Procurement vs. purchasing—know the differences

When comparing procurement and purchasing, it’s less about how they are different, and more about how they fit together. Procurement is an overarching practice; it’s the procedural and analytical framework that underpins your spend management activities. Purchasing comes later in this process, when due diligence is complete and it’s time to actually initiate and complete the transactions.

Twenty years ago, procurement and purchasing teams relied more on spreadsheets and manual analysis, limiting the types and volume of insights at their disposal. Today, advanced technology and software allow stakeholders to act on greater intelligence and spot strategic opportunities that benefit the business as a whole. In this article, we’ll look at both activities through the lens of modern practices.

What is procurement?

Procurement is aimed at sourcing and acquiring goods and services to meet both immediate and long-term business needs. Its core aims include optimizing the supply base, managing costs over the lifecycle of acquired goods, and maintaining strong relationships with critical suppliers. The most efficient procurement processes and technologies automate order management and tendering and integrate data to help boost efficiency, transparency, and compliance while supporting broader business goals.

Basic steps in the procurement process

While each company has unique operational procedures, the procurement process generally includes the following steps:

• Identification and validation of needs: This process begins with a thorough assessment of the specific needs of various departments within your company, to ensure that your procurement efforts are properly aligned with both your broader business goals and your operational demands.
• Supplier research and selection through strategic sourcing: The best strategic sourcing practices are robust and data driven. They involve an organized research effort to identify potential suppliers and to evaluate them based on your core criteria (such as value, reliability, ethics, and quality).
• Category management: This involves organizing your spend into distinct groups of products or services to minimize costs and risks and ensure you realize the best value for each purchase. It leverages spend analytics to identify opportunities for savings and to optimize supplier negotiations.
• Negotiations and contract management: During this phase, you’ll negotiate the terms that govern your transactions with your supplier. This typically includes pricing, delivery schedules, quality standards, and ways you will address any changes or disputes.
• Ongoing supplier relationship management and evaluation: A strong procurement process does not end with a signed contract but involves continuous assessment and management of supplier relationships. Apart from establishing standards, this involves responding quickly to any problems and defining clear consequences for non-compliance.

What is purchasing?

Purchasing is the more transactional component of procurement, focused on acquiring the actual goods and services essential to keep things rolling. This function involves direct interaction with suppliers to place orders and manage deliveries and payments. The most effective purchasing teams will also stay on top of suppliers to make sure they’re getting the best prices and fulfilment options.

Basic steps in the purchasing process

• Purchase requisition and approval: The cycle starts with a “purchase requisition,” an internal document issued by a department or individual which must then be reviewed and approved by designated stakeholders to ensure the request aligns with budgetary constraints and business needs.
• Vendor selection and order placement: After approval, the purchasing department solicits and assesses bids or quotes from suppliers to determine the best match in terms of price, quality, delivery terms, and other criteria. A formal purchase order is then issued, establishing a contractual agreement that specifies the agreed-on parameters and conditions for the sale.
• Receiving and reconciliation of goods/services: Once goods or services are delivered, the purchasing department inspects and verifies that everything meets the specs and quality standards set in the contract—and engages directly with the supplier to resolve any issues or discrepancies.
• Payment processing: The final step involves the accounts payable department processing the payment in accordance with the agreed terms, thereby completing the purchasing cycle.

Procurement vs. purchasing: Key differences

We’ve already discussed some of the big-picture ways that procurement and purchasing interrelate. Below are a few of the more granular differences between these two often-conflated terms:

• Scope and focus

  • Procurement includes everything from identifying and validating business needs to selecting suppliers, negotiating contracts, and managing ongoing relationships. The focus of procurement is on maximizing value for the organization over time, not just in terms of cost savings but also enhanced product quality, service delivery, customer satisfaction, and supplier innovation.
  • In contrast, purchasing is more “in the moment.” It involves the specific activities of ordering goods and services, receiving them, inspecting them for quality and accuracy, and processing payments. Purchasing focuses primarily on the efficiency and effectiveness of the buying process, emphasizing cost control, adherence to budgets, and timely delivery of goods and services.

• Process duration

  • Procurement is an ongoing, cyclical process that involves long-term planning and management. It requires continuous assessment and adaptation to meet changing business needs and market conditions.
  • Purchasing, on the other hand, is typically a shorter, more task-specific process. The purchasing cycle concludes once the goods or services are received and the suppliers are paid (although performance reviews and spend analysis may influence future purchasing decisions).

• Decision making

  • Procurement encompasses both making decisions and providing information and insights to inform those decisions. From the top floor to the shop floor, companies rely on intelligence from their procurement teams to help them make swift and confident choices that align with corporate cost, risk, sustainability, and compliance goals.
  • The primary goal of purchasing teams is to fulfill immediate needs efficiently, within budget constraints, and according to the "five rights" of purchasing: the right quality, quantity, price, place, and time.

• Relationship with suppliers

  • Procurement aims to build supplier relationships that offer competitive advantages over time and contribute to mutual growth and success. This relationship management involves regular evaluations, collaboration on improvements, and joint development efforts.
  • While purchasing definitely incorporates elements of supplier relationship management (SRM), it typically views these relationships through a more transactional and task-focused lens. The emphasis is on fulfilling the contract terms instead of developing deeper strategic ties.

• Risk management and compliance

  • Procurement typically takes a wider, more end-to-end view of risk, including global issues that may cause supply chain disruption, a complex range of compliance and regulatory issues, and market changes and events in general. It incorporates comprehensive risk assessments and mitigation strategies into the supplier selection and management processes.
  • And while purchasing may overlap into these broader issues, it primarily focuses on operational risks related to delivery, specification compliance, and payment processes. The aim is to ensure that day-to-day operations are optimized – not disrupted—by purchasing activities.

What is e-procurement software and how can it help?

E-procurement software is a cloud-based or locally installed platform that facilitates the electronic handling of various procurement processes. This includes the automation of sourcing, requisitioning, purchase order management, invoice processing, supplier management, and more. By integrating these processes into a single, unified platform, e-procurement software offers a more cohesive and efficient approach to managing procurement tasks. It digitally transforms procurement into a streamlined, data-driven process that results in numerous benefits to your business:

• Cost efficiency: By automating routine procurement tasks, such as issuing purchase orders and processing invoices, you can minimize the labor-intensive aspects of procurement to drive faster, more accurate outcomes and lower administrative costs. Moreover, e-procurement software typically provides better tools for budget management and expenditure tracking, helping you stay within financial limits while optimizing your spending.
• Process optimization: Features such as electronic purchase orders, automated approval workflows, and integrated electronic payments expedite the procurement process, reducing cycle times from sourcing to payment as well as the potential for errors. This increased efficiency not only saves you time but also enhances the productivity of your teams.
• Enhanced visibility: By consolidating disparate data sets (across multiple systems) into a comprehensive dashboard, e-procurement solutions give teams a deeper view into all levels of the supply chain. This allows for more precise spend tracking and AI-driven analysis in real time.
• Supplier management: The best systems include features for managing supplier information, tracking supplier performance, and fostering better supplier relationships. Through a centralized, connected platform, these tools allow for access to on-demand supplier data and better communication and collaboration with your suppliers.
• Risk management: Compliance and risk mitigation are enhanced by standardizing processes and aligning with tax, governmental, and sustainability regulations both locally and globally. Robust audit trails and multi-tier supply chain visibility further support proactive responses to risk. Additionally, these systems let you monitor supplier performance and maintain detailed records, further protecting your business from harm.
• Strategic decision and sourcing support: AI-powered procurement solutions support strategic sourcing initiatives, including material requirements planning. They provide detailed analytics and insights that can be used for everything from choosing the right suppliers and products to more efficiently carrying out procurement activities.

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