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Procurement Vs Purchasing5 Crucial Differences You Should Know

For the professional procurement manager, procurement vs purchasing is a term that he/she can identify at a glance. There should be no confusion as to which is which. However, it is always a good idea to go over a refresher course. And that is exactly what this article is about.

We are going to differentiate procurement against purchasing while exploring the top five reasons why they are different from one another. We will tackle the processes for each procurement process. Finally, when you are done reading this article, you’ll now have an idea of how to use both procurement and purchasing to make the procurement process better.

Procurement and Purchasing– Similar and yet so Different

In a procurement team, the terms procurement vs purchasing are often used with just one meaning in mind. Both of the terms are often associated with buying supplies or materials that probably no one cares about defining each term properly. But for a good procurement manager, distinguishing purchasing from procurement is an important skill. 

What is Procurement?

For the professional procurement manager, procurement means the process of identifying, shortlisting, selecting, and acquiring needed goods or services from a third-party vendor.

It can be done via direct purchase, competitive bidding, or tendering process while making sure that the delivery of the supplies is done in a timely manner.

What is Purchasing?

Purchasing is an entirely different thing from procurement. Purchasing means a set of functions that are associated with buying goods and services that the company or organization requires.

The only reason why purchasing is often associated with procurement is that it is a small subset of a broader procurement function. In simple terms, purchasing is a part of procurement.

The purchasing process always includes ordering, expediting, receiving, and fulfilling payment.

The Procurement and PurchasingDefinition Table

To help procurement managers with setting definitive qualities for procurement and purchasing, we at Procurement Tactics created a simple table for such a need.

More definitions and terms are available for interested procurement managers in our Negotiation Course For Procurement Professionals.

So if we were to create a small and simple table for defining procurement and purchasing, it’d go about something like this:

Procurement
Used in a production environment
Activities related to buying goods and services
Steps happen before, during, and after purchase
Puts more importance on an item’s value than its cost
Includes need recognition, contract source, and sourcing
Refers to a set of tasks that spot and fulfill needs
Follows a proactive approach to spot and fulfill needs
Focuses on creating long term vendor relationships
Purchasing
Used in a wholesale environment
Functions associated with buying goods and services
The straightforward process of buying commodities
Tends to focus more on the item’s price than its value
Includes ordering, expediting, and payment fulfillment
Refers to the specific task of committing expenditure
Follows a reactive approach to satisfy internal needs
Focuses on transactions than vendor relationships

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The ProcurementProcess

As explained, the procurement process is the process of sourcing a product or a service. So for the procurement manager, there is a set of rules and processes that need to be followed in order to build the procurement process.

A typical procurement process is usually divided into the following steps:

  • Identifying a need
  • Researching for relevant suppliers
  • Creating a preferred supplier list
  • Supplying requests for quotation (RFQ)
  • Evaluating supplied quotes and suppliers
  • Negotiate terms and contracts with suppliers
  • Arrange and receive product/service
  • Perform quality check
  • Analyze results, margins, and KPIs
  • Develop and maintain relationships with suppliers

The PurchasingProcess

To put it simply, purchasing means to just simply buy products and/or services because it is something that the company or organization needs. Those products/services do not affect the growth of the company but are rather just needed for its continuous operations. 

Does that mean that the procurement manager won’t bother with creating a purchasing process? The answer is a big no. A procurement manager recognizes the importance of creating a purchasing process since it enables the company to achieve short-term goals that include timing, costs, and quantity.

The typical purchasing process includes the following:

  • Evaluate received RFQs
  • Create and distribute purchase orders
  • Receive products/services
  • Quality assurance of received service/product
  • Receive a purchase requisition
  • Arrange payment to suppliers

Key Differentiating Elements Between Procurement and Purchasing

1. Analytical vs Strategic

Purchasing is concerned with the transactional aspect of acquiring goods and services. It starts and ends with placing an order and receiving it which is why many think of it as a tactical function. 

On the other hand, procurement is a strategic function. It is viewed by many as a strategic function due to the fact that it focuses on aspects such as finding the right supplier, maximizing contract value, and ensuring that all goods will be received on time. 

2. Focus

Purchasing is focused on the cost or price of goods or services as it aims to minimize costs. On the other hand, procurement is more focused on value creation, cost savings, contract compliance, risks mitigation, and supplier relationship management. 

3. Supplier relationship

In purchasing, building a strong supplier relationship is almost non-existent as it tends to only work with the current supplier base just to buy goods and services needed by the company. 

However, supplier relationship is crucial in procurement as it allows suppliers to be valuable strategic partners of the company which can improve the value of their relationship. 

Examples of Procurement and Purchasing

Although there are many types of procurement and purchasing, they both have one thing in common: to acquire the best product or services for the best possible price. Here are some examples of how procurement and purchasing are done:

1. Competitive bidding

This process is where suppliers submit their bids to provide goods and services. Thus, the government or a company chooses the bid that matches their requirements.

2. Sole sourcing

This process happens when there is only one supplier who can provide for the needs of the company. 

3. Open market 

This happens when a company purchases goods or services from the open market without any restriction to suppliers who can provide for its needs. 

4. Request for proposal

This document is issued when a company or the government wants to purchase goods or services but there are many suppliers who can provide for their needs. 

Thus, the suppliers submit their proposals, and the company or the government will choose the proposal that matches their requirements. 

5. Reverse auction

In this process, suppliers compete against each other to offer the lowest price for their goods and services. The company will choose the supplier who has the lowest price. 

Summary

Just in case it is still not clear to you as to what the difference is between procurement and purchasing, here’s another easy table for you to check:

Procurement: Strategic Process
Identify requirements and needs
Source and evaluate local, national, or international suppliers
Negotiate conditions, terms, and contracts
Build and manage relationships with suppliers
perform cost savings and profit margin analysis
Purchasing: Transactional Activities
Receive purchase requisitions
Evaluate quotes from suppliers
Raise and process purchase orders
Receive goods/services and warehouse management
Process and organize payment with suppplier

Frequentlyasked questions

+ What is the difference between procurement and purchasing?

The difference between procurement and purchasing is that procurement is all about sourcing the best supplies for the right price. Meanwhile, purchasing is all about buying materials or services that the company needs.

+ What is procurement?

Procurement is the process of choosing products and/or services from the best supplier for the best price.

+ What is purchasing?

Purchasing is simply buying supplies or services that are needed by the company.

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