- Published on
Procurement vs Purchasing | Difference between Procurement and purchasing
Introduction
Procurement and purchasing are terms that are frequently used interchangeably, often leading to a bit of confusion. While a layman might consider them synonymous, a manager or someone with a deeper understanding of business practices will recognize significant distinctions between the two concepts.
What is Procurement?
Procurement refers to the comprehensive process of identifying, shortlisting, selecting, and acquiring suitable goods and services from third-party vendors. This can be done through various methods such as direct purchase, competitive bidding, or a tendering process. The primary goal of procurement is to ensure the timely delivery of the right quality and quantity of goods needed by the organization.
What is Purchasing?
Purchasing, on the other hand, is a subset of procurement tasked specifically with acquiring goods and services an organization requires. This process involves functional tasks such as ordering, expediting, receiving, and fulfilling payment. It is a more focused activity compared to the broader procurement function.
Key Differences between Procurement and Purchasing
Here’s a breakdown of the critical differences between procurement and purchasing:
End Goal: The ultimate goal of procurement is to identify a company's needs and fulfill the procurement of those needs in a strategic, proactive manner. In contrast, the goal of purchasing is to manage company expenditures and buy necessary goods and services, taking a more reactive approach.
Focus on Value vs. Price: Procurement places greater importance on the value of an item rather than its cost. Purchasing tends to be more focused on the price than on the overall value.
Scope of Activities: Procurement involves end-to-end activities necessary for acquiring goods and services, including need recognition, sourcing, contract closure, and record keeping. Purchasing is only involved when it comes to the actual buying of goods and services, focusing on ordering, expediting, and payment processes.
Supplier Relationships: Procurement is oriented towards developing long-term and mutually beneficial relationships with suppliers. In contrast, purchasing aims for efficient transactions and is less focused on managing vendor relationships.
In conclusion, while procurement and purchasing are closely related, they serve different functions within an organization. Understanding these differences is crucial for effective management of resources and ensuring that a business operates efficiently.
If you want to read in detail or download a PDF version of this material, please follow the link in the description.
Don't forget to like, share the video, and subscribe to my channel!
Keywords
- Procurement
- Purchasing
- Third-party vendor
- Competitive bidding
- Tendering process
- Strategic process
- Reactive process
- Value
- Price
- Supplier relationships
FAQ
Q: What is procurement?
A: Procurement is the process of identifying, shortlisting, selecting, and acquiring goods or services from third-party vendors.
Q: How is purchasing different from procurement?
A: Purchasing is a subset of procurement that focuses specifically on the functions associated with acquiring goods and services, such as ordering and payment.
Q: What is the main goal of procurement?
A: The main goal of procurement is to identify a company’s needs and fulfill them strategically.
Q: Is procurement focused more on value or price?
A: Procurement emphasizes the value of items, whereas purchasing is more focused on their price.
Q: What kind of relationship does procurement aim to build with suppliers?
A: Procurement aims to develop long-term, mutually beneficial relationships with suppliers.