Not unlike the confusion between procurement and sourcing, there is sometimes confusion when it comes to procurement and purchasing. Some even use the terms procurement and purchasing interchangeably, but the terms have different and distinct meanings. Let’s explore the difference between procurement and purchasing.
Procurement vs Purchasing: What is Procurement?
A Strategic Perspective
Procurement encompasses the entire end-to-end process of acquiring the goods and services required by an organization. Procurement is a holistic and strategic approach, involving a series of interconnected steps that occur before, during, and after the purchase, including planning needs, sourcing suppliers, negotiating long-term contracts, and managing supplier relationships. Procurement is typically proactive in nature, focused on the long-term needs of an organization.
Efficient procurement aims to optimize cost, quality, and delivery to meet organizational goals. It plays a crucial role in supply chain management, ensuring businesses obtain the necessary resources to operate effectively while considering factors like sustainability, risk management, regulatory compliance, and total cost of ownership (TCO).
Procurement vs Purchasing: What is Purchasing?
The Tactical Transaction
Purchasing, on the other hand, is a specific and tactical aspect of the overall procurement process. Purchasing specifically refers to the transactional act of acquiring goods or services. Purchasing involves tasks such as selecting suppliers, negotiating price, and completing transactions to meet the organization’s needs. Purchasing is typically reactive in nature, focused on fulfilling the imminent short-term needs of an organization.
Effective purchasing contributes to cost control, timely access to resources, and overall operational success within a business.
Procurement vs Purchasing: 5 Key Differences
To explain further, here are five key differences between procurement and purchasing:
1. Scope
- Procurement: Encompasses the holistic approach to acquiring goods and services, including activities beyond the purchase itself such as planning, strategic sourcing, and supplier relationship management.
- Purchasing: Is a transactional activity within the procurement process focused specifically on the act of acquiring goods or services.
2. Focus
- Procurement: Focuses on ensuring supply and optimizing quality, costs, and supplier performance in alignment with organizational goals.
- Purchasing: Focuses on obtaining the required items in a timely and cost-effective manner.
3. Approach
- Procurement: Often has a long-term and strategic approach, proactively planning for future needs, developing mutually beneficial relationships with suppliers, and identifying opportunities for cost savings and efficiency improvements.
- Purchasing: Tends to be short-term and transaction-oriented, reacting to the current needs of the organization.
4. Supplier Relationships
- Procurement: Emphasizes building and managing strong relationships with suppliers. Collaboration, risk-sharing, and innovation are key components.
- Purchasing: Primarily focuses on the transaction itself – negotiating terms, obtaining the best price, and completing the purchase. While relationships matter, the primary goal is often the efficient acquisition of goods or services.
5. Measuring the Cost
- Procurement: Considers the overall value to the organization, including total cost of ownership (TCO), ESG goals, and risk mitigation.
- Purchasing: Typically focused on the best purchase price.
In Summary
Procurement and purchasing are related but distinct concepts. Procurement is the strategic and holistic process of acquiring goods and services, while purchasing is the tactical and specific transactional act of acquiring goods or services. By understanding the various terms and nuances within the complex landscape of supply chain management, organizations can prepare themselves strategically for optimal efficiency and to fortify their resilience.
Engaged in Complex Procurement?
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If you engage in any of Direct Procurement, Technical Procurement, Project Procurement or Third Party Procurement, Current SCM will improve your procurement & materials management workflow. If you engage in all four, Current SCM will revolutionize the way you do business.
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