To help us understand what is meant by these words let’s first consider the generally held definitions of Procurement and Purchasing.
According to Procurify, “Procurement involves the process of selecting vendors, establishing payment terms, strategic vetting, selection, the negotiation of contracts and actual purchasing of goods. Procurement is concerned with acquiring (procuring) all of the goods, services, and work that is vital to an organization. Procurement is, essentially, the overarching or umbrella term within which purchasing can be found.”
Procurify considers that “Purchasing is a subset of procurement. Purchasing generally refers simply to buying goods or services. Purchasing often includes receiving and payment as well. Within the overarching Procure-To-Pay Cycle, the steps specifically related to purchasing are: Purchase Order Acknowledgement, Advance Shipment Notice, Goods Receipt, Invoice Recording, 3 Way Match, Payment to Supplier”
Procurement vs Purchasing
In general the distinction made between Procurement and Purchasing can be somewhat subjective and certainly situational. Many make the point that they are interchangeable terms and can be used one for the other.
Procurement vs. purchasing: similarities and differences
Purchasing and procurement are two processes that are done during the process of acquiring goods and services for an organization. However, they vastly differ in their method and approach. This table represents their key differences:
Key Differentiating Factors Between Procurement And Purchasing
Strategic Versus Tactical
One can infer that purchasing is a tactical function, while procurement is strategic. Purchasing pertains to the transactional aspect of buying goods and services; it starts and ends with placing an order and receiving it. However, procurement contains the whole ambit of processes that commence the moment there is any business requirement of procuring goods and services. Procurement focuses on strategic aspects like finding the right supplier, maximizing contractual value, etc. It is an end-to-end function that carries on even after it the order is received and hence, is a crucial part of any corporate strategy of an organization.
Goals And Objectives
Purchasing centers around the cost of the request, while procurement centers around value creation and Total Cost of Ownership. While purchasing aims to minimize the cost of an order, procurement aims at other objectives like risk mitigation, contract compliance, cost savings, ongoing supplier relationships, etc.
Focus On Supplier Relationships
The attention on building supplier relationships is practically missing inside purchasing as it keeps an eye on just work with existing supplier base. However, procurement places immense importance on building long-term, collaborative relationships with preferred suppliers. Procurement enables suppliers to be valuable strategic partners of an organization which further enhances the value of a supplier-organization relationship— one of the major underlying reasons behind Supplier Relationship Management (SRM) being a critical component of the procurement function.
Risk Evaluation And Mitigation
Given the transactional nature of purchasing, it doesn’t focus on identifying and mitigating risks, which might have a detrimental impact on an organization. An Organization faces various supply chain risks while engaging with suppliers like operational risk, financial risk, data security risks, etc. Procurement aims to identify risks with business impact and mitigate them by enforcing compliance amongst all the stakeholders.