What Are the Differences Between Procurement and Purchasing?
Procurement and purchasing are two of the most vital components of any business enterprise. Many people tend to use the two terms interchangeably; however, there is a huge conceptual difference between procurement and purchasing. They are distinct in terms of objectives, procedures, and final outcome.
Read on to know more about these two terms and how they differ from each other.
What Is Procurement?
Procurement is an umbrella concept that incorporates the various procedures for sourcing any good or service. This includes identifying the needs of a business, scouting for suppliers, placing orders, acquiring products, building relationships, etc.
Procurement is the starting point of a supply chain and ends after the needs of the company get fulfilled. A procurement process involves the following steps:
- Identifying needs of the company.
- Researching the markets for scouting efficient suppliers or vendors.
- Shortlisting some vendors on certain parameters.
- Requesting quotations from the suppliers.
- Evaluating the bids or quotations sent by vendors.
- Negotiation of contract terms and conditions.
- Placing the order for goods or services.
- Ensure receipt of orders.
- Performing a quality analysis of received items.
- Receiving the invoice and ensuring peaceful settlement of payments.
- Establishing a relationship with vendors.
In short, procurement is an overarching concept that focuses on fulfilling long-term objectives like finding a supplier and establishing and maintaining a good connection with them.
What Is Purchasing?
Purchasing is a sub-component of the larger procurement process of any goods or services. It includes creating or placing orders for a good or service with a vendor, ensuring timely receipt of those orders and arranging for payments.
Purchasing helps an organisation to meet short-term objectives related to cost and quantity. One can find the following steps in a purchasing process:
- Receipt of the purchase requisition.
- Request for quotations as well as proposals.
- Evaluating the quotations.
- Creating orders for purchase of goods or services.
- Timely receipt of the order.
- Quality checking of delivered products.
- Making payments to the vendor.
Differences Between Procurement and Purchasing
The differences between procurement and processing are as follows:
It is a strategic and complex process aimed at sourcing goods or services.
It is a part of procurement and deals with the transactional functions of acquiring products.
The stages involved in procurement are more than purchasing. The number of employees involved is also high.
As it only focuses on one aspect of the supply chain, the steps involved are quite less. Moreover, the manpower required for this process is also very less.
It is a flexible process that differs from one company to another. A company's structure and size influence procurement.
It is a standardised process that is more or less similar across various industry sectors.
Procurement is proactive in nature as it finds the company's needs and takes them to a logical conclusion.
Purchases are reactive in nature. They merely fulfil the needs determined in the procurement process.
Procurement is more focused on building relationships between suppliers and maintaining them.
The focus of purchasing is more on transactional value.
It aims at completing the long-term objectives of a company.
Purchasing focuses on short term objectives.