Purchasing and Procurement: All You Need to Know
Purchasing and procurement both relate to the sourcing and purchase of products and services. Procurement, in its simplest form, involves buying things, but if you ask any business person the same question, the answer may not be that simple. Most business people will say that any procurement process involves a series of activities that are crucial […]
Purchasing and procurement both relate to the sourcing and purchase of products and services. Procurement, in its simplest form, involves buying things, but if you ask any business person the same question, the answer may not be that simple. Most business people will say that any procurement process involves a series of activities that are crucial for an organization to procure the best products or services at the best price. Since most organizations today end up spending a lot of their revenue on purchasing goods, effective management of the entire procurement process becomes vital for companies looking to sustain themselves in today’s economy. Procurement is, for many companies, the major reason behind their success and will continue to gain importance among businesses of all sizes in the years to come.
Since both purchasing and procurement deal with the acquisition of goods, most of us have started using the terms purchasing and procurement interchangeably. But despite their numerous similarities, they do have very different meanings. Procurement, as discussed previously, is a multi-faceted process and involves steps such as supplier selection, screening, negotiating payment terms, setting up contracts, and finally purchasing the desired goods at the best possible rates. Purchasing, on the other hand, is a smaller process within the overarching procurement process. It basically refers to the process of how products or services are ordered and can be described as the transactional facet of the overall procurement process. Now that you know the basic differences between purchasing and procurement, let’s walk you through some of the major differences between the purchasing and procurement process.
The Procurement Process
In any business scenario, procurement is deeply intertwined with several core business functions. It is therefore influenced by the businesses’ corporate strategy and its commitment towards aligning both functions. To establish an effective procurement process, follow the four steps given below:
Step 1: Establish your company’s identity and know more about your values and ideals
Step 2: Think about market placement and whether you want to appeal to a large or specific client base
Step 3: Assess your company’s capabilities and find out your major strengths and weaknesses
Step 4: Iron out management issues before they start affecting the company’s productivity
A key thing to note here is that the steps mentioned above are not separated from each other but are often closely entwined.
The Purchasing Process
When you think of purchasing and procurement, always remember that purchasing is a smaller part of the overarching procurement process. Since it involves the buying of actual products or services, it includes the transactional part too, which is receiving goods and the subsequent payment. In the overall procurement process, purchasing is only related to:
Step 1: Order acknowledgment
Step 2: Shipment notices and receipts
Step 3: Invoice recording
Step 4: Supplier payments
The steps discussed here shouldn’t be tailored to suit the scope of your business since they are not influenced by the nature and size of your business.
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