What Is The Difference Between Procurement And Purchasing

People often use the terms purchasing & procurement

interchangeably

But even though they sound similar, they’re definitely different

Procurement Involves

Selecting Vendors

Establishing Payment Terms

Strategic Vetting

Selection & Negotiation of Contracts

Procurement is concerned with acquiring (procuring) all of the goods, services and work

that is vital to an organization.

Purchasing is a part of procurement

Procurement is considered a core part of any organization’s corporate strategy

As a quick refresher, our friends at entrepreneurial-insights.com have

published a particularly lucid explanation of the facets of corporate strategy.

Facets of corporate strategy

Corporate Strategy

Company Identity

Market Placement

Company Capabilities

Management Issues

Company identity attempts to address these questions:

• What does our company want to do?

• What does our company stand for?

• Does our company have any specific ethical beliefs that will determine our business model?

Market placement attempts to address these questions:

• Who are our customers?

• What do they want?

• What do they believe in?

Company capabilities attempts to address these questions:

• What are the strengths and weaknesses of our company?

• Do our strengths support the long-term goals of the company?

• How do we want to grow the company?

Management issues attempts to address these questions:

• Do we need to hire / develop talent to lead the business to the goal we’ve established?

• Does the company have the resources (equipment, real estate etc.) needed to support the long-term goals of the company?

This is a great breakdown of corporate strategy because procurement touches

each of these components

If your business is building (or has built) its identity around an environmentally conscious ethic, than your

procurement strategy must reflect that decision

Customers are, without a doubt, attracted to the philosophies and practices a business uses.

Steps in the procurement process• Identification of Requirement• Authorization of Purchase Request• Final Approval of Purchase Request• Procurement• Identification of Suppliers• Inquiries• Receipt of the Quotation• Negotiation• Selection of the Vendor• Purchase Order Acknowledgement• Advance Shipment Notice• Goods Receipt• Invoice Recording• 3 Way Match• Payment to Supplier

Using purchase orders (especially those generated by an e-procurement software solution) is critical, regardless of the size of your organization. Don’t simply use your credits cards and save the receipts. Don’t rely on emails.

The purchasing process

• Purchase Order Acknowledgement• Advance Shipment Notice• Goods Receipt• Invoice Recording• 3 Way Match• Payment to Supplier

Purchasing, then, is a subset of procurement. And as we’ve outlined, purchasing generally refers to buying goods or services. Purchasing often includes receiving

items and payment as well.

Unlike the entire procure-to-pay cycle, the steps explicitly related to purchasing should not be tailored to suit the size and scope of each individual business.

Remember! Purchasing is a process within the overarching procurement process.

Conclusion:

Procurement deals with the sourcing activities, negotiation and strategic selection of goods and services that are usually of importance to an organization.

Purchasing, however, is the process of how goods and services are ordered. It is usually described as the transactional explicit function of procurement for goods or services.