Are you confused about the difference between procurement vs. purchasing? We often use the terms interchangeably, but a seasoned entrepreneur knows better.
You should always have a clear idea of business processes to run your company. While purchasing and procurement may sound similar, they have crucial dissimilarities.
Today, we will make a solid comparison of procurement vs. purchasing. You will have concrete information by the end of the blog to walk away with a clear picture.
What are Procurement and Purchasing?
Procurement and purchasing are both business processes used to source goods and services. Let’s take a look at what both entail before we take a deep dive.
Here are the different stages of procurement:
- Identifying need
- Researching supply market
- Shortlisting vendors
- Creating clear specifications for suppliers
- Inviting and assessing quotes
- Choosing vendors and negotiating
- Creating and managing contract
- Paying suppliers
- Vendor relationship management
On the other hand, steps of businesses purchases include:
- Receiving purchase requisition
- Creating purchase order
- Receiving goods
- Quality check of products
- Payment processing
As you can see, both purchasing and procurement are ways to obtain goods and services. However, procurement has a broader scope and affects the bottom line of the business directly.
Let us take an example to illustrate matters. Let’s say your IT department needs a new vendor for supplying hardware. You begin with market research and end by choosing a supplier and issuing your order.
This is a simple example of business procurement.
On the contrary, let’s say you want to buy some new pen drives for your departments. You can create a purchase order, get your pen drives, check the quality, and make payment.
This is an example of a business purchase.
Procurement vs. Purchasing: Similarities and Dissimilarities
Purchasing is a sub-function of the procurement process. Both help businesses access goods and services to operate and earn profits.
However, procurement entails the whole set of activities that start by identifying the needs for procurement.
Purchase, on the other hand, starts with the purchase order and ends in payment. There is no need to shortlist vendors or manage supplier relationships.
You also don’t need a contract for business purchases.
Procurement vs. Purchasing: Comparison of Goals
Procurement is a proactive process. The goal of procurement is to find and build a sustainable relationship with suppliers. It is more of a strategic approach with long-term goals of creating a competitive advantage in the market.
Purchasing, instead, is transactional. It focuses only on the purchase and payment for goods and services.
Therefore, purchasing tries to achieve short-term goals. It also involves fewer responsibilities than the procurement cycle.
Procurement vs. Purchasing: Comparison of Risks
Procurement is more risky compared to a purchase. In fact, managing risks is an integral part of the procurement process. It involves evaluating risks before they turn serious and become a problem to the supply chain.
For example, choosing a supplier who provides inferior raw materials can take a toll on your product quality. Or, you can lose a vendor due to improper relationship management and end up hampering your production.
In addition, procurement may involve operational risks and even data security challenges.
Purchase, on the contrary, is a simple process without any significant risk. Moreover, purchase does not involve itself in identifying or mitigating risks.
It is purely transactional in nature.
Procurement vs. Purchasing: Comparison of Supplier Relationships
Procurement brings with itself the inherent need to manage supplier relationships. The process is crucial to reduce costs and derive more value from your supply chain. In addition, you have to ensure you identify and select the best suppliers to improve your bottom line.
Purchase doesn’t involve creating or maintaining vendor relationships. It only deals with the existing base of suppliers your organization has. Therefore, the function of purchase ends once you receive the goods as per specifications and pay your vendor.
While procurement vs. purchasing can easily be confused, the two terms have significantly different meanings. Procurement is an umbrella term for all the processes involved in buying goods and services. Purchase has a narrower scope and involves the actual purchase of the resources. You can streamline your purchase process to make your procurement more effective and increase value. Consider using a payment management tool so that you can stay on top of your expenses and budget.