Material procurement: Definition, process, steps, and types

Imagine two manufacturers launching the same product. One lines up high-quality materials at competitive prices through strong supplier relationships. The other scrambles with last-minute orders, paying more for lower quality. The first stays on schedule and on budget; the second falls behind.

Material procurement is simply the process of sourcing, negotiating, and acquiring the raw materials and components your business needs to operate. Getting this right directly impacts your profit margins, product quality, and ability to meet customer demands on time.

What is material procurement?

Material procurement, sometimes called raw material procurement, is the process of sourcing, purchasing, and paying for the physical inputs your business needs for production.

General procurement covers everything from office supplies to professional services. Material procurement focuses only on the tangible inputs that go directly into what you manufacture or assemble.

It sits at the heart of your supply chain, bridging suppliers and production. This includes raw materials such as steel or plastic, components like screws or circuit boards, and maintenance, repair, and operations (MRO) supplies such as safety gear or cleaning products that keep equipment running smoothly.

Why is material procurement important?

Material procurement ensures you have the right raw goods on time and at the right cost to keep production running smoothly. A strong procurement process supports:

• Consistent product quality that meets customer expectations
• Healthy profit margins
• Strong, reliable supplier relationships
• The flexibility to adapt quickly to changes in demand or supply
• Clear visibility into your entire sourcing and supply chain

Done well, material procurement keeps your business competitive by balancing cost control, product quality, and supply chain resilience.

Material procurement vs. purchasing vs. procurement

These three terms often get mixed up, but each has a distinct role in business operations:

• Purchasing: The transactional act of buying goods or services
• Procurement: The broader end-to-end process of managing needs, contracts, and supplier relationships
• Material procurement: Procurement’s specialized focus on the physical materials that support production

The hierarchy flows from broad to specific: procurement is the umbrella term, purchasing is one component within it, and material procurement is a specialized branch. Here’s how they compare:

For example, at a car manufacturer, procurement covers everything from steel suppliers to office cleaning services. Material procurement zeroes in on production inputs like steel, engines, and electronic components, while purchasing is the act of placing the order once contracts and terms are set.

The material procurement process: Step by step

The material procurement process follows five steps, from identifying requirements to final payment and recordkeeping. Each stage builds on the previous one to keep sourcing efficient and reliable:

1. Identifying material requirements
2. Supplier selection and evaluation
3. Negotiation and contract management
4. Order processing and fulfillment
5. Payment and recordkeeping

1. Identifying material requirements

Effective procurement planning starts with accurate forecasting. By analyzing usage patterns and market trends, you can anticipate future needs and avoid stockouts or excess inventory.

Quality specifications define the standards your materials must meet, including technical requirements, tolerances, and testing methods. Detailed specs help suppliers deliver exactly what you need.

Finally, calculate order quantities and timing based on demand, storage limits, and lead times to align deliveries with your production schedule.

2. Supplier selection and evaluation

Choosing the right supplier goes beyond price. Criteria include financial stability, quality certifications, delivery reliability, and technical expertise.

RFQs work for price comparisons on standard materials, while RFPs capture broader solutions for complex needs. To qualify suppliers, consider audits, sample orders, and reference checks before committing to large agreements.

3. Negotiation and contract management

Strong negotiations balance cost with long-term value. Beyond unit pricing, look at service levels, volume discounts, and payment flexibility.

Common procurement contract types include fixed-price contracts for predictable costs, cost-plus contracts for shared development risks, and blanket purchase orders for recurring buys.

Align payment terms and delivery schedules with your cash flow and production needs. Use penalties for late deliveries and consider early payment discounts where possible.

4. Order processing and fulfillment

After contracts are in place, create purchase orders with detailed part numbers, delivery dates, and shipping instructions. Route them through the right approval workflows.

Track orders closely and stay in communication with suppliers to address delays before they affect production. When deliveries arrive, verify materials against your order and inspect for quality before adding them to inventory.

5. Payment and recordkeeping

Pay suppliers according to agreed terms, taking advantage of early-payment discounts when possible.

Use 3-way matching to compare purchase orders, receiving reports, and invoices. This prevents fraud, duplicate payments, and errors.

Keep full records of all procurement activity for audits, supplier evaluations, and future negotiations. Solid documentation also supports compliance and financial reporting.

Types of procurement in material management

Material procurement generally falls into three categories, each with its own role in supply chain management.

Direct material procurement

Direct material procurement covers the components and inputs that become part of your finished product. These purchases directly affect your cost of goods sold (COGS) and production quality.

Examples include electronic components for smartphones, fabric for clothing manufacturing, steel for automotive production, and packaging materials for consumer goods.

Because direct materials tie closely to production schedules, any delay or defect can halt operations. Close coordination between procurement, production, and sales teams is critical to keep inventory balanced and deliveries on time.

Indirect material procurement

Indirect material procurement focuses on maintenance, repair, and operations (MRO) supplies. These items don’t become part of the final product but keep facilities and equipment running effectively.

Common examples include:

• Office supplies
• Safety gear and protective equipment
• Cleaning products
• Spare parts for machinery

Managing indirect procurement usually involves consolidating suppliers, setting up blanket purchase orders, and automating reorders. The goal is to reduce admin costs while ensuring critical supplies are always available.

Raw material procurement

Raw material procurement deals with sourcing base inputs that undergo major transformation during manufacturing. Examples include:

• Crude oil for refining
• Cotton for textiles
• Iron ore for steel
• Timber for furniture

Quality control is especially important at this stage, since defects can cascade through production. Clear specifications, regular supplier audits, and incoming inspection procedures help maintain standards.

Risks also run higher with raw materials. Price volatility, geographic disruptions, and supplier concentration can threaten your supply chain. Diversifying suppliers and building contingency plans reduces exposure to these risks.

Key components of effective procurement management

Successful procurement management relies on three components that optimize purchasing operations and deliver value: strategic sourcing, technology, and risk management.

Strategic sourcing

Strategic sourcing builds long-term supplier relationships that prioritize quality, reliability, and innovation—not just cost. By moving beyond transactional purchasing, you can collaborate with suppliers on shared growth and problem-solving.

A total cost of ownership (TCO) analysis helps you evaluate all expenses tied to a purchase, including maintenance, training, disposal, and opportunity costs. Looking at lifecycle costs ensures more informed procurement decisions.

Technology and automation

Procurement software centralizes activities, standardizes workflows, and provides real-time visibility into spending. E-procurement tools like Ramp reduce paperwork, speed approvals, and improve compliance. Features such as automated three-way matching and electronic invoicing let teams focus on strategy instead of admin.

According to the Hackett Group’s 2024 research, organizations using digital procurement solutions nearly double cost savings compared to peers and spend 21% less on procurement overall. Artificial intelligence and predictive analytics further improve planning by forecasting demand, identifying risks, and recommending order timing.

Risk management

Procurement risks can disrupt operations and increase costs if left unaddressed. Common procurement risks include:

• Supply disruption: Natural disasters, political instability, or supplier financial troubles. Build backup supplier relationships and monitor supplier health.
• Quality issues: Defective materials raise costs and hurt reputation. Use quality agreements, audits, and performance metrics.
• Price volatility: Commodity swings affect budgets. Apply price-protection clauses or forward-buying strategies.
• Compliance failures: Regulatory or ethical lapses can create liability. Require certifications and conduct periodic supplier assessments.

Contingency planning helps mitigate these risks. Develop alternate supplier options and create rapid response protocols for critical materials to ensure business continuity.

Best practices for raw material procurement

Implementing proven strategies helps reduce costs, improve quality, and build resilient supply chains. Key best practices include:

• Establish clear policies: Document procurement procedures that define approval processes, spending limits, and decision-making authority. This reduces confusion and ensures consistency.
• Track supplier KPIs: Monitor performance using metrics like on-time delivery, defect rates, lead time variability, and cost savings achieved. Regular measurement drives continuous improvement.
• Build strategic partnerships: Move beyond transactional relationships. Collaborate with key suppliers on product development, share forecasts, and solve challenges together.
• Maintain accurate inventory data: Keep precise records of stock levels, reorder points, and consumption patterns to avoid stockouts and reduce carrying costs
• Ensure compliance: Stay current with industry regulations, safety standards, and quality requirements. Regular audits and certifications reduce risk exposure.
• Develop sustainable strategies: Consider environmental impact, ethical sourcing, and social responsibility when choosing suppliers. Sustainability protects your brand reputation and meets stakeholder expectations.
• Leverage technology: Use procurement software, supplier portals, and analytics tools to automate routine tasks, improve visibility, and support data-driven decisions

Common challenges and solutions

Procurement teams face predictable obstacles, but proven strategies can help you navigate them effectively.

Supply chain disruptions

Few things derail production faster than a broken supply chain. Natural disasters, geopolitical conflict, or even a supplier’s bankruptcy can cut off critical inputs. These events are often unpredictable, but you can prepare in advance to limit the damage.

To reduce the impact:

• Build relationships with multiple suppliers for critical materials
• Diversify sourcing across regions to limit geographic risks
• Maintain strategic inventory buffers to cover short-term gaps
• Monitor supplier health and establish early-warning communication channels

Cost management

Volatile prices for raw materials, labor, or energy can quickly eat into margins. Currency swings and regulatory shifts only add to the unpredictability. Without a proactive approach, you may find your procurement budget blown before the year is half over.

To keep costs under control:

• Lock in prices with long-term contracts when market rates are low
• Use volume agreements and partnerships to secure better pricing
• Explore value engineering or alternative materials that maintain quality at lower cost
• Perform regular market analysis to time negotiations strategically

Quality control issues

Even when materials arrive on time, poor quality can grind production to a halt. Defective parts, substandard raw inputs, or inconsistent supplier processes create rework, wasted spend, and customer dissatisfaction. Strong quality control ensures your standards are upheld before issues snowball.

To protect product quality:

• Define clear specifications and include them in supplier contracts
• Conduct supplier audits and facility inspections on a regular schedule
• Implement incoming inspection protocols to catch defects early
• Use supplier scorecards to track performance and create accountability

How Advisor360° centralized procurement with Ramp

Advisor360° was using two different tools for their procurement process. It was adding friction, causing duplicate approvals and slowing turnaround times. They also lacked visibility into their vendor spend history. To alleviate this, they turned to Ramp.

According to Ryan Williams, who oversees vendor relationships and procurement at Advisor360°, Ramp had an immediate effect on their processes.

Turnaround time for approvals dropped from an average of 10 days to just 5.5. The improved UI, one-click email approvals, and easy visibility into vendor history provided by Ramp made it easier for stakeholders to approve requests quickly and confidently.

As a result, their intake-to-pay cycle accelerated by 50%, they achieved a 4x ROI in less than a year, and saw $80K in cost savings between software consolidation and cashback from Ramp corporate cards. Ryan says Ramp has also “made approvals much faster because decision-makers aren’t chasing down information—they have it all at their fingertips."

Use Ramp to streamline your procurement process

With Ramp’s procurement software, you can manage the entire procurement lifecycle, from intake to payment, in a single unified platform.

Our AI-powered request workflows make it easy for employees to submit requests, parsing contracts or screenshots to pre-fill forms automatically. Approvals get routed to the right stakeholders in parallel, based on your rules, so nothing falls through the cracks.

With Ramp Procurement, you can:

• Intake in an instant: Drop a contract into Ramp’s procurement software—its AI will parse the details and automatically complete the request
• Centralize communication: Route approvals, consolidate requests, and share documents in one place to ensure transparency and accountability
• Know your committed spend: Automatically generate purchase orders for clear visibility into upcoming invoices, while flagging discrepancies in units, prices, or totals
• Support risk mitigation: Protect against fraud and errors with automated three-way matching
• Get the best deals: Benchmark quotes against thousands of real, anonymized transactions to negotiate with confidence and secure the best price
• Integrate seamlessly: Connect Ramp with your ERP and finance systems to unify supplier data and eliminate manual work

See how an automated procurement process can enhance your business with an interactive product tour.