Procurement vs Purchasing

by Faustine Rohr-Lacoste | May 24, 2018

People often confuse the terms “procurement” and “purchasing”. But to establish suitable and effective purchasing process guidelines, you have to choose between these two options. 

So what’s the difference between “procurement” and “purchasing” and what needs does each of these business functions meet? “Purchasing” is occasional whereas a “procurement” system refers to an overarching solution that makes your company’s purchasing management more efficient.

procurement-purchasing

What is procurement?

Procurement becomes necessary when a company reaches a certain stage of development and the type and range of purchases it needs to make evolve. Procurement managers are responsible for setting up the most suitable purchasing policies, choosing suppliers, establishing payment terms, strategic oversight, negotiating contracts and actually purchasing goods. In tangible terms, it entails facilitating the supply of all products necessary to carry out the company’s production processes.
 
The employee who holds this role needs to have extensive market knowledge and economic expertise. The job calls for both technical and people skills and requires client relations and company image be kept in mind throughout the negotiation process.
 

Lastly, procurement managers must stay up-to-date and be on the lookout for new opportunities for improvement. There are currently several solutions available such as EDI, ERP (Enterprise Resource Planning), SCM (Supply Chain Management) and SRM (Supplier Relationship Management). Keeping pace with technological innovation, companies are increasingly developing new e-procurement solutions to make the purchasing process paperless. These solutions provide a better choice of suppliers, improved contract management and budget visibility to enhance process efficiency and reduce costs. Top solutions involve e-procurement systems with advanced features such as deferred payment, order approval workflow processes, and interfacing with clients’ internal procurement systems.

What is purchasing?

“Purchasing” is just one step in the procurement process. It entails buying goods or services necessary for the production process and includes order tracking and receipt of payment. Companies at a stage of development at which they have basic needs make do with this suboptimal solution. In most cases, the supplier is chosen before even knowing the client that will be receiving the goods. Purchases are not part of a structured overarching policy, and only need to be approved by management or a competent team manager.

What are the differences between the two?

While procurement refers to the establishment of a comprehensive global strategy, purchasing is just a transaction. Either approach can be used but they each offer a different degree of client satisfaction. Procurement undoubtedly allows a company not only to improve the quality of products and services purchased for its clients but also to find the most suitable products at the best price.
 

While the person responsible for purchasing is simply a buyer, the person in charge of procurement uses their market knowledge and negotiating skills to devise an effective strategy that will play to the company’s advantage.

What’s the best way to combine these two approaches?

Purchasing is the most important step in procurement and can directly improve the overall process. For example, buyers in charge of purchasing are in the best possible position to keep the procurement manager informed of any restrictions or price changes. Their contribution can lead to improvements in the company’s supply chain.

In the context of increasingly competitive markets and instability in the broader economy, adopting an effective procurement system is vital to streamline the purchasing process and increase your profit margin. It is crucial to understand the difference between these two concepts. There are plenty of SaaS solutions available to help you set up and manage your procurement policy in a way that will fuel your company’s success.

demo-spendesk 

TOPICS : Finance strategy

Add a comment

1 Comment