Procurement VS 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
m
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.
co
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
s.
part of the procurement department.
In simple terms, purchasing is the process of buying goods and services while
ve
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
ea
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.
nl
Let's understand both process separately.
io
What is Procurement?
at
Procurement can be defined as the process of acquiring goods, and services from a
third-party vendor through direct purchasing, competitive bidding, or tendering
uc
process while ensuring timely delivery of the items with the right quality and quantity.
Procurement involves activities such as identification of needs, sourcing, selection,
ed
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
m
desired quality standards.
2. Submit Purchase Request: Once needs are identified, a formal purchase
requisition is submitted. This document details the requirements and obtains
co
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.
s.
4. Negotiate Terms: Contact shortlisted vendors and negotiate terms like pricing,
delivery schedules, and payment conditions. Don't be afraid to get competitive
ve
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
ea
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
nl
the PO.
7. Three-Way Matching: This crucial step verifies that the purchase order, delivery
io
receipt, and vendor invoice all match. It ensures accuracy and prevents
discrepancies before payment.
at
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.
uc
This includes purchase requisitions, POs, invoices, and any relevant
communication with vendors. Proper record-keeping ensures transparency,
ed
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
m
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.
co
Steps involved in the Purchasing process are: -
s.
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
ve
key steps involved:
1. Identify Need: This initial step recognizes the need for a good or service. It
ea
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
nl
different vendors who offer the required product or service. Compare features,
pricing options, and vendor reputations.
io
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.
at
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
uc
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
ed
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
m
Procurement Purchasing
The end goal of the procurement is The end goal of purchasing is
co
to identify the organization's to arrange the organization's
requirements and fulfil the expenditure and buying goods,
procurement of those requirements. equipment, services for the
s.
organization.
ve
Procurement is a strategic and
proactive process. It involves a lot of
stages of processes which can be
Purchasing is a reactive
process. This process is less
complicated and involves few
ea
time-consuming and costly. steps.
Procurement gives more importance Purchasing focuses more on the
to an item's value than how much it cost than the value it possesses.
nl
costs.
io
In procurement, every stage involves whereas purchasing involves a
several numbers of people, each of few numbers of people.
at
them contributing to one of the parts
of the whole process.
uc
Procurement involves end to end Purchasing only gets involves
activities that need to acquire all the only when it's time to buy new
products and services. It does goods and services. Tasks
ed
everything from identifying needs to involved in purchasing are
sourcing, receiving, contact closure, ordering, goods receiving, and
and record keeping. payments.
The procurement process focused on Purchasing focused on making
developing a long term and win-win efficient deals for that moment,
relationship with vendors. do not care about a long term
vendor relationship.
Procurement is competitive as it more Purchasing is less competitive
focused on driving competition than procurement since
among vendors and always allows products and services always
multiple sources of supply. buy from the same source.
Table for difference between procurement and purchasing
This is how will you distinguish procurement from purchasing.
m
Conclusion
co
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
s.
execution of fulfilling immediate needs.
Procurement, on the other hand, takes a broader, strategic viewpoint. It encompasses
ve
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
ea
the key differences:
● Focus: Purchasing is short-term and transactional, while procurement is
nl
strategic and long-term.
● Goals: Purchasing aims to minimize costs for each order, while procurement
io
focuses on overall value creation, considering total cost of ownership and
supplier relationships.
at
● Activities: Purchasing involves tasks like order placement and receiving, while
procurement includes supplier selection, contract negotiation, and risk
mitigation.
uc
In essence, purchasing is a subset of the broader procurement process. Imagine
procurement as the architect, meticulously planning and overseeing the entire building
ed
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.
m
co
s.
ve
ea
nl
io
at
uc
ed
