Types of procurement: Categories, methods, and examples

Procurement is the process businesses use to source, negotiate, and acquire the goods and services they need to operate. It plays a critical role in controlling costs, maintaining quality, and keeping operations running smoothly.

The main types of procurement include direct, indirect, goods, and services, but procurement is often classified in different ways depending on what you’re buying and how it supports the business. Understanding these categories helps you choose the right approach for different spending scenarios and apply the right level of oversight.

What is procurement?

Procurement is the structured process of identifying business needs, selecting suppliers, negotiating terms, and managing purchases over time. It focuses on long-term value, risk management, and outcomes, not just completing individual transactions.

Procurement management is often confused with purchasing, but the two aren’t the same. Purchasing is the transactional step of placing a purchase order and paying an invoice, while procurement is broader and more strategic, covering supplier selection, contract management, cost savings, and performance monitoring.

Within the supply chain, procurement connects internal demand with external suppliers. It ensures goods, services, and assets arrive on time, at the right quality, and within budget, helping you avoid delays, reduce waste, and improve operational efficiency.

Most procurement processes follow a similar cycle:

• Identify the need
• Define specifications and requirements
• Select the procurement type and method
• Source and evaluate potential suppliers
• Negotiate contracts and pricing
• Purchase, receive, and manage performance

4 main types of procurement

Procurement types describe what you’re buying and how that purchase supports your business. Some types directly affect revenue, while others support internal operations. Understanding these distinctions helps you apply the right controls and level of oversight to different kinds of spend.

The four main types of procurement are direct procurement, indirect procurement, goods procurement, and services procurement. Each plays a distinct role and requires different management approaches.

1. Direct procurement

Direct procurement refers to purchasing goods and materials used to produce a company’s final product. These inputs become part of what you sell to customers and directly affect revenue.

In manufacturing and production environments, direct procurement includes raw materials, components, and subassemblies. A furniture manufacturer might procure lumber, hardware, and fabric, while an electronics company sources semiconductors, circuit boards, and casings.

Businesses rely on direct procurement when production depends on consistent supply, quality standards, and predictable pricing. Disruptions can halt operations or degrade the finished product.

Because of this, direct procurement is highly strategic. Supplier relationships, long-term contracts, and quality controls all influence margins, product reliability, and customer satisfaction.

2. Indirect procurement

Indirect procurement covers goods and services that support daily operations but don’t become part of the final product. These purchases keep the business running without directly contributing to production output.

Common indirect procurement categories include:

• Office supplies that support administrative and knowledge work
• IT equipment and software that enable communication, security, and productivity
• Marketing and professional services that support growth and brand visibility

Indirect procurement plays a key role in operational efficiency. While individual purchases are often small, indirect spend can add up quickly across teams and departments.

Effective cost management strategies for indirect procurement include:

• Standardizing vendors to reduce fragmentation and improve pricing
• Setting approval workflows to control discretionary spending
• Using spend visibility tools to identify waste and duplicate purchases

3. Goods procurement

Goods procurement focuses on acquiring physical, tangible items. These goods may be used directly in production or consumed internally across the organization.

Goods procurement includes both raw materials and finished goods. Examples include retail companies procuring finished products for resale, healthcare organizations sourcing medical supplies, and technology firms purchasing hardware like laptops and networking equipment.

Inventory management is central to goods procurement. Overstocking ties up cash, while understocking increases the risk of delays. Accurate demand planning and supplier coordination help balance availability with cost control.

4. Services procurement

Services procurement involves acquiring intangible services rather than physical items. These services are delivered over time and often depend on expertise, labor, or specialized knowledge.

Common service categories include:

• Consulting and advisory services
• Maintenance and facilities management
• Professional services such as legal, accounting, and design

Services procurement introduces unique challenges. Scope can change, outcomes are harder to measure, and performance depends on people rather than products.

Strong vendor contract management and performance measurement are essential. Clear service-level agreements, defined deliverables, and regular reviews help ensure you’re getting value from service providers.

6 common procurement methods

Procurement methods describe how suppliers are selected and how contracts are awarded. While procurement types define what you buy, procurement methods define how you buy it.

Choosing the right method depends on factors such as complexity, urgency, competition, and regulatory requirements. Some methods prioritize transparency, while others emphasize speed or specialization.

1. Open tendering

Open tendering allows any qualified supplier to submit a bid. The opportunity is publicly advertised to encourage broad competition.

Open tendering is commonly used in public sector procurement and large organizations where transparency, auditability, and compliance are priorities. Because participation is open, this method can generate strong price competition.

However, open tendering requires significant administrative effort. Reviewing a high volume of bids takes time, and many submissions may not meet quality or capability standards. It works best when requirements are clearly defined and timelines are flexible.

Pros:

• Increased transparency and fairness that supports compliance requirements
• Strong price competition when suppliers offer comparable goods or services
• Broad market access that encourages participation and innovation

Cons:

• Longer procurement timelines that can delay project starts
• High administrative burden from reviewing many submissions
• Risk of lowest-price bias if evaluation criteria are not balanced

2. Restricted tendering

Restricted tendering limits participation to suppliers that meet predefined qualification criteria. Instead of inviting the entire market, you shortlist vendors based on factors such as experience, certifications, financial stability, or prior performance.

This approach reduces evaluation time and improves proposal quality. Restricted tendering works well for specialized services, regulated industries, or situations where supplier capability is critical to success.

3. Request for proposals

A request for proposals (RFP) is used when the problem is clear but the solution may vary. Suppliers are asked to propose how they would meet your requirements, including their approach, timelines, and pricing.

RFPs allow you to evaluate value beyond cost, such as expertise, innovation, and long-term fit. They are commonly used for professional services, technology implementations, and complex operational needs.

4. Request for quotations

A request for quotations (RFQ) focuses primarily on price for clearly defined goods or services. Specifications are fixed, and suppliers compete largely on cost.

RFQs work best when quality differences are minimal and speed is a priority. This method is common for commodity items, standardized equipment, and repeat purchases.

5. Two-stage tendering

Two-stage tendering separates supplier selection from final pricing. In the first stage, you assess supplier capability, approach, and technical expertise. In the second stage, you finalize scope and pricing with shortlisted suppliers.

This method is especially useful for complex or evolving projects where early collaboration improves outcomes and reduces risk.

Benefits for complex projects include:

• Early collaboration that improves feasibility and design outcomes
• Reduced risk of costly scope changes later in the project lifecycle

6. Single-source procurement

Single-source procurement involves selecting one supplier without competitive bidding. This approach requires clear justification, such as exclusivity, urgency, or technical dependency.

While efficient, single-source procurement increases risk if not carefully governed. Strong documentation and approval controls help maintain accountability and reduce misuse.

Appropriate use cases include:

• Proprietary technology or intellectual property
• Emergencies that require immediate action
• Continuity needs where switching suppliers creates unacceptable risk

Additional procurement classifications

Beyond the core procurement types, some classifications apply to specific asset classes or operating environments. These categories help you apply the right controls, approval processes, and risk management practices.

Works procurement

Works procurement refers to construction, engineering, and infrastructure projects that result in physical assets. These projects are typically high value, long term, and complex, often involving multiple stakeholders and regulatory requirements.

Unlike standard goods or services procurement, works procurement frequently includes milestone-based payments, performance bonds, safety compliance requirements, and formal change order management. Clear contracts and strong project oversight are essential to control costs, timelines, and risk.

Capital procurement

Capital procurement focuses on acquiring long-term assets that support business growth over multiple years. Examples include manufacturing equipment, vehicles, enterprise software platforms, and major facilities upgrades.

Because capital purchases tie up significant cash, they require structured budgeting, multi-level approvals, and lifecycle cost analysis. Procurement teams must consider not only the purchase price, but also maintenance, depreciation, and long-term operational impact.

How to choose the right procurement type

Choosing the right procurement type starts with understanding how a purchase affects your business. Some purchases directly impact revenue or production, while others support internal operations, making the level of risk and oversight very different.

When evaluating procurement options, consider:

• Whether the purchase directly affects revenue or core operations
• The level of operational dependency and risk involved
• Spend volume, purchase frequency, and supplier availability

Company size and industry also influence procurement decisions. Startups often prioritize speed and flexibility, while larger or regulated organizations require stricter controls, documentation, and approvals.

Aligning your procurement strategy with business goals helps ensure you’re not just buying efficiently, but supporting growth, resilience, and financial discipline.

Procurement selection: Common mistakes to avoid

Choosing the right procurement type and method is as important as executing the purchase itself. Many procurement issues stem from misalignment between business needs and sourcing strategy rather than supplier performance.

Avoiding common mistakes helps reduce friction, improve stakeholder satisfaction, and ensure procurement supports business goals instead of slowing teams down.

Treating all spend the same

Applying identical rules to every purchase creates unnecessary bottlenecks. Low-risk operational spend doesn’t require the same level of scrutiny as strategic or high-value procurement.

Segmenting spend by risk, value, and business impact allows teams to move faster while maintaining appropriate controls where they matter most.

Focusing only on price

Price is easy to compare, but it rarely tells the full story. Low-cost suppliers can introduce risk through poor quality, unreliable delivery, or hidden fees.

Evaluating total cost of ownership helps account for long-term value, service quality, and operational impact instead of optimizing for short-term savings.

Lacking visibility and accountability

When procurement decisions are decentralized and poorly tracked, spend becomes fragmented. Duplicate vendors, inconsistent pricing, and missed savings opportunities are common results.

With centralized visibility, clear ownership, and automated procurement workflows, procurement teams can maintain control without limiting flexibility for the business.

How Ramp streamlines your procurement process

Understanding the types of procurement is the first step. Managing them efficiently is where real savings happen.

Optimize your procure-to-pay process with Ramp Procurement. Ramp’s procurement software consolidates procurement, bill pay, and vendor management into a single solution, giving you real-time visibility into spending and helping your team stay on budget.

With Ramp, you can:

• Benchmark prices accurately using Ramp’s Price Intelligence to compare contract rates against what other businesses are paying
• Track all vendors in one place with a centralized view of vendor details, documents, and transactions
• Automate invoice payment and processing by uploading supplier contracts and paying invoices in just a few clicks

Control procurement from the start. Get started with a free, interactive demo to see how Ramp can work for your business.