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Home » Blog » Procurement Technology » Procurement vs. Purchasing: The Definitive Guide

Procurement vs. Purchasing: The Definitive Guide

Difference between purchasing and procurement -The Definitive Guide
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Welcome to our latest blog post, which clarifies the differences propagating the’ Procurement vs Purchasing debate.’ While often used interchangeably, they represent distinct aspects of supply chain management. Understanding the difference between purchasing and procurement is fundamental to optimizing your business operations, and this blog aims to help you do just that.

What is Purchasing?

Purchasing is the tactical process involved in acquiring goods and services required by an organization. It focuses on the direct activities of selecting suppliers, negotiating terms, and managing orders to ensure the timely delivery of quality products and services at the best possible price.

Read our blog on: 6 Successful Purchasing Negotiation Tips for Every Buyer

No, procurement and purchasing are not the same. Purchasing is a part of the procurement process. Purchasing is more transactional – it’s how goods or services are ordered. On the other hand, procurement is an umbrella term that includes purchasing but also involves identifying company needs, selecting suppliers, establishing payment terms, and managing supplier relationships.

Take, for instance, a company’s purchasing department that sources raw materials from a supplier, negotiates the price, and places the order. The goal of purchasing is to acquire the correct goods, at the best price, within the appropriate timeline.

Understanding Procurement

Procurement is a strategic function encompassing the entire process of acquiring goods and services vital for an organization’s operations. It involves identifying needs, sourcing and negotiating with suppliers, managing contracts, and ensuring the delivery of goods and services in alignment with corporate goals and financial parameters. This process aims not only to secure the best value but also to foster innovation, manage risk, and strengthen the supply chain.

Procurement is a broader, more strategic process when comparing’ procurement vs purchasing.’ Procurement includes purchasing and encompasses identifying the organization’s needs, sourcing potential suppliers, negotiating contracts, establishing payment terms, and even managing supplier relationships.

For example, a company might need new office chairs. The team conducts research, evaluates suppliers based on cost, quality, and sustainability practices, and negotiates terms before making a purchase. The procurement process ensures that the organization’s needs are met effectively and efficiently.

From a strategic standpoint, procurement is more relevant long term. Using the same example as before, a company may require new office chairs every so often that the procurement team must purchase chairs every 6-12 months. They cannot, or more to the point, need not go through the entire procurement process all over again if they maintain a good relationship with their previous vendors/suppliers and their quotes are favorable.

Read our Report on: Overcoming Procurement Implementation Challenges: Expert Insights & Practical Approaches

Now, imagine this extrapolating to all of the organization’s purchasing needs.

The Key Difference Between Purchasing and Procurement

Even though purchasing and procurement involve acquiring goods or services, their scope and depth fundamentally differ when considering ‘procurement vs purchasing.’

Purchasing, a part of procurement, is more transaction-focused, dealing with the buying and receiving goods. On the other hand, procurement is an all-encompassing process, dealing with supplier selection, risk management, contract negotiation, and even supplier performance evaluation.

To simplify these differences, here’s a comparison chart:

Aspect Purchasing Procurement
Definition The process of acquiring goods and services needed by an organization. The strategic process of acquiring goods and services, from identifying needs to managing supplier relationships.
Focus Transactional; emphasizes the buying process. Strategic; covers the entire process from sourcing to payment, including strategic planning and analysis.
Activities – Selecting suppliers
– Negotiating prices
– Placing orders
– Identifying needs
– Sourcing suppliers
– Negotiating contracts
– Managing supplier relationships
Objectives To purchase goods and services at the best possible price. To add value to the organization through strategic sourcing and supply chain management.
Scope Narrower, focusing on the act of buying. Broader, encompassing supplier selection, contract management, and ongoing evaluation.
Outcome Immediate, concerned with the acquisition of goods and services. Long-term, aimed at building effective relationships, ensuring quality, and achieving cost savings.

Examples of Procurement and Purchasing

There are many different types of procurement and purchasing, but they all have one goal in mind: to get the best product or service for the best price. Here are a few examples of procurement and purchasing:

  1. Open market procurement: This is when the government buys goods or services from the open market, without any restrictions on who can provide the goods or services.
  2. Competitive bidding: This is a process where potential vendors submit bids to provide goods or services, and the government chooses the bid that offers the best value.
  3. Sole source procurement: This is when the government contracts with a single vendor for goods or services, because that vendor is the only one who can provide what is needed.
  4. Reverse auction: In this type of procurement, vendors compete against each other to offer the lowest price for goods or services. The government contracts with the vendor who offers the lowest price.
  5. Request for proposal (RFP): An RFP is issued when the government wants to buy goods or services, but there are multiple vendors who can provide what is needed. Vendors submit proposals outlining their prices and qualifications, and the government chooses the proposal that offers the best value.

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Procurement vs Purchasing Lifecycle

While we’ve delved into the specifics of procurement and purchasing, understanding the entire lifecycle of these processes will further highlight their unique roles and impacts on businesses. When we talk about ‘Procurement vs Purchasing,’ each phase involves its own set of activities:

Purchasing Lifecycle:

  1. Requisition: The need for a product or service is identified.
  2. Purchase Order Issuance: A formal order is placed with the supplier.
  3. Delivery and Receipt of Goods/Services: The ordered goods/services are received and inspected for quality and quantity.
  4. Invoice Approval and Payment: The supplier’s invoice is checked, approved, and the payment is made.
  5. Record Keeping: Details of the transaction are recorded for future reference.

Procurement Lifecycle:

  1. Identifying Needs: This is the first step, where an organization determines and quantifies its requirements.
  2. Market Research: The organization surveys the market for potential suppliers who can fulfill these needs.
  3. Supplier Evaluation and Selection: Suppliers are evaluated on various parameters such as price, quality, delivery time, and post-purchase service. The most suitable ones are selected.
  4. Negotiation: This involves negotiating the price, delivery, and payment terms with the selected suppliers.
  5. Contract Formation: A formal contract is drawn up with the agreed terms and conditions.
  6. Review and Control: Supplier performance is continually reviewed once the contract is in place reviewed, and corrective actions are taken if required.

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Difference between Purchasing and Procurement, in terms of technology used?

Technology plays a significant role when distinguishing ‘procurement vs purchasing.’ Technologies such as AI, IoT, Blockchain, and Cloud Computing have brought about immense efficiency, cost-saving, and improved risk management in both procurement and purchasing.

However, purchasing is a relatively low-tech process, often involving basic software facilitating placing orders, tracking, supplier communication, and payments.

However, procurement has a larger scope for higher-tech applications. For instance, AI can streamline procurement by automating tasks like supplier research and contract analysis. Simultaneously, IoT devices can track goods in real time during the purchasing process, enhancing transparency. ‘Cognitive Analytics’ can process data from IoT devices, organizational needs, purchasing patterns, and suppliers to provide a comprehensive lay of the land and inform the procurement strategy in the future.

What does your organization need – Procurement or purchasing?

Choosing between procurement and purchasing involves considering various factors, including your business size, industry, and specific needs.

Smaller businesses with less complex operations may lean more towards purchasing due to its immediacy and transactional nature. In contrast, larger corporations or those in industries with complex supply chains would benefit from a comprehensive procurement strategy that offers long-term benefits and strategic alignment with their business goals.

Conclusion

While procurement and purchasing play significant roles in an organization, it’s crucial to understand ‘procurement vs purchasing.’ Recognizing their unique functions and strategic value can significantly impact your business’s operational efficiency, cost savings, and supplier relationships.

Remember, it’s not about choosing between procurement and purchasing. Instead, it’s about understanding their unique roles in your business and ensuring they work together effectively. Book a demo today to get a clear understanding.

Frequently Asked Questions

  1. Can a business have both procurement and purchasing functions? 
  2. Many companies, especially larger ones, have separate procurement and purchasing functions. The procurement team is involved in strategic decision-making about suppliers, contracts, and risk management. In contrast, the purchasing team deals with the transactional aspects of ordering, receiving goods, and making payments.

  3. How does technology impact procurement and purchasing?
  4. Technology can significantly streamline and enhance both procurement and purchasing processes. Advanced software can automate mundane tasks, provide data-driven insights for better decision-making, enhance visibility into supply chains, and improve supplier collaboration.

  5. Which is more critical – procurement or purchasing? 
  6. Both procurement and purchasing have unique importance and cannot be compared directly. Procurement is more strategic and can have a broader impact on a company’s bottom line, supplier relationships, and risk management. Purchasing, being a part of procurement, is essential to ensure that the day-to-day operations of a business run smoothly

  7. What skills are essential for professionals in procurement and purchasing?
  8. For procurement professionals, strategic thinking, negotiation skills, analytical ability, and relationship management are crucial. They must understand market trends, assess supplier capabilities, and align procurement strategies with organizational goals. Purchasing professionals, on the other hand, require attention to detail, strong negotiation skills, effective communication, and the ability to manage transactions efficiently. Both roles benefit from technological proficiency to leverage procurement and purchasing software.

  9. How do procurement and purchasing contribute to sustainability?
  10. Procurement and purchasing play vital roles in promoting sustainability by selecting suppliers based on environmental and social criteria, negotiating contracts that include sustainability requirements, and choosing eco-friendly products and services. Procurement strategies can be aligned with sustainability goals to reduce waste, minimize environmental impact, and ensure ethical labor practices in the supply chain, contributing to the organization’s overall sustainability efforts.

  11. How does Zycus differentiate between procurement and purchasing in its software solutions?
  12. Zycus’ software solutions are designed to address both the strategic and transactional aspects of acquiring goods and services. For procurement, Zycus offers a comprehensive suite of tools that cover the entire procurement process, from supplier management and sourcing strategy to contract management and spend analysis, empowering organizations with data-driven insights for strategic decision-making. For purchasing, Zycus provides efficient, user-friendly tools that automate the buying process, ensure compliance, and facilitate smooth transactions, focusing on operational efficiency and cost-effectiveness.

  13. How can Zycus help organizations achieve better outcomes in their procurement and purchasing processes?
  14. Zycus helps organizations achieve better outcomes by leveraging advanced technologies like AI and machine learning to automate routine tasks, provide strategic insights, and enhance supplier collaboration. Zycus’ integrated solutions enable seamless information flow across procurement and purchasing activities, improving visibility, control, and efficiency. By streamlining the procurement process, organizations can realize significant cost savings, reduce risks, and foster innovation. Zycus also emphasizes supplier relationship management, helping businesses build stronger, more resilient supply chains that can adapt to changing market conditions and sustainability requirements.

Related Reads:

  1. Procurement automation: How can it help in procurement transformation?
  2. Understanding Blockchain in Procurement
  3. Change Management in Procurement and How to Handle It
  4. 6 Key Procurement Organizational Structures You Can Consider To Optimize
  5. The Role of AI in eProcurement
  6. A Guide to Effective Cost Reduction Strategies in Procurement
  7. 10 Best Practices for Procurement Manager in 2024 and Beyond
  8. White Paper – 5 Half-Truths Your Procurement Technology Provider Told You
  9. Procurement Process– Definition, Meaning, Steps and Functioning
  10. Direct Procurement vs. Indirect Procurement : Key Differences Explained
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