Procurement vs Purchasing: How to Spot the Difference
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Procurement vs Purchasing: How to Spot the Difference & What It Means for Your Supply Chain Management

  • General News
  • 20th January 2023
Purchasing vs Procurement

Procurement vs Purchasing: How to Spot the Difference & What It Means for Your Supply Chain Management

Is there really a difference between “procurement” and “purchasing?”

After all, they’re both parts of the same process. They’re often used interchangeably.

Some would even argue they have the same end goals.

The answer is yes: there is a difference.

And every organisation needs to know what it is.

Why?

Properly differentiated procurement and purchasing processes can be the difference between a high-functioning, successful supply chain…

…or a completely disorganised, ineffective one.

Let’s define and compare each process.

Here’s the Key Difference Between Procurement and Purchasing

Purchasing in supply chain management is just one subset of the procurement process: it refers to the execution of tasks established during procurement designed to attain products from strategic suppliers.

Think of it like this:

Though purchasing and procurement are ultimately working toward the same end result for a business (attaining a product from ideal suppliers), they achieve that result in dramatically opposite ways.

Procurement is proactive, internal, and long-term—the strategic process focused on supplier relationships and product value.

Purchasing, on the other hand, is reactive, external, and short-form: the direct action concerned with product price and effective supplier transactions.

Let’s break down these terms further.

What is Procurement? The 4 Main Components

Procurement is the process of identifying good/service needs in a business and creating the most optimal strategy to fulfill those needs through supplier relationships.

How does it work?

There are four main components:

  • Need recognition
  • Sourcing
  • Contracts
  • Analysis and evaluation

Need Recognition

First, the demand team must determine the specific needs for goods and services.

This is the group of employees responsible for forecasting, identifying, and weighing product needs against the suppliers’ lead times. They report to the procurement team to help determine details such as location, need quantity, and deadlines.

Once the product needs are determined, it’s time to decide what type of procurement to move forward with: direct or indirect.

Direct procurement is the process of attaining anything necessary to produce an end product for the business (ex. the product that a buyer will purchase later).

Indirect procurement refers to obtaining the products required for day-to-day use but doesn’t necessarily contribute to the company’s bottom line or end product (think office supplies or uniforms).

Once the relevant procurement process has been decided, the procurement team takes over to handle the sourcing process.

Sourcing

The sourcing process refers to identifying ideal suppliers, arranging terms, and determining the best solutions for company needs.

In order to determine the most optimal suppliers, the sourcing team must establish key qualities to evaluate against potential suppliers. This could include category type, pricing, good/service availability, and/or industry risk.

These key qualities help the sourcing team identify the most reliable suppliers that can provide quintessential products and the best competitive pricing.

This is also the most important part of the procurement process for supplier relationship management—identifying the right suppliers is vital to the long-term success of a company’s relationships with its suppliers.

Contract Negotiation

Now the procurement team will iron out the details with the remaining suppliers regarding goods and services, expected delivery dates, payment terms, etc.

This is an essential part of the procurement process that determines the overall efficiency and value of the supplier relationship.

Analysis & Evaluation

After the goods and/or services are delivered from the supplier, the company will conduct a thorough analysis of profit margins, KPIs, opportunities for cost savings, etc.

This helps the procurement team determine which supplier relationships to maintain and which to terminate. A large part of the procurement process is minimising costs, so it’s important to perform regular evaluations to determine areas for improvement.

What is Purchasing? 4 Standard Steps

The purchasing process is the direct transaction between the supplier and the inquiring organisation that results in the acquisition of certain goods and/or services.

This process is much less reliant on value and relations—instead, purchasing focuses on the price and follow-through of tasks designated in the procurement process.

There are four main steps in the purchasing process:

  • Ordering
  • Expediting
  • Receiving
  • Payment

Ordering

The ordering process is the execution of purchase requisitions (the internal requests for products) determined in the procurement process.

It involves contacting select suppliers with purchase orders (the external request to suppliers for goods and/or services) and organising payment details via invoice from suppliers.

Expediting

Expediting is a largely internal process that involves checking the progress of suppliers’ production and delivery to ensure the product is received on time.

This is a vital component of the purchasing process because it allows a smooth transaction between the company and suppliers, and maximises the potential for cost savings.

Receiving

Once the goods and/or services have been delivered, the purchasing team will conduct a quality check against purchase requisitions (the internal request for a purchase) to ensure the products match the initial request to the supplier.

They may also choose to weigh items against certain standards or expectations from the supplier.

Payment

After the purchase order has been submitted to the supplier, the finance department will receive an invoice with payment details.

The payment due date (either before or after delivery) may vary depending on suppliers and contract details.

The completion of payment and quality checks signals the end of the procurement and payment processes.

Why Efficient Procurement & Purchasing are Vital to Supply Chain Management

An organised procurement and purchasing process means a company is saving costs and receiving products on time to run its business.

It helps maintain accuracy, quality control, and ultimately builds strong supplier relationships.

A disorganised procurement and/or purchasing process may result in the following:

  • Uncertain/missed deadlines
  • Profit loss
  • Inefficiency
  • Negative supplier relationships

Establishing an efficient procurement and purchasing process means knowing the difference between the two and the nuances that allow each process to function correctly.

Remember This Key Difference in Procurement vs Purchasing…

Procurement is the supplier strategy and purchasing is the action to receive goods and services from those suppliers.

Each process contains separate goals, tasks, and KPIs, but they should be developed individually and properly to reach their maximum potential.

This is vital to a company’s overall success and effective supply chain management.

BIO

Nick Rakovsky is the Founder of DataDocks–a secure online platform that allows both your team and your customers the ability to book logistics appointments for your docks.

Procurement Courses

Our flexible and innovative procurement and purchasing training online courses allow you to use your work experience to help you towards an accredited professional qualification. Every online qualification covers most aspects of supply chain management and procurement. IoSCM procurement and purchasing courses are available at a range of levels to support every stage of your career and further the duties and responsibilities of your purchasing or procurement department. From procurement training for beginners (covered in Levels 2-3) and advanced purchasing training courses (Levels 5-7); there’s online training for all level of skills and those looking to advance to the next stage of their careers.

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