Procurement is how an organisation gets the goods and services it needs from outside: everything from steel and microchips to cleaning, software and lawyers. Purchasing is the narrower, day-to-day part: raising orders and paying for them. Procurement also covers choosing suppliers, negotiating, writing contracts and managing suppliers over the years.
What a company buys is called its spend. Direct spend is what goes into the products it sells: the flour for a bakery, the chips for a phone maker. Indirect spend is everything that keeps the business running but isn't in the product: rent, laptops, travel, marketing, insurance. Direct spend is usually bigger and closely tied to production; indirect spend is spread over many small suppliers and many people buying.
Procurement teams group spend into categories (packaging, IT hardware, logistics, facilities) and give each one a category manager who knows that market well. A category strategy says how to buy it: how many suppliers, which ones, on what kind of contract.
Why does it matter so much? Because a saving goes straight to profit. If a company makes a 5% profit on its sales, it has to sell an extra $20,000 to earn $1,000 more profit. Cutting $1,000 off what it buys does the same thing at once.
Good procurement isn't only about price, though. It's about getting the right quality, delivered reliably, from suppliers who behave well, at a fair total cost, and with a relationship that will hold up when something goes wrong.
For a furniture maker, which is direct spend?
| Procurement | The whole job of getting goods and services from outside. |
|---|---|
| Purchasing | Raising orders and paying: the transactions. |
| Spend | Everything an organisation buys. |
| Direct spend | Goes into the product. |
| Indirect spend | Keeps the business running. |
| Category | A group of similar spend, with its own strategy. |