Procurement and Purchasing are not the same: Here is how

POSTED ON September 21, 2021

In the context of acquiring goods for business operations, the terms procurement and purchasing are often used interchangeably. While the end result could be the same, i.e., the business acquires goods, but the process followed is entirely different. In fact, both the processes try to achieve different goals and objectives. For anyone who is into sourcing, it is essential to understand the difference between purchasing and procurement. Let’s check out their definitions first: 

Purchasing

Purchasing is the act of buying the goods and services that a company needs to operate and/or manufacture products. It is a simple process that basically involves only two steps:

  • The first step involves placing the order. Once the supplier receives the purchase order, they release an invoice requesting the payment.
  • This step involves delivery of products as per pre-defined terms and conditions. When the firm receives the order, they audit it to ensure that it meets the quality criteria.

Procurement

Broadly speaking, procurement is a function that describes the processes and activities involved in acquiring goods. It is distinct from purchasing as it goes beyond just acquiring the products and paying for them. It involves establishing requirements, market research, vendor evaluation and contract negotiation. It also includes all the activities involved in ordering and receiving the goods.

  • It starts with identifying the business requirements
  • Once the requirements are correctly identified, the next step involves identifying and assessing the suppliers. The idea is to select the bets supplier based on price, quality, reputation, and other pre-defined factors
  • Then, the contracting phase begins where the organization negotiates pricing and quality and terms and conditions
  • In this phase, the organization releases Purchase Requisitions and initiates payment. Then, Purchase Order is released which helps release the payment for the order
  • Finally, the delivery received is audited to ensure that all pre-defined criteria are met

As you can see, purchasing and procurement both mean acquiring a product, but procurement is a much more elaborate process with a greater focus on deriving maximum value out of the transaction.

Here are the key differences between Purchasing and Procurement

  • The most fundamental difference between purchasing and procurement is that procurement focuses on the purchase price but procurement focuses on maximizing value while also working on supplier relationships, risk mitigation and contract compliance. Also, purchasing has a short-term view, and is more of a tactical decision. On the other hand, procurement is more strategic. It is an all-encompassing function and purchasing is just a part of it.
  • Risk management is another factor that differentiates purchasing from procurement. There are several supply chain risks such as operational risks, financial risks etc. involved in sourcing products. Procurement process involves assessing all these risks and then formulating strategies to mitigate them.
  • Purchasing just involves acquiring goods from an existing set of suppliers. Procurement process, on the other hand, works towards building strategic and long-term relationships with their suppliers. This helps enhance the overall supply chain value.

 

In the nutshell, procurement and purchasing are two entirely different processes even though the end result is the same. While procurement is strategic, purchasing is a short term, tactical process. Procurement involves a lot of research and strategic activities, but purchasing a straightforward step involving buying goods from existing suppliers. The goals are also different. The goal of purchasing is to acquire products at the best cost, but procurement focusses on increasing overall value. It also involves identifying, assessing and mitigating risk. So, one cannot use the terms purchasing and procurement interchangeably.

If you are looking to source products from China or you have a product idea that you think can be best manufactured in China, you need a local project manager to work on your behalf. A sourcing manager can help not just identify the right supplier for your need, but they can also coordinate all the activities and run the project on your behalf. They act like an extension of your team and have your best interests in mind.

Having spent years in the Chinese sourcing industry, and with a strong knowledge of best project management practices, we can help you derive maximum value from your China sourcing project. Get in touch with our team now to discuss your project.

Leave a Reply