Procurement vs Purchasing: Understanding the Distinctions in Business Operations

Posted on Dec 20, 2023 at 07:12 AM

In a battle of procurement vs purchasing, who would win? These two terms are usually intertwined and used interchangeably. However, shading under this umbrella won't reduce the chance of rain in this ever-changing business world. Managers and department heads must know the definition of procurement and how to oversee procurement vs purchasing in their work.

This article covers procurement vs purchasing and a guide to the critical differences between the two so you can make the right choice for your business.

What is the difference between purchasing and procurement?

Even though the two terms are used interchangeably, they have different meanings in business operations.

Purchasing represents the trading process of obtaining goods or services from outside vendors with money. A purchase includes placing orders, negotiating contracts, and ensuring the product or services are delivered on time. Purchasing concentrates on the tactical level of a transaction rather than strategy.

Moreover, it involves procuring goods or services needed by a business to run smoothly and isn't concerned with other parts of the process, like sourcing and choosing suppliers etc.. 

Meanwhile, procurement deals with an enormous scope of activities that involve using the resources taken from society to meet an organisation's broad strategic goals and objectives. 

Procurement is a more strategic function. It focuses on supplier evaluation and selection, building long-term relationships with suppliers, managing supplier performance, identifying cost-saving opportunities, etc. A holistic approach to buying goods and services is meant to optimise the value generated from suppliers, getting the best quality for the lowest price.

Simply stated, purchasing represents a subcategory of procurement and concerns the transactional details involving goods or services. On the other side of the coin, procurement is a complex process from strategic decision-making to long-term supplier management tailored to an enterprise's overall requirements and goals.

Procurement vs purchasing: How do you tell the two apart?

Just like we've mentioned before, purchasing is all about transactions. At the same time, procurement is more focused on making better decisions, whether through negotiations or simply finding the best vendor options out there. 

Procurement 

Everyone knows the importance of strategic procurement to the success of any company, but why is that? It's because of these reasons: 

• Supplier Relationship Management: Procurement teams develop and cultivate relationships with suppliers. They closely cooperate with suppliers to enhance performance, enforce compliance with the terms of the contracts, and promote continuous improvement.

• Risk Management: Procurement makes supply chain disruption, supplier fitness, and compliance-related risk issues visible. It seeks to avoid risks but strives for efficiency hinged on the availability of goods and services.

• Strategic Sourcing: Procurement professionals constantly analyse spending data, identify areas where costs can be saved and processes improved, gather market intelligence, and integrate the information into a comprehensive source selection plan.

• Long-term Perspective: Procurement has a comprehensive viewpoint, emphasising long-term value and the total cost of ownership. Procurement best practices do not only focus on price but also include quality, reliability, sustainability, and even innovation.

Purchasing

On the other hand, here’s what makes purchasing unique: 

• Tactical Focus: In contrast to procurement, purchasing is a tactical function that aims to implement the procurement strategy. It means placing orders, orchestrating deliveries, and delivering goods and services on time.

• Short-term Perspective: Another key difference is that purchasing focuses on the buying stage, where companies are most concerned about meeting short-term needs; purchasing is about getting the next order right rather than which order to make for the following year.

• Contract Compliance: Purchasing officials monitor and ensure compliance with existing contracts and terms. They handle questions about quality, delivery, and price differences to maintain smooth operations.

• Transactional Processing: Management of purchases includes tasks involving transactional processing, such as issuing purchase orders, handling invoices, and processing payments. Regarding purchasing, detail and accuracy must be given to avoid financial or administrative anomalies.

Procurement short courses: the solution to your problems 

If acquiring enough skills to procure and purchase well is your goal, whether it is products or services, courses of this kind will give you both knowledge and skills to help you separate between procurement and purchasing. 

Procurement short courses examine concepts, choose strategies, analyse case studies, and determine process steps.  These courses will also provide the tools and techniques to manage procurement activities. You’ll learn how to:

• Understand your organisation’s procurement process

• Identify your role in it

• Maximise supplier performance through continuous improvement techniques

• Develop a procurement strategy

• Build a supplier development program

• Create and administer contracts

One final thought 

When faced with the option of procurement vs purchasing, you have to take the proactive approach, assess the situation and make the best choice according to your position. Every decision will be different, but you have to have faith in your decision-making skills and always strive to improve.