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Procurement vs Purchasing: Key Differences Between Procurement and Purchasing

By Annapoorna

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Updated on: Nov 17th, 2023

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10 min read

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Procureme­nt and purchasing are not the same. They often get mixed up and are mistakenly used as synonyms. Both terms stand for unique operations and reach dissimilar targets. In this article, we will delve deeper into the concept of procurement vs purchasing and explore how they differ.

Procurement Vs Purchasing

The main difference between procurement vs purchasing is that procurement focuses on achieving overall value, tackling every cost within one purchasing cycle. Meanwhile, purchasing emphasises getting the che­apest price, always looking for ways to cut order costs. This means that purchasing is just one part of the procurement process. Other activities covere­d under procurement are­ managing vendor relationships, securing against risks, and e­nforcing contract rules.

Now let's define each term separately and look at the steps involved in these processes along with the procurement vs purchasing examples.

What is Procurement?

Procurement involves all the activities from purchasing goods and services to making decisions during scarcity. The goods and services are purchased from third party vendors and manufacturers. During this process, it is also ensured that the prices are within the budget and there is no compromise in the quality. All the activities before making the final purchase are included in the procurement.

For example, in procurement internal departments are consulted for identifying the requirements and then potential suppliers are searched to obtain quotes. Negotiations, managing contracts, payments and keeping records, are also a part of the procurement process.

Steps in The Procurement Process

Now that you have a clear understanding of what is procurement, here are the steps involved in this process:

Step 1- Identify the requirements for the goods and services.

Step 2- Finalise quantities and other details, and create purchase requisition. 

Step 3- Evaluate the purchase requisition so that it falls within the budget and outsourcing strategies of the business.

Step 4- Find suitable suppliers and vendors that fulfil the business requirements outlined in the purchase requisition. 

Step 5- If there is any bidding or a proposal, further evaluation is done, followed by negotiations and finalising terms and conditions. 

Step 6- Once the contract is there, the business proceeds with the order placement while adhering to the contract terms. 

Step 7- After that, the procurement process involves reviewing the invoice received from the supplier to make sure the accuracy is there. If there is any problem, then those are resolved immediately. 

Step 8- Maintain documentation to ensure financial accountability, keep track of all procurement activities, and check the performance of the suppliers.

What is Purchasing?

Purchasing forms a crucial part of the procurement process and deals with acquiring goods and services. In other words, purchasing is the act of buying once the requirements are finalised. Although it belongs to the procurement process, purchasing has its unique characteristics. 

For example, purchasing not only includes finding the best price but also considering different parameters such as customer service, payment terms and warranties if there are any. However, there is no set formula for this process, it varies from business to business.

Steps in The Purchasing Process

After knowing what is purchasing, let’s look at the steps involved in this process, which are more structured in comparison to procurement: 

Step 1- The process begins with receiving the purchase requisition. 

Step 2- Following that, quotes from different vendors are received and evaluated. 

Step 3- The third step involves choosing the right vendor or seller and acquiring the goods and services.

Step 4- Once the goods and services are added to the stock, at this stage invoices received from the vendor are reviewed and approved. 

Step 5- The last step involves settling the payments to the vendors by the accounts payable department. 

Key Differences Between Procurement and Purchasing

It is clear now what is the role of purchasing and procurement, but it is equally important to know about the distinctions. Here are the key differences between procurement and purchasing:

Aspect

Procurement

Purchasing

GoalsThe goal of procurement is to strategically fulfil the requirements of a business and it is done by going through several options and taking into consideration the associated cost and where the vendor is located.The goal of purchasing is to help the businesses manage the amount they are spending and acquiring the goods and services. It also ensures the purchases are as per the requirements.
Proactive vs ReactiveProcurement’s nature is proactive. There is a collaboration between different departments within a business to point out the requirements in advance and thorough market research is conducted.Purchasing is reactive in nature and the process takes place when there is a requirement from the business.
Vendor Relationship Management

Procurement establishes and maintains long-lasting relationships revolving around specific objectives. 

 

Purchasing emphasises efficient purchase execution and focuses less on enhancing relationships with vendors for a long-term
Pricing and ValueProcurement is all about value of the goods and services while considering the business relationships and maintaining the brand value over immediate price.

Purchasing gives the priority to price and the main focus lies in controlling the cost and ensuring financial efficiency. 

 

Order of OperationsProcurement involves all the activities starting from identifying the requirements to making the settlements.Purchasing makes its entry during the final phases, once the requirements are identified and there is an approval for acquisition.

Key Takeaways

The key differences between procurement and purchasing lie in their goals and approaches. Procurement adopts a proactive approach, prioritising overall value, strategic planning, and fostering enduring vendor relationships. Conversely, purchasing takes a responsive role, centering on managing expenses and meeting fixed requisites, often neglecting the importance of building long-term supplier alliances. Recognising these differences is essential for anyone involved in managing these aspects of business operations.

Frequently Asked Questions

Can a business have both procurement and purchasing functions?

Yes, many companies, particularly larger ones, maintain separate procurement and purchasing functions. Procurement handles strategic decisions related to suppliers, contracts, and risk management, while purchasing manages the transactional aspects of ordering, receiving goods, and making payments.

Which is more important – procurement or purchasing?

Both procurement and purchasing are equally important, each with its unique role. Procurement is strategic, impacting a company's bottom line, supplier relationships, and risk management, while purchasing ensures smooth day-to-day operations. It's not about choosing between them but understanding their distinct roles and ensuring effective collaboration.

How does technology help optimise the procurement and purchasing process?

Technology is instrumental in streamlining and enhancing both procurement and purchasing processes. Advanced software automates tasks, provides data-driven insights for better decisions, enhances supply chain visibility, and improves collaboration with suppliers, increasing overall efficiency and effectiveness.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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