While examining the top five differences between procurement and purchasing, we will make a distinction between the two. We will tackle the processes for each procurement process. Finally, after reading this article, you’ll understand how to use both purchasing and procurement to enhance the procurement process.
Procurement vs Purchasing | Difference between Procurement and purchasing
What is strategic sourcing?
Sourcing is the act of finding vendors. When the goal is to create supply channels that can offer your organization the best value, this action becomes strategic. It involves more than locating and selecting vendors. Strategic sourcing also includes important elements like research, cost analysis, negotiation, and relationship maintenance.
Strategic sourcing is crucial because it enables your business to build and maintain relationships with suppliers who can provide you with the products you need in the quantities and quality you need, on schedule, for a price you can afford. All of these elements can help you continue operating your business effectively and profitably.
What is procurement?
The strategic nature of the procurement process necessitates careful analysis of both internal and external data. A long-term strategy for strategically sourcing and acquiring goods or services from an outside source is known as procurement. This strategy involves building and maintaining connections with suppliers who can provide you with high-quality products when you need them, lowering costs and risk, and ensuring you get value for your money.
The procurement department’s objective is to find everything a company needs at a reasonable price. There are two distinct procurement methods, each focusing on particular requirements:
Steps of procurement
The precise steps you take in your procurement process may vary depending on your industry, particular needs, and business model, but procurement departments frequently follow a similar process. These are:
1. Identifying departmental needs
The first step is figuring out what objectives your company needs to fulfill and what products or services are required to do so. The needs of the groups within your organization may be determined through interdepartmental discussion in this process. For example, a new clothing manufacturer with marketing and production departments is likely to identify particular requirements for each. Fabrics and machinery may be required for production, while computers, telecommunications tools, and sources for market research may be required for marketing.
2. Researching and selecting vendors
You can look for vendors, do research, and make decisions once your needs have been determined. It’s crucial to thoroughly research any potential vendors, paying particular attention to their reputation, the breadth and cost of their offerings, and the speed and effectiveness of their communication with you. Once your research is complete, compare the vendors on your list and choose the ones you believe will benefit your business the most. Communication with your chosen vendors to negotiate terms and finalize agreements is the last step in the vendor selection process.
3. Submitting purchase requisitions
A written request for goods or services made internally is known as a purchase requisition. The purchase requisition for each department should contain the following information: the name of the party making the request for procurement, a description of the goods or services being requested, the quantity or amount needed, vendor information, and the cost. Normally, the procurement manager and finance department approve requisitions.
The finance department creates purchase orders after the purchase requisitions are approved and distributes them to the associated vendors. Purchase orders let vendors know that they can start working on completing the orders.
4. Invoicing and payment
You should anticipate receipt of invoices from the suppliers soon after sharing the purchase orders. These invoices include information about the order, the agreed-upon cost, and the due date. Reviewing the invoice’s details is a good idea in case you need to change the order. Your finance department pays the vendors for their services before or after receiving the orders, depending on the specifics of the contract.
5. Receipt, inspection and review
It’s advisable to examine the materials received or otherwise evaluate the vendor relationship after you receive your orders. You may choose to keep doing business with a vendor if they have provided you with high-quality goods or services. If not, you can begin the process all over again to work with a different vendor.
What is purchasing?
The procurement process’s component known as purchasing relates to the business dealings between your company and its vendors. Writing and submitting purchase orders, receiving invoices, receiving orders, and processing payments are some of these specific tasks. The primary goals of purchasing are to obtain particular goods or services in a predetermined amount or quantity, at predetermined prices, and within predetermined timeframes.
The steps in the procurement process that involve purchasing are:
Characteristics of procurement vs. purchasing
Due to the overlap between the two processes, the terms “procurement” and “purchasing” are frequently used interchangeably. This interchangeable use may be acceptable in smaller organizations because those who handle one are likely to also be in charge of the other. However, there are some important distinctions between procurement and purchasing. The following is a list of key differences between them:
An organization’s strategic goals are addressed by a more comprehensive process called procurement. It entails more steps and aims to produce advantageous conditions, with a focus on the partnership between the organization and the vendor. But as a component of the larger process, purchasing is a short-term activity that is repeated as necessary and is a part of procurement. Instead of the relationship between the parties, it focuses on the transactional exchange between them.
An ongoing, proactive process with a long-term focus is procurement. Businesses can gain a competitive edge by utilizing the connections made through procurement to produce better goods or offer superior services. Finding solutions that satisfy the demands of quality, quantity, and cost through purchasing is more of a reactive process that responds to internal needs.
Value vs. price
The emphasis in procurement and purchasing is on the distinctive qualities of the goods and services that are sought after and bought. The value of these purchases is highlighted by procurement, which aims to improve the organization’s capacity to carry out its duties and achieve its objectives in a way that reduces costs, maximizes profit, boosts efficiency, and establishes dependability. Purchasings emphasis, though, is specifically on price. The goal is to meet needs at a reasonable price, which adds only a small amount to the value they can offer the organization.
These two procedures can also benefit your company in various ways. Concerns can be addressed through procurement before, during, and after purchases. For instance, procurement can take into account the spending patterns of each department in your organization when identifying needs. The procurement manager can assess whether certain expenditures are necessary and, in doing so, help to streamline the requirements of the entire organization.
The purchasing process is more functional than useful because dealing with vendors is a fairly simple process. Having said that, it might be useful to highlight areas that could use improvement. For instance, you could check your finance team’s procedures for flaws if your vendors have payment delays. Additionally, if your quality assurance team discovers flaws in the materials you’ve received, this may indicate that you need to find new suppliers or look into shipping practices that might result in product damage.
Is purchasing also called procurement?
Despite being frequently confused, purchasing and procurement are two different processes. The procurement function as a whole includes purchasing, which has a variety of methods and objectives. In addition to purchasing, procurement also includes supplier and contract management.
What is the difference between procurement and sales?
All of the purchasing and selling of goods and services takes place in the sales department. To exchange goods and services for something of value, usually money, salespeople negotiate deals with customers. What is procurement? Procurement is the process of buying the supplies an organization needs to produce its products.