PURCHASING VS PROCUREMENT – KEY DIFFERENCES

• Procurement

The question of purchasing vs procurement is one of the frequently asked questions. In this blog, we have explained the difference between purchasing and procurement.

THE EVOLUTION OF PURCHASING TO PROCUREMENT AND THEIR RESPECTIVE DEFINITIONS.

Purchasing surfaced in our world in the first gained prominence during World War 2. It was done as a clerical function dealing with buying of raw material, commodities, and supplies for organizations and businesses. Fast forward to the 1960s and 1970s, it continued to gain traction within organizations but was still considered as a clerical task. It was not until the advent of Procurement in the 2000s where the role of purchasing became a strategic function evolving into Procurement as we know it today. However, the difference exists, keep reading to find out!

Purchasing refers to the acquisition or direct buying of goods, commodities, and services. It involves activities such as ordering, raising purchase orders, receiving, and payments.

Procurement, on the other hand, is defined as the process of acquiring goods, works, and services for organizational use. It involves activities such as identification of needs, sourcing, selection, negotiation, ordering, receiving, and payments.

Both have a common goal which the acquisition of goods but have different approaches to them in organizational settings. It is worth noting that Procurement or Purchasing is a component of the Supply Chain that involves the entire physical process from ordering and obtaining the raw materials inclusive of all process steps in between until the finished product reaches the end consumer. Purchasing or procurement plays a role in the supply chain of products through the acquisition of raw materials for production.

THE DIFFERENCE BETWEEN PURCHASING AND PROCUREMENT

Over the years, the two terms “Procurement” and “Purchasing” have been used interchangeably. However, they are not the same. Let’s take a look at the difference between them:

Broadly speaking, the Purchasing process is less complicated and pretty many means what it implies whereas Procurement involves a lot of individual steps and processes which can be argued as time-consuming, unnecessary, and costly.

Purchasing includes:

• Ordering, making requests for the good or service needed.
• Raising purchase orders to the supplier or vendor which the intended goods are to be bought from
• Receiving of ordered goods as per the purchase order
• Payments are made after the goods have been supplied and met the requirements of the purchase order.

Procurement involves:

• Planning & Identification – this is the identification for the need for the goods or service – requests require approval from either head of the department/organization or the CEO. It involves emails, memo’s detailing the business need and impact for the good, service, or work.
• Sourcing Suppliers – here, invitations are sent out to suppliers or vendors to respond to accordingly.
• Supplier Selection & Contracting – this is where the appropriate vendor or supplier is selected after critical evaluation by the procurement team and is then offered a contract to supply or provide the goods or services as expected.
• Contract Management – a stage where a contract is completed between the relevant parties for all to fulfill contractual obligations to avoid misunderstanding.
• Receiving and Storing – this is the receipt of the final order with quality inspection by the organization and audit department carried out. This ensures the product delivered conforms to the purchase order.
• Payment & Evaluation. Once procurement of the product/service is completed, payment to the Supplier/vendor is completed. That is managing the Procure-to-Pay Process.

In a few organizations, there is an evaluation process completed to identify success and weakness to be worked upon.

As you can clearly see, purchasing is far simpler compared to Procurement, which can have a lot more potential problems.

Another area of difference in the purchasing vs procurement debate is the roles and responsibilities involved. Purchasing is limited to a clerical function with the role of just ordering or buying of goods or services directly whilst with procurement, all aspects of the strategic function that it is must be followed with the additional assurance that value for money, creating value, cost savings and cost avoidance within an organization are identified and evidenced.

“Procurement has evolved from a clerical role to a tactical role and now to a more strategic one.”

The next area of difference between procurement and purchasing is the involvement of people. Purchasing tends to involve few or limited people thus is less cumbersome or bureaucratic.

Whereas with Procurement, every stage involves several people, each contributing to a part of the process, without whom the chain will fail. Thus, the need for excellent communication skills, transparency, and networking amongst stakeholders for success, which can be assessed from these 21 Authentic Procurement Interview Questions and Answers Guide

The Purchasing process does not necessarily involve competition as purchases can be considered one-off each time as there is the freedom to research and change vendor each time a purchase is required. The onus is sole with the buyer and is non-contractual. Whereas Procurement seems to create competition amongst suppliers as contracts are up for grabs. But this is advantageous for buyers as the competition allows for innovation among suppliers and a healthy business environment.

Finally, another difference between Procurement and purchasing is their focus. Purchasing is mostly focused on how to get goods and services, whereas Procurement focuses on the need for the goods or services with a focus on avoiding unnecessary costs or resources since it’s very strategic function is to drive cost saving for the organization.

So, in summary, the differences between purchasing and procurement are so great in their definition and application that to use the terms interchangeably should be limited if not avoided altogether for anyone considering becoming a key player within Supply Chain.

Differences between purchasing and procurement

I am sure you will find below expert views useful in order to understand “How to manage your boss who isn’t procurement expert” and “what is Indirect Procurement?” by Richard Beaumont

 

Note: This article is co-authored with Ahasu Isaac (Twitter: @isaac_ahasu)

Ahsau is a graduate of Ho Technical University in Ghana with an HND in Procurement and Supply chain management. I also hold an IPED Diploma in Project Management and World Bank Certificates in Public Procurement, E-Procurement, and Contract Management. Ahasu is also the founder of the Young Procurement Professionals Network where the goal is to train and mentor young and upcoming professionals in the field of Procurement and Supply chain to be ethically upright in their duties.