Every product—whether an appliance, a chair, or a packaged food item—starts with raw materials. People source, purchase, manufacture, package, ship, and store those materials before they reach your customers’ hands.
This cycle depends on procurement, the sourcing and purchasing of materials, which is the crucial first step to supply chain management (SCM). Businesses make procurement decisions based on quality, price, and supplier reliability. In many cases, the same team also manages later stages of the supply chain, from manufacturing and shipping to inventory management and warehousing. A skilled supply chain team can prevent bottlenecks, stockouts, and pileups of unsold goods—problems that can quickly erode your profitability.
Learn more about the procurement process, how procurement connects to supply chain management, and strategies businesses use to strengthen both—with real-world insights from Rocco CEO and co-founder Sam Naparstek.
What is procurement?
Procurement covers the process of sourcing and purchasing goods and services for your business. This broad definition includes acquiring everything from office supplies and HR software to raw materials and manufactured components. Procurement generally breaks down into two categories:
1. Direct procurement. Purchasing physical goods used in production, such as plastics, sugar, wood, fabrics, or manufactured parts
2. Indirect procurement. Purchasing services or supplies that support operations, such as software subscriptions, office supplies, equipment rentals, consulting, or contracting
This guide focuses on procurement in the context of supply chain management. That means zeroing in on direct procurement—the sourcing and purchasing of inputs necessary to produce sellable goods. Your approach to procurement depends on factors such as product complexity, scale of operations, geographic reach, and business objectives. A luxury linen company has very different procurement needs from a global car manufacturer or your neighborhood bakery.
How manufacturing models shape procurement
Manufacturing models also influence how procurement works in practice and your overall procurement strategy. Some companies keep procurement in-house alongside production, while others delegate it to external manufacturers. Many businesses adopt a hybrid model, sharing procurement responsibilities with their factory partners. You’ll want to decide which approach best fits your operations.
Manufacturing models include:
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In-house manufacturing. Businesses that own and operate their own manufacturing facilities, such as a jewelry studio or ceramics workshop, typically manage procurement themselves. Owners or supply chain managers purchase materials based on firsthand knowledge of daily operations, production schedules, and inventory needs.
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External manufacturing. More commonly, businesses contract with external manufacturers. The manufacturer may handle procurement responsibilities entirely, particularly if it has an established supply chain network and sourcing expertise.
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Hybrid approaches. Some companies split procurement responsibilities between themselves and the manufacturer. For example, Rocco (maker of smart fridges for living rooms and other spaces) and its Chinese factory partner co-developed their request for quote (RFQ) when finding suppliers. Rocco sourced some suppliers directly, while the factory leveraged its local network for others. As CEO and co-founder Sam Naparstek explains, “We don’t do steel procurement—our factory is better at that. But if we want something custom, we’ll often get involved in at least spec-ing it.”
Steps in the procurement process
Once you determine how procurement fits within your manufacturing model, the process typically follows a series of standard steps:
1. Identify needs. Your business determines the required raw materials (e.g., the ingredients for a hot sauce or components for a line of socks), timelines, and quantities.
2. Source suppliers. Your procurement team researches potential vendors through recommendations, brokers, or independent searches. Sam notes that he spoke with 50 factories and 30 designers before finding the right partners, showing that persistence and networking are often key to supplier selection.
3. Request quotes. A request for quote is a document that specifies what your business wants to purchase and invites potential suppliers to provide pricing and terms. Comparing multiple RFQs helps your procurement team identify the best offer.
4. Negotiate terms. After selecting a vendor, you may be able to negotiate pricing, volume discounts, delivery schedules, and contract length to secure the most favorable arrangement. Keep in mind that your own business growth can become a powerful bargaining chip. “As your quantities go up, you get access to a different level of manufacturer,” Sam explains.
5. Manage contracts. Companies might use boilerplate contracts with minor adjustments or create custom supplier contracts. This stage typically involves a company’s finance and legal departments.
6. Issue a purchase order (PO). When you purchase raw materials, parts, or services, you’ll typically create a purchase order for the vendor. This document confirms the goods and services and agreed-upon terms.
7. Receive goods. Vendors deliver materials to your warehouse, factory, or other designated site. Your team inspects deliveries for damage, defective or unwanted products, and PO inconsistencies.
8. Process payment. The last step in the purchasing process, accounts payable pays the vendor after your team has verified the goods.
You might hear these final stages—issuing purchase orders, receiving goods, and processing payments—described as “purchasing.” “Procurement,” by contrast, encompasses the broader strategic process, including identifying needs, sourcing suppliers, negotiating, and managing contracts. In other words, procurement is the strategy, while purchasing is the transaction.
What is supply chain management?
Supply chain management is the coordination and oversight of all activities involved in producing and delivering your product. While procurement is the first step, SCM encompasses the full process, including:
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Manufacturing. Transforming raw materials into finished goods.
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Warehousing and storage. Holding inventory before it moves downstream.
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Inventory control. Monitoring stock levels to meet demand without overproduction.
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Demand planning. Forecasting customer needs to guide product and sourcing.
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Transportation and logistics. Moving goods between facilities and to end customers.
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Delivery and distribution. Ensuring products reach retailers or buyers on time.
The specific approach to SCM varies by business size and resources. Larger companies typically rely on enterprise or supply chain management software like SAP or Oracle to manage the overall supply chain process, while smaller businesses may use simpler tools like Google Sheets or custom-built systems to track orders and manage flow.
SCM is also about managing risks and disruptions. Natural disasters, trade policy changes, labor shortages, and transportation bottlenecks can disrupt a supply chain. Companies hedge against these risks by diversifying suppliers, building safety stock, and investing in technology that increases supply chain visibility.
How procurement and SCM work together
The procurement function is inextricably linked to supply chain management, as it’s the critical first step in the process. Because procurement sets the foundation, any disruption at this stage can reverberate throughout the entire supply chain. A delivery delay, unexpected price hike, or quality issue with raw materials can lead to production bottlenecks, stockouts, or missed delivery deadlines. Effective procurement practices help prevent these problems and make your supply chain more resilient.
When procurement and supply chain teams are aligned, your business benefits from:
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Streamlined business operations, including faster lead times and more accurate demand planning
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Better customer communication, including improved visibility into order status and delivery times
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Flexibility to shift suppliers to adjust product quickly in response to external events
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Cost control with stronger negotiations and fewer inefficiencies
Procurement and supply chain management work best as parts of an integrated system. Strong procurement provides the inputs; supply chain management ensures those inputs move smoothly through production and into customers’ hands.
Procurement and SCM optimization strategies
- Monitor and assess suppliers
- Use competitive bidding
- Leverage supply chain management software
- Innovate continuously
- Support workers across the chain
Even when procurement and supply chain processes are running smoothly, you’ll want to continually improve efficiency, reduce risk, and strengthen supplier relationships. Common supply chain strategies include:
Monitor and assess suppliers
Strong supplier performance is never guaranteed in the long term. Vendors may change their formula, raise prices, or even go out of business. Businesses regularly monitor supplier performance via data analysis and customer satisfaction feedback, switching partners when needed. This type of ongoing supplier relationship management and supplier management helps ensure vendors continue meeting expectations over time. For example, Sam notes that Rocco switched its refrigerator fan supplier to an electric vehicle (EV) fan manufacturer for better noise control.
Use competitive bidding
When you’re looking for a new vendor, consider sending a request for proposal (RFP). Unlike an RFQ, which focuses on pricing for a defined product, an RFP invites vendors to propose solutions to meet broader business needs. This process encourages competitive pitches and helps companies ensure their procurement aligns with their values, such as sustainability standards or worker protections.
Leverage supply chain management software
Supply chain management software makes it easier to handle procurement and supply chain activities. Larger businesses tend to use cloud-based platforms and procurement software like NetSuite Procurement, Order.co, Coupa, Odoo, and Airbase. Many smaller businesses and startups use straightforward yet efficient tools like Google Docs, Google Sheets, or custom-built systems. You may want to avoid experimenting with new technology during peak demand periods, but carefully chosen tools can improve accuracy and efficiency.
Platforms like SAP SCM, Blue Yonder, and Oracle help track key performance indicators (KPIs) such as lead times, delivery accuracy, and stockouts. Even simple dashboards can reveal recurring bottlenecks and other issues, allowing you to improve operational efficiency and cost-effectiveness.
Innovate continuously
No two businesses have identical supply chains, and processes evolve over time. Some companies diversify manufacturing locations to avoid dependence on a single country; others raise quality standards or adapt products based on customer feedback. Companies that take this approach often gain a competitive advantage by making their supply chains more resilient.
As Sam notes, “You never want to be exposed to just one country. Some people take that risk, but I’d rather not.” In fact, Rocco is in the process of building up factories across Southeast Asia and is considering Latin America.
Support workers across the chain
Suppliers, logistics providers, and delivery teams are all part of the supply chain ecosystem. Companies that invest in fair pay, reasonable schedules, and strong relationships often gain loyalty and flexibility in return. As Sam puts it, “Always leave fat in the system”—in other words, build in buffers for people and processes rather than pushing efficiency to the breaking point. “You want workers happy and healthy,” he says.
Procurement and supply chain management FAQ
What is procurement and supply chain management?
Procurement is the first step in the supply chain process. It involves sourcing and purchasing raw materials or parts that a business needs to produce a product. Supply chain management (SCM) is the broader coordination of the entire process, from procurement through manufacturing, warehousing, transportation, and final delivery.
What is an example of procurement?
A company that makes hot sauce must identify and source peppers, spices, vinegar, bottles, labels, and packaging. The team purchases each element from vendors based on price, cost savings, quality, delivery times, and more. Some businesses manufacture their product in-house, while others contract with a co-packer to handle production. Retailers often procure finished goods from wholesale distributors.
What is an example of supply chain management?
Consider a sock manufacturer. After procuring yarn and elastic, among other materials, the company coordinates production runs, packaging, warehousing, and distribution. A supply chain manager (or business owner in a small company) monitors each step, tracking orders, managing inventory, and ensuring products ship to retailers or customers on time.
