, procurement is one route with two halves. The first half decides what to buy, from whom and on what terms; the second half orders, receives and pays, again and again, under those terms. The whole route is called source-to-pay; its second half is called procure-to-pay. This guide is organised as six lines along that route, the same six shown on the map above.

Not every purchase travels the whole route. A one-off, low-value purchase may go straight from request to payment under a simple approval rule, while a large or strategic purchase passes through every line. Running the route in software is called e-procurement. A step-by-step guide to the procurement process, and one to the source-to-pay process, are being written.

What are the main types of procurement?

Two distinctions come up in almost every procurement conversation: what is being bought, and who is buying.

Direct procurement

Buying what goes into the products or services an organisation sells: raw materials, components, packaging, subcontracted manufacturing. It is tied to production plans, and a supply failure stops output.

Indirect procurement

Buying what the organisation needs to run itself: IT, facilities, professional services, travel, marketing, office supplies. Spend is spread across many suppliers and many requesters, which makes control the main difficulty.

Public procurement

Buying by governments, public bodies and other contracting authorities with public money. It follows procurement law, published procedures and rules on transparency and equal treatment of bidders.

Private procurement

Buying by companies and other private organisations. Each sets its own policy, approval levels and procedures, within general contract and competition law.

Public procurement is large: across OECD countries it amounted to 12.7% of GDP and 29.9% of total government expenditure in 2023, according to the OECD's Government at a Glance 2025. Many governments publish their tenders and contracts as open data, for example in the Open Contracting Data Standard. A third distinction, by object, separates goods, services and works (construction), because each is specified, priced and accepted differently. A dedicated guide to direct and indirect procurement is being written.

Why does procurement matter?

For many organisations, what they buy from suppliers is a large share of their costs, so the terms agreed at sourcing decide a large share of the money spent afterwards. Procurement also carries risk: a supplier that fails, a contract that renews without anyone noticing, or an invoice paid twice. Its controls, such as approval before commitment, a purchase order before the invoice and a match of order, receipt and invoice before payment, exist to catch those failures before they cost money.

Finally, procurement is where an organisation's policies meet its suppliers: rules on competition, on sustainability, on data protection or on local suppliers only take effect if they are written into the sourcing criteria and the contract.