Written by Marijn Overvest | Reviewed by Sjoerd Goedhart
Fact Checked by Ruud Emonds | Our editorial policy
Procurement vs Acquisition — Key Differences
Key takeaways
- Procurement is locating and obtaining all materials required for goods and services, while acquisition focuses on acquiring and assuming ownership of assets.
- Procurement can reduce expenses and acquisition can open up new markets.
- When utilized correctly, these processes bring benefits to business transactions
Two of the most frequently and interchangeably used terminology are “procurement” and “acquisition,” but the meanings vary widely. While both have the aim of acquiring goods or services, they differ from one another in terms of goals, methods, and results.
In this article, we will explore the differences between procurement and acquisition. Furthermore, we will look into the differences in their approaches to further understand their similarities and differences.
After reading this article, you will have a better knowledge of the difference between the two and where they apply in the field of business.
Whatis Procurement?
Procurement is the full process of sourcing and gathering all the materials needed for your products and services. It is the moment when you are placing purchase orders for numerous printers, computers, and all other machines needed by the company.
To put it simply, procurement is when you buy things that are needed for your company. The entire process, from defining the need for products or services to paying and delivery of purchased goods, is part of it.
Various stakeholders, such as procurement officers, financial teams, and end users, are usually involved in the procurement process. In order to ensure transparency, fairness, and equitableness of the procurement process, this procedure is governed by a set of procurement policies and procedures.
Whatis Acquisition?
On the contrary, acquisition is a more targeted process that focuses in particular on securing ownership and control of undertakings, organizations, or specific assets. Purchasing its shares, and assets, or merging with it, it involves one entity, the acquirer, taking over another entity, the target.
In the case of mergers and acquisitions, there are typically only a limited number of parties involved, such as Chief Executive Officers and legal advisers. The acquisition process shall be governed by a set of laws and financial regulations which are intended for the purpose of ensuring fairness, transparency, and compliance with regulations.
Key Differences
1. Scope and Purpose
Procurement: For the purposes of meeting particular needs or requirements, procurement is a wider process that involves the acquisition of goods, services, and work from outside sources. It may include, for instance, procurement of office supplies and equipment as well as the selection of contractors to carry out construction works.
Acquisition: By contrast, the acquisition process is a more focused one that has an explicit focus on attaining ownership or control of undertakings, organizations, and specific assets. Purchasing its shares, and assets, or merging with it, it involves one entity, the acquirer, taking over another entity, the target.
2. Entities Involved
Procurement: The buyer, often a company, a government agency, or an organization, and the supplier, often an external vendor or contractor, are involved in the procurement process.
Acquisition: In acquisition, there are also two main parties—the acquirer (the company or entity seeking to gain control) and the target (the company or assets being acquired).
3. Process
Procurement: A number of steps are involved in the procurement process, such as identification of the need for goods or services, selection of potential suppliers, negotiation of contracts, and management of delivery.
Acquisition: A number of steps are required for the acquisition to take place, which include identification of possible targets, thorough investigations, negotiations on terms, and integration of acquired assets or companies into an acquiring organization.
4. Legal and Regulatory Considerations
Procurement: The procurement process may involve adherence to various procurement regulations and guidelines, especially when it comes to government agencies or organizations working with public funds.
Acquisition: Acquisition deals are subject to more extensive legal and regulatory considerations, including antitrust laws, due diligence processes, and shareholder approvals in the case of corporate acquisitions.
5. Industry and Application
Procurement: Procurement plays a common business role in the various industries and sectors which need goods or services to support their activities.
Acquisition: In the case of mergers and acquisitions, where undertakings are seeking to improve their market share, broaden their portfolios or obtain a competitive advantage, the acquisition is generally linked with corporate finance as well as mergers and acquisition.
Benefitsof Procurement
1. Cost Savings
Procurement provides the opportunity for organizations to receive goods or services at reduced costs, which can lead to substantial cost savings over time.
2. Quality
Procurement enables organizations to procure products and services that comply with their quality standards, which are capable of improving product or service quality as a whole.
3. Flexibility and Adaptability
Procurement allows organizations to buy goods and services from a number of suppliers with the aim of adapting to changing market conditions.
Benefitsof Acquisition
1. Synergies
The acquisition enables organizations to benefit from the synergies by integrating acquired assets or companies into their existing activities.
2. Market Expansion
The acquisition provides a fast opportunity for the acquiring company to expand its market position. The acquirer may benefit from a larger customer base and gain more market shares through acquisitions of companies or assets in new geographical areas or entry into new markets.
3. Access to New Technology and Intellectual Property
A company that acquires a business is often accorded access to valuable intellectual property, patents and proprietary technology of the target enterprise. This would increase the acquirer’s capacity to act and speed up research and development efforts while improving its competitiveness.
Conclusion
Most of the time, people (even professionals new to the procurement industry) interchange procurement and acquisition. Although, they are similar terms, the distinction between them is important to take note of.
Procurement is the entire process of sourcing and gathering materials needed for products and services. It is the first step or process in the supply chain. On the other hand, acquisition is a more defined process that is only focused on securing ownership and control of undertakings, organizations, and specific assets.
Moreover, the two terms differ in so many ways. They can differ in their scopes and purposes, the entities involved, their processes, legal and regulatory considerations, and their industries and applications.
In addition, both of them serve their purpose and have various benefits when done correctly. Any organization or company can utilize them both to improve business transactions and processes.
Frequentlyasked questions
What is Procurement?
Procurement is the full process of sourcing and gathering all the materials needed for your products and services.
What is Acquisition?
Acquisition is a more targeted process that focuses in particular on securing ownership and control of undertakings, organizations, or specific assets.
Why is it important to understand the difference between the two?
Understanding the difference between procurement and acquisition is essential to achieve effective decision-making, allocation of resources, compliance with legal requirements, risk management, and the organization’s overall success.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
