Discovering that procurement and purchasing actually relate to two different business activities comes as a major surprise to many. Sure, procurement involves the act of purchasing something. But procurement and purchasing are two separate and unique processes, and it’s important to understand the differences between them.
Let’s begin with a couple simple definitions:
Procurement involves the subset of unique processes that take place when an organization is sourcing something. These include negotiations with various vendors or suppliers, the process of onboarding vendors to the organization, and the strategic selection of goods and services based on an organization’s budget, values and more.
Purchasing, simply put, relates to the process of how goods and services are ordered. Purchasing sits within the larger process of procurement.
How Procurement and Purchasing Differ
To further clarify between procurement and purchasing, let’s consider these questions:
What’s the end goal?
The purpose of procurement is to fulfill a certain company need in a manner that is strategic. This goes beyond the simple process of ordering a service or good, and digs deeper into the process of exploring different options and identifying the most ideal one based on certain criteria the company defines (like cost, location of the provider, etc.).
The purpose of purchasing is to arrange company spending and acquire the chosen good or service.
What are the main considerations?
The process of procurement tends to place more emphasis on the value of a certain good or service, more so than its cost. Purchasing focuses more on price than value, which makes sense considering that purchasing centers around company expenditure.
Which process comes first?
Remember when we mentioned that procurement involves the act of purchasing something? Indeed, purchasing fits within the larger scope of procurement. The scope of procurement activities extends from identifying a need all the way through to fulfilling it, with purchasing standing as the point toward the end of the procurement process when the need is fulfilled.
What tasks are involved in purchasing vs. procurement?
Understanding the different tasks involved in procurement can really help solidify the ways procurement differs from purchasing. The tasks involved in procurement differ to some degree across companies, and typically involve:
- Identifying the need for the good or service
- Submitting a purchase request
- Exploring the different available sourcing options
- Negotiating and closing contracts with selected suppliers
- Onboarding suppliers and collaborating on related documentation
- Creating a purchase order
- Receiving the good or service
- Conducting three-way matching
- Approving the invoice and executing payment
The tasks related to purchasing are the fundamental tasks surrounding obtaining the good or service:
Do the differences between procurement and purchasing impact suppliers?
It’s important to consider that suppliers or vendors are a key element to both procurement and purchasing processes. For each of the two processes, the supplier’s point-of-contact within the company may be different. The supplier’s relationship with each of these POCs will most likely also be different. The person responsible for purchasing from the business’s side will be more focused on executing the transaction most efficiently, whereas the person or people involved in procurement will be interested in developing a friendly and mutually beneficial relationship with the supplier.
A Closer Look at Procurement
By now, we understand that procurement involves a lot more than simply handing over the company credit card and paying for something. Procurement requires its own strategy—and an effective procurement strategy offers a lot of advantages.
For starters, an effective procurement strategy can help businesses reduce costs. This is important because the amount of money a business spends procuring goods is directly related to its profit. A good procurement strategy will ensure that the business is spending money it has, according to budget, and that it is always obtaining goods or services at the best possible price.
An effective procurement strategy also helps businesses ensure long-term relationships with suppliers who provide high-quality goods or services. It also keeps members of the organization informed about preferred suppliers, so they can more easily and quickly know where to turn while ensuring that they are spending wisely.
No less important, a solid procurement strategy can also make internal business processes faster and more efficient. From helping people understand which suppliers to work with to clarifying exactly which documents are required for any type of transaction, smart procurement processes eliminate a lot of headache and burden for both the business’s employees, and its suppliers.
So, what are the key elements to a solid procurement strategy? We’re glad you asked.
Key Elements to a Solid Procurement Strategy
Even if your business already has procurement processes and related systems in-place, it’s never too late to set up a strong procurement strategy to realize the benefits we discussed above.
There are two key elements to designing a solid procurement strategy:
- Understanding how procurement happens within your business today
- Understanding how technology can help make procurement the best process in your company
How Is Procurement Happening Today?
Developing a strong procurement strategy must begin with an understanding of how procurement happens within your company today. This requires a deep look at how goods and services are currently being procured, and where the related pain-points lie.
When you explore your current procurement operation, consider these questions:
- What elements of the procurement process are unclear or confusing to employees?
- At what stages of the procurement process is the flow bottlenecked?
- What systems are involved in the different stages of procurement? Do these systems communicate?
- Who uses and has access to each of these systems?
- Is procurement-related information saved in a centralized location, or locally within employees’ individual folders?
- How is procurement-related information that is stored in email or in files like Excel managed?
- Who are the different team members involved in procurement?
- What forms of communication are used with suppliers?
- What systems are used for vendor onboarding?
- What systems and forms of communication are used for vendor relationship management?
- Where is vendor data saved? Who has access to this data?
- Where is purchasing data saved? Who has access to this data?
- At what stage in the procurement flow is the budget consulted? Are budgets always up-to-date?
- Where is budget information saved? Who has access to this data?
How Can Technology Help?
For many businesses, especially larger ones, procurement is no small headache. Procurement processes are often lengthier than desired, and sometimes result in the company spending more than it has budget for.
This stems from a few common scenarios:
- The company’s Finance and Procurement teams are using separate systems that do not communicate. This results in relevant information being accessible only to certain relevant parties, which often slows down procurement processes and creates a misalignment between budgets and spending.
- Communication about procurement processes between company employees happens in various ways (email, in person, Slack, etc.) that are difficult or impossible to track and manage efficiently.
- Employees are unclear about the specific documentation they need to request from suppliers. This results in suppliers needing to endure a lengthier and more complicated process for collaborating with the business.
- Budgets are visible only to a select few, and budgets are updated only after purchases are made. This results in organizations easily slipping into the cycle of spending over-budget.
- There is no unified database with vendor information. Employees have no easy way to understand who the company’s preferred suppliers are. This results in multiple suppliers being used for the same service, and gets in the way of businesses consistently using suppliers who offer superior service at the best prices.
approve.com is a modern procurement platform helping procurement teams streamline workflows, manage vendor interactions and gain critical insights into company spend. Go to our website to learn how to transform how your company procure & purchase.
Procurement and purchasing are two separate, important processes that businesses manage in order to obtain necessary goods and services. While the terms are often used interchangeably, it’s important to understand that procurement involves a larger array of processes that can greatly impact a business’s profit and the efficiency of its operations.
Procurement requires a strategic approach in order to ensure that companies partner with the best suppliers, access the best prices, and help their employees avoid time-consuming and inefficient collaboration. With the technology available today, it’s never been easier to transform procurement into the most efficient process in the company.