There is always a fair amount of confusion when it comes to procurement and purchasing. As the two process are so closely linked, it’s easy to get them mixed up. In this article, we’ll aim to clear up that confusion and outline the key differences between both processes, for your convenience. Let’s get stuck right in!
What is procurement?
In a nutshell, procurement is the process of sourcing and acquiring the necessary goods and/or services that a company requires in order to fulfil its business objectives.
Having an effective procurement strategy in place enables you to achieve many things, for example:
- You can save money by negotiating more favourable terms and pricing with your vendors
- You can ensure higher quality in terms of supplier efficiency and timeliness
What are the steps in the procurement process?
The procurement process involves more than simply waving the company credit card about and paying a purchase. As an example, for an effective procurement strategy to work, it will involve everything from identifying the best goods and services required to promote growth, all the way through to maintaining proper records and documentation.
Here are the steps in the procurement process:
- Identify required goods and services
- Submit a purchase request
- Assess and select vendors
- Negotiate terms and price
- Create purchase order
- Wait for the order to arrive
- Receive and inspect goods
- Approve and process payment
- Three-way match
- Keep records
What is purchasing?
Purchasing is essentially a set of tasks that are involved with buying goods and services for your company. Purchasing itself involves tasks like raising purchase orders, receiving, and arranging payments.
What are the steps in the purchasing process?
Purchasing is a subset of procurement. As such, the purchasing process itself sits inside procurement. That said, unlike the procurement tasks listed above, you should refrain from tailoring your purchasing steps to suit each individual vendor you may be dealing with.
By maintaining routine best practices and uniformity across all vendors, you can make the process much more streamlined. This is a fundamental step in purchasing.
Here is a list of the steps involved in the purchasing process:
- Acknowledge the purchase order
- Send advance shipping notice
- Collect and files the goods receipt
- Record invoices
- Three-way match
- Pay your vendors
Procurement Vs. purchasing – what’s the difference?
Admittedly, by this point, the procurement and purchasing processes still seem relatively similar. In order to better understand the differences between the two, we’re going to go into greater detail in relation to things like, end goals and how the supplier is dealt with:
- Procurement – To identify and fulfil all organizational needs
- Purchasing – To arrange the expenditure and secure goods or services for the company
How are goods and services assessed:
- Procurement – More emphasis is placed on value to the business as opposed to cost
- Purchasing – More focus is placed on the cost itself as opposed to the value to the business
Where the processes are best utilised:
- Procurement – When involved with acquiring all of the necessary goods and services required for your business to thrive
- Purchasing – When it’s time to make said purchases
What is involved:
- Procurement – Everything from recognition, need, contract closure, and keeping records
- Purchasing – Ordering, expediting, and processing payments
How supplier is dealt with:
- Procurement – A focus on long-term relationships where both you and the vendor win
- Purchasing – Focused on maintaining efficient transactions (money first, long-term relationships being an afterthought)
Ultimately, when it comes down to it, purchasing is a process that lives within the procurement process. This is why the two are often confused.
Remember, procurement deals with sourcing of activities, negotiating, and selecting the required goods and services strategically in accordance with business needs.
Purchasing on the other hand, refers to the process itself for ordering said goods and services, including transactional function.
When in doubt, remember this key difference in terms of how goods and services are assessed from the perspective of both processes:
Procurement: Places more emphasis on value to the business, as opposed to the monetary cost(e.g., “We need this to drive the business forward, please pay for it”)
Purchasing: Focuses more on the cost itself, as opposed to the value to the business(e.g., “You may need it, but we can’t afford it, so find a way to achieve the same results, for less money and we’ll talk”)