An independent guide to source-to-pay.

What does procurement mean?

In everyday English, to procure something means to get it. In an organisation, procurement is the set of activities that turns a need into a good or service delivered by an outside supplier and paid at the agreed price. It starts before any order is placed, when someone decides what is needed and how much can be spent. It ends after the supplier is paid and its performance is recorded. For example, when a hospital ward needs new beds, procurement covers the budget decision, the choice of supplier, the order, the check at delivery and the payment.

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. Contracting authorities are the public buyers; economic operators are the suppliers. The US federal rules use the word acquisition. FAR 2.101 states that it begins when the agency's needs are established. It then runs through the description of requirements, the selection of sources (suppliers), the award of the contract and its administration, that is, the management of the contract after it is signed. A private company has no legal definition of this kind, but it uses the word with the same scope.

The word also names the function. The procurement team, or procurement department, runs these activities, sets the buying rules and negotiates with suppliers. Budget holders, the managers across the organisation who control a budget, state 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 (the internal request to buy), issuing the purchase order, receiving the goods and paying the invoice. Procurement is wider. It also includes deciding how to buy a category, that is, a group of similar purchases such as IT hardware or cleaning. It includes choosing the supplier through sourcing, negotiating and managing the contract, and managing the supplier over time. Sourcing sits between the two: it is 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 as a whole, 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 under those terms, again and again. For example, the first half ends with a contract for office cleaning; the second half then orders, checks and pays for the cleaning each month. 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. 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 discussion: 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 follows the production plan: if supply fails, production stops.

Indirect procurement

Buying what the organisation needs to run itself: IT, facilities, professional services, travel, marketing, office supplies. The spend is spread over many suppliers and many people who ask for purchases, so control is the main difficulty.

Public procurement

Buying by governments, public bodies and other contracting authorities (the legal term for public buyers) 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 is by the object of the purchase: goods, services and works (construction). Each is described, priced and accepted in a different way. 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. The terms agreed at sourcing therefore 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. Procurement controls exist to catch those failures before they cost money. Examples are approval before anyone commits money, a purchase order before the invoice, and a check that order, receipt and invoice match before payment.

Finally, procurement is where an organisation's policies reach its suppliers. Rules on competition, sustainability, data protection or local suppliers only take effect if they are written into the criteria used to choose suppliers and into the contract. For example, a sustainability policy changes nothing for a company car contract until the tender asks for low-emission vehicles and the contract requires them.