Procurement vs Purchasing: Difference between Procurement and purchasing

Procurement and purchasing are similar terms. Many people use it interchangeably but they do have a different meaning. There are difference between procurement and purchasing in their purpose, the tasks they cover, which people involved, and what they accomplish.

If you ask a layman about procurement vs purchasing, he will tell you that they are one and have the same meaning, but if you ask a purchasing manager he will explain to you how and why there are differences between procurement and purchasing.

Procurement and purchasing are two separate procedure of an organization that both relate to the sourcing and acquisition of goods and services and can often be seen as part of the procurement department.

In simple terms, purchasing is the process of buying goods and services while procurement is the broader process of sourcing, purchasing, and managing all the resources needed by an organization. Purchasing focuses on finding the best goods or services for the best price, while procurement involves strategic planning to ensure that the organization’s needs are met efficiently and effectively. Both are essential functions within an organization, working together to ensure that the right resources are acquired at the right time and cost.

Let’s understand both process separately.

What is Procurement?

Procurement can be defined as the process of acquiring goods, and services from a third-party vendor through direct purchasing, competitive bidding, or tendering process while ensuring timely delivery of the items with the right quality and quantity. Procurement involves activities such as identification of needs, sourcing, selection, negotiation, ordering, receiving, and payments.

In addition, effective procurement practices are crucial for organizations to optimize costs, manage risks, and maintain good relationships with suppliers. By implementing efficient procurement strategies, businesses can enhance their operational efficiency and achieve their strategic objectives. It is essential for procurement professionals to stay updated with market trends, supplier capabilities, and industry regulations to make informed decisions that benefit the organization in the long run.

Read more about Procurement >>

Steps involved in the procurement process are: –

The procurement process, the life cycle of acquiring goods and services for a business, can be broken down into nine key steps:

1. Identify Needs: It all starts with understanding what your company needs. This involves pinpointing the specific goods or services required, their quantities, and desired quality standards.
2. Submit Purchase Request: Once needs are identified, a formal purchase requisition is submitted. This document details the requirements and obtains necessary approvals for the purchase.
3. Source Selection: With clear requirements, it’s time to find potential suppliers. Research and identify qualified vendors who can meet your needs.
4. Negotiate Terms: Contact shortlisted vendors and negotiate terms like pricing, delivery schedules, and payment conditions. Don’t be afraid to get competitive quotes!
5. Create Purchase Order: After selecting a vendor, a formal purchase order (PO) is issued. This official document outlines the agreed-upon terms for the purchase, including price, quantity, delivery date, and payment method.
6. Receive and Inspect: Upon delivery, the goods or services are thoroughly inspected to ensure they meet the quality and quantity specifications outlined in the PO.
7. Three-Way Matching: This crucial step verifies that the purchase order, delivery receipt, and vendor invoice all match. It ensures accuracy and prevents discrepancies before payment.
8. Approve Invoice & Pay: Once the three-way match confirms accuracy, the invoice is approved for payment according to the agreed-upon terms.
9. Record Keeping: Maintaining a record of all procurement activities is essential. This includes purchase requisitions, POs, invoices, and any relevant communication with vendors. Proper record-keeping ensures transparency, simplifies audits, and aids in future procurement decisions.

By following these nine steps, businesses can establish a streamlined and efficient procurement process that minimizes costs, ensures quality, and keeps projects on track.

What is Purchasing?

The purchasing process is a part of the procurement function and focuses on the transactional phase associated with buying goods and services. Purchasing process means the acquisition or direct buying of goods, commodities, and services. It involves activities such as ordering, conduct purchase orders, receiving delivery, and payments.

In addition, the purchasing process plays a crucial role in ensuring that organizations obtain the necessary resources to operate efficiently and effectively. By following a structured purchasing process, companies can streamline their operations, reduce costs, and build strong relationships with their suppliers.

Furthermore, a well-defined purchasing process can help mitigate risks, ensure compliance with regulations, and enhance overall supply chain management. Overall, the purchasing process is a key component of procurement that contributes to the success of an organization.

Steps involved in the Purchasing process are: –

The purchasing process, while similar to procurement, focuses more on the individual purchase itself rather than the entire acquisition lifecycle. Here’s a breakdown of the 7 key steps involved:

1. Identify Need: This initial step recognizes the need for a good or service. It involves understanding what’s required, the quantity needed, and any specific quality specifications.
2. Research and Compare: Once the need is identified, it’s research time! Explore different vendors who offer the required product or service. Compare features, pricing options, and vendor reputations.
3. Select a Vendor: Based on your research and comparisons, choose a vendor that best meets your needs and budget. Consider factors like product quality, vendor reliability, and customer service.
4. Place Order: Once you’ve chosen a vendor, it’s time to place the order. This may involve submitting an online order form, calling the vendor, or visiting a physical store. Clearly communicate the specific product or service details, quantity, and desired delivery timeframe.
5. Receive the Order: When the order arrives, carefully inspect it to ensure it matches what you purchased. Check for any damage, missing items, or discrepancies in quantity or quality.
6. Review and Approve Invoice: The vendor will send you an invoice for the purchase. Review it thoroughly to ensure the pricing and details match your order confirmation. Once everything is accurate, approve the invoice for payment.
7. Make Payment: Finalize the purchase by making a payment to the vendor according to the agreed-upon terms. This could be through cash, credit card, debit card, or bank transfer depending on your arrangement with the vendor.

Following these steps ensures a smooth and efficient purchasing process, whether you’re an individual consumer or a business making a small purchase.

We have discussed the basic fundamentals of procurement and purchasing.

let’s discuss differences between procurement and purchasing side by side.

Procurement vs Purchasing

Procurement	Purchasing
The end goal of the procurement is to identify the organization’s requirements and fulfil the procurement of those requirements.	The end goal of purchasing is to arrange the organization’s expenditure and buying goods, equipment, services for the organization.
Procurement is a strategic and proactive process. It involves a lot of stages of processes which can be time-consuming and costly.	Purchasing is a reactive process. This process is less complicated and involves few steps.
Procurement gives more importance to an item’s value than how much it costs.	Purchasing focuses more on the cost than the value it possesses.
In procurement, every stage involves several numbers of people, each of them contributing to one of the parts of the whole process.	whereas purchasing involves a few numbers of people.
Procurement involves end to end activities that need to acquire all the products and services. It does everything from identifying needs to sourcing, receiving, contact closure, and recordkeeping.	Purchasing only gets involves only when it’s time to buy new goods and services. Tasks involved in purchasing are ordering, goods receiving, and payments.
The procurement process focused on developing a long term and win-win relationship with vendors.	Purchasing focused on making efficient deals for that moment, do not care about a long term vendor relationship.
Procurement is competitive as it more focused on driving competition among vendors and always allows multiple sources of supply.	Purchasing is less competitive than procurement since products and services always buy from the same source.

This is how will you distinguish procurement from purchasing.

Conclusion

While procurement and purchasing are both essential for acquiring goods and services, they differ significantly in scope and focus. Purchasing acts as a transactional arm, ensuring you get the right materials at the right time and price. It’s the tactical execution of fulfilling immediate needs.

Procurement, on the other hand, takes a broader, strategic viewpoint. It encompasses the entire acquisition lifecycle, from identifying needs to managing supplier relationships. Procurement looks beyond just price to consider factors like quality, risk management, and long-term value creation for the company. Here’s a breakdown of the key differences:

• Focus: Purchasing is short-term and transactional, while procurement is strategic and long-term.
• Goals: Purchasing aims to minimize costs for each order, while procurement focuses on overall value creation, considering total cost of ownership and supplier relationships.
• Activities: Purchasing involves tasks like order placement and receiving, while procurement includes supplier selection, contract negotiation, and risk mitigation.

In essence, purchasing is a subset of the broader procurement process. Imagine procurement as the architect, meticulously planning and overseeing the entire building project. Purchasing acts as the contractor, efficiently executing the specific tasks to get the building materials delivered and assembled.

By understanding this distinction, businesses can optimize their acquisition practices. An efficient purchasing system ensures smooth transactions, while a strategic procurement approach fosters long-term cost savings, builds strong supplier relationships, and contributes to a company’s overall success.

I an hope, this article “procurement vs purchasing” is helpful for you. Thank you for reading.

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Terms related to Procurement vs Purchasing

Materials Management

Materials management makes sure the required materials available are available with the consumer’s demands, thus giving a schedule of costs and resources that the company needs. Material management involves controlling the type, amount, location, movement, timing of the purchase of various materials, etc.

This emphasizes the requirement for adequate materials management and control because even small savings in materials can reduce the production cost very effectively, thus profit increases. Read more about Materials Management >>

Difference between Purchasing and Buying

Both terms purchasing and buying mean to pay money and acquire goods and services. Although many people may be assumed that buy and purchase have the same meaning, but there are delicate differences in their meanings. Buying is a common word that can be used in any circumstance whereas purchase is a formal word used in workplaces, which is generally not used in spoken context.