18 Must-Have Negotiation Skills For Procurement Professionals
Procurement Vs Purchasing – 5 Crucial Differences You Should Know
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:
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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:
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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