Procurement VS Purchasing —What Is the Difference?
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Terms such as buying, purchasing and procurement are often used interchangeably. However. CIPS distinguishes between “purchasing & procurement” as follows: Purchasing is defined as “the functions associated with buying the goods and services required by an organization”. Purchasing is just one aspect of the wider procurement function. and includes activities such as ordering, expediting, receipt of goods in stock, and payment to suppliers. Procurement is defined as “the activities associated with acquiring products or services”.
Procurement is a wider term than purchasing; it is usually taken to embrace activities prior to the establishment of a purchase contract. For example, it includes:
• Identification of a need.
• Sourcing (i.e. identifying and evaluating potential suppliers).
• Post-contract activities (contract management & management of supplier relationships).
On this analysis, the basic processes of purchasing and procurement are summarized as follows:
Purchasing process includes:
• Receiving purchase requisition (PR) from user department
• Obtaining quotations from suppliers and evaluating them
• Placing the official purchase order (P0)
• Receiving products/materials into stock
• Effecting payment to suppliers
Procurement process includes:
• Supply market monitoring
• Identifying potential suppliers
• Preparing approved supplier list
• Identifying the right needs of internal user departments
• Converting needs into clear specifications that can be understood by suppliers
• Obtaining and evaluating quotations
• Selecting the right suppliers
• Efficient negotiations
• Contract development
• Contract management
• Supplier relationship management
Thus, procurement is an umbrella/wider term that covers purchasing. Procurement i a broader process than purchasing because it includes a few activities prior to tb actual purchasing (i.e. identification of right needs, preparing clear specification; surveying the market, etc.) & after the actual purchasing (i.e. supplier relationship management, contract management, etc.). Purchasing is more reactive to the internal needs. Meanwhile, procurement has proactive approach because it works with user department in identifying the rig!. needs. In addition, procurement contributes to the product design using its mark knowledge.
Purchasing is more transactional - focuses only on the purchasing transactions rather than supplier relationships.
Procurement is more relational - focuses on establishing and maintaining fruitful and constructive long term relationships with qualified vendors/suppliers. Purchasing has short-term goals - achieving the 5 rights (right quality, right quantity, right price, right place, and right time(. Procurement is more strategic or has long-term goals - contributes to achieving the competitive advantage of the organization and its strategic goals.
Conclusion Procurement is a wider term than purchasing and has a broader process than purchasing. Procurement is more proactive and relational than purchasing and has a strategic approach.
Syed Shahib ul Hassan Naqvi (BS MGT, 1st Semester)