People tend to confuse procurement with purchasing. Even though these terms seem to be similar, it’s absolutely wrong to use them interchangeably.
Procurement and purchasing have different meanings and you should better know how exactly these concepts differ, especially if your business revolves around manufacturing or trading.
As they say, mystification is simple, and clarity is the hardest thing of all. Today we will take up the challenge and try to explain how exactly procurement differs from purchasing.
Technically, procurement and purchasing both imply acquisition of goods or services. The main difference between them lies in the intention. Purchasing in its nature is tactical: you need something – you buy it. While procurement is more strategic notion: you specify your needs, contact potential vendors, compare bids, negotiate a contract, and only afterwards you buy the required items.
Procurement mostly deals with the sourcing activities, contract/pricing negotiation and strategic selection of items that are usually of the highest importance to an organization.
Fundamentally, procurement is more strategic and focuses on the why and how questions. Procurement is usually considered as a layered process that comprises several core business stages, including supplier selection, establishment of payment terms, contract negotiation, and actual acquiring of goods and services. Procurement’s main goal is to align with the organizational strategy in comparison to purchasing that focuses mainly on processing orders and purchasing goods. Simply speaking, procurement reflects how purchasing has evolved with formal inclusion of the above mentioned responsibilities.
Purchasing can be described as the transactional function of procurement for goods and services. Most people consider purchasing as so-called procurement’s subset and that is partly true. Purchasing relates to buying and selling – it concentrates on the actual item acquisition. It is the tactic process of how goods and services are ordered. Also worth mentioning: purchasing often includes receiving and payment operations as well.
Even though procurement and purchasing are different concepts, they are essentially the same department, but valued and run in different manner.
In today’s business world the practice of interchangeable word usage should be avoided, as it often leads to confusion and misinterpretation. Before using business terminology, make sure you understand all the concepts correctly in order to avoid any possible misunderstanding. The next time you are talking about purchasing or procurement, note the difference in their meanings.