What Procurement Is

Learning objectives

• Separate purchasing, procurement and supply chain management.
• Use the core vocabulary a procurement team uses every day.
• Trace a single purchase through source to contract and purchase to pay.
• Say which team owns each step and why that matters.

1.1 The definition that does the work

Procurement is the end-to-end process of identifying what an organisation needs from outside, sourcing it at best value, contracting for it, and managing the supplier until the need is met and the contract ends. Everything in this programme sits inside that sentence, so it is worth reading twice.

Consider Carti Construction, a contractor running housing and highways work across Yorkshire. A site manager on the Rotherham estate phones a local plant, orders 40 cubic metres of ready-mix for tomorrow, and pays on a company card. That is purchasing. Procurement is what should have happened months earlier: forecasting concrete volumes across every site for the year, testing the market, tendering a supply agreement with agreed strengths, delivery windows and prices, and checking each supplier quality certificate. With that agreement in place the site manager simply calls off at the agreed price, and the commercial risk has already been managed.

1.2 Three terms people mix up

Term	What it covers	Time horizon	Carti example
Purchasing	Raising the order and paying for it	Days	A purchase order for 40 cubic metres against the agreed contract
Procurement	Need, sourcing, contracting, supplier management	Months to years	Tendering a two-year regional concrete agreement and managing it
Supply chain management	The full flow from raw material to end customer, including logistics and inventory	Years	Planning cement, aggregates, batching plants and haulage so thirty sites never stop

In CIPS language procurement and supply sit together: procurement wins the right supplier and the right contract, and supply makes sure the goods and services actually flow.

1.3 The vocabulary you will hear on day one

• Spend: money paid to external suppliers. In most firms this is 40 to 70 percent of revenue, which is the whole reason procurement matters.
• Direct spend goes into what you sell, such as steel for a car maker. Indirect spend keeps the business running, such as IT, cleaning and consultancy.
• Category: a group of related spend managed as one market, such as Facilities, IT or Logistics.
• Specification: the description of what you need, either technical (what it is) or output based (what it must achieve).
• Tender: a formal competitive process where suppliers submit priced proposals against your specification.
• Value for money: the best mix of quality, cost and risk across the whole life of the purchase, which is not the same as the lowest price.
• Total cost of ownership: purchase price plus delivery, installation, running, maintenance, training and disposal.
• Contracting authority: a public sector buyer bound by public procurement law. Private firms are not bound, unless they are utilities or are receiving public money.
• SLA and KPI: a service level agreement sets the standard, and key performance indicators measure whether it is met.
• Supplier relationship management: structured management of important suppliers to improve value over time.

1.4 The two processes: S2C and P2P

Source to contract decides who supplies you and on what terms, and it happens once. Purchase to pay handles every order after that. A contracts manager lives in the overlap, because they own the contract that source to contract produced and police it while purchase to pay runs.

Source to contract, owned by procurement:

1. Collect demand. Ask each site manager for next year volumes by concrete strength and by month.
2. Analyse spend. Pull last year payments. Carti bought 7.4 million pounds of concrete from eleven suppliers with no contract in place.
3. Engage the market. Send a request for information asking about plant locations, daily capacity, quality accreditation and delivery radius.
4. Tender. Issue a request for proposal for a two-year agreement in two regional lots.
5. Evaluate, award and load. Sign the agreement and load the agreed price list into the purchasing system, so sites can only order at contract prices.

Purchase to pay, owned by site teams and finance:

6. Requisition. The site manager selects the contracted supplier, strength and quantity.
7. Approve. The project manager approves within their authority limit and the system raises a purchase order.
8. Receipt. The delivery ticket is checked on site and entered as a goods receipt.
9. Match and pay. The invoice is matched against order and receipt, then paid.

If step 9 fails because the invoice shows a higher price than agreed, the step that prevents it happening again is step 5, loading contract prices into the system so an incorrect price cannot be ordered in the first place.