Procurement vs. Purchasing: Are They the Same?

• January 21, 2020
• admin
• Procurement
• 1

In the world of business, the terms "procurement" and "purchasing" are often used interchangeably, especially in smaller companies. However, in larger organizations, these two functions are distinct and serve different purposes. Understanding the difference between procurement and purchasing is crucial, as both play significant roles in an organization’s success and bottom line.
Let's delve into the key differences, similarities, and the impact of these functions on a company.

What is Procurement?

Procurement is a comprehensive, end-to-end process of acquiring goods, services, or works from external sources. It involves a series of strategic activities designed to ensure that an organization gets the best value for its needs. This process starts from the identification of needs and extends through market research, sourcing, negotiation, and ends with contract management and supplier relationship management.

Key Activities in Procurement:

Needs Identification and Forecasting: Determining what the organization needs and when.
Sourcing and Supplier Evaluation: Researching potential suppliers and evaluating their ability to meet the company’s needs.
Contract Negotiation: Discussing terms with suppliers to secure the best possible deals.
Supplier Relationship Management: Building and maintaining long-term relationships with suppliers to ensure reliable supply and favorable terms.
Risk Management: Identifying and mitigating risks related to supply chain disruptions and supplier performance.

What is Purchasing?

Purchasing is a subset of the procurement process. It focuses on the transactional aspects of acquiring goods and services. While procurement is strategic and long-term, purchasing is more tactical and short-term, dealing with the actual buying and receiving of goods and services as per the procurement plan.

Key Activities in Purchasing:

• Issuing Purchase Orders: Creating and sending purchase orders to suppliers
• Order Tracking and Expediting: Monitoring order progress and ensuring timely delivery.
• Invoice Processing and Payments: Handling invoices and making payments to suppliers after verifying received goods and services.
• Inventory Management: Keeping track of inventory levels and ensuring adequate stock.

Key Differences Between Procurement and Purchasing
While procurement and purchasing share the common goal of acquiring goods and services, their approaches and focuses are quite different.

Focus and Goals:

• Procurement: Strategic, long-term focus on sourcing, building supplier relationships, and risk management to ensure consistent supply and cost-effectiveness.
• Purchasing: Transactional, short-term focus on acquiring goods and services at the best price to support immediate operational needs.

Understanding the differences between procurement and purchasing is essential for any organization aiming to optimize its supply chain and operational efficiency. While procurement is strategic and encompasses a wide range of activities to secure long-term benefits, purchasing is tactical, focusing on the immediate acquisition of goods and services