What is Purchasing and Procurement?
Purchasing and procurement stand for far more complicated processes than simply bringing goods and services to an organization. They are the foundation of strong, collaborative relationships with suppliers. However, often, purchasing and procurement are used interchangeably and are misunderstood. Through this blog, our experts try to clear the difference between purchasing and procurement.
Procurement is a business management function that involves the acquisition of products and services. It covers a set of activities from identifying the need for goods and services in the organization to strategically acquiring them. The procurement process usually involves activities such as:
- Selecting vendors
- Establishing payment terms
- Negotiating contracts
- Purchasing goods
Therefore, it can be said that procurement is an umbrella term that comprises of the purchasing process apart from many other different activities. Purchasing is a subset of procurement and is now considered to be more of a strategic function that can be used to control bottom line costs of any organization. The purchasing process includes steps such as:
- Creating purchase requisition
- Issuing purchase order
- Obtaining products and services
- Reviewing the order
- Releasing the payment to vendors
Devising an effective purchasing and procurement strategy requires an analysis of different factors. Request a free demo to know how our experts can guide you in obtaining data in real-time to analyze such factors.
What’s the Difference between Procurement and Purchasing?
In this section, we will help you understand the key differences between the method and approach of the purchasing and procurement process.
Strategic Sourcing
Procurement experts need to strategize well before finalizing any procurement deal and must consider factors such as optimal method of delivery, cost, taxes, and tariffs to receive goods. However, the purchasing process doesn’t require much of a strategy and focuses on buying materials with the exact needs. Its main objective is to deliver materials to the destination within the given time frame.
Spend Management
Purchasing and procurement vary a lot in terms of spend management. Procurement manages spend through a structured process; whereas, purchasing is a normal transaction when a company pays for goods and services.
Supplier Capability
Procurement professionals monitor their suppliers to ensure timely delivery of goods needed on time. Their work involves selecting vendors, inspection of the quality of goods, and evaluating potential suppliers. However, purchasing departments prefer working with vendors who they are already associated with.
Risk Analysis
Risk management is imperative for the effective procurement process, especially for diverse businesses. However, the purchasing department is less concerned about risks. They simply need a strategy that can include protocols for recording and tracking purchases. Want to know more about risks faced by purchasing and procurement process, request for more information here.
Skill Requirement
Both purchasing and procurement processes require different skill sets to achieve their business objectives. Procurement experts need to be an effective communicator and influencer to maintain a good relationship with suppliers; whereas, purchasing requires analytical thinking, time and inventory management to maintain the production of the company.
