Difference between Procurement and Purchasing

procurement-vs-purchasing

Difference between Procurement and Purchasing

Both procurement and purchasing are business terms that are quite similar and many people and organizations use these terms interchangeably. However, there is a distinct difference between Procurement and Purchasing.

Purchase is more or less a term for transaction activities whereas Procurement is a term for rational activities or strategic activities which includes transactional activities also. In other words, Purchase is a subset of procurement.  Let’s have a detail look at both business terms

What is Purchasing?

Purchasing is a term associated with the activities related to buying goods and services required by the organization. Purchasing process activities are transactional activities such as ordering and receiving of the goods. Since these are the fundamental activities related to buying of goods and services, every organization should strive for having good purchasing practices in place.

List of purchasing activities include:

  • Collecting requirement as purchase requisitions
  • Sending RFQs (Request for quotations) and receiving quotes
  • Evaluating the quotes and preparing a comparison statement
  • Releasing Purchase Order
  • Receiving goods and services
  • Performing inspection on received goods and services
  • Collecting invoices and ensuring the payment

It is evident from the list that the prime focus of purchasing activities is to ensure short terms goals of achieving the 5Rs which are: right quality – right quantity – right price – right place – right time.

What is Procurement?

Procurement refers to an organization’s long term strategy to acquire requisite quantity and quality of goods, services for successful operations. This involves identifying external vendors, setting up terms and conditions, inviting tenders, conducting auctions and evaluating the bids and then awarding the contract to the vendor providing most competitive rates.

Procurement focuses on long terms goals. It’s more rational in nature and aims to provide a strategic and competitive advantage to an organization. Scope of procurement is much larger than purchase it includes activities before, during and after the purchase.

List of procurement activities includes:

  • Analyzing the market
  • Identifying potential vendors
  • Creating an approved list of vendors
  • Identifying internal needs and demand planning
  • Collecting requirement as purchase requisitions or demand planning
  • Sending RFQs (Request for quotations) and receiving quotes
  • Evaluating the quotes and preparing a comparison statement.
  • Selecting the right supplier and negotiating effectively
  • Releasing Purchase Order
  • Receiving goods and services
  • Performing inspection on received goods and services
  • Collecting invoices, invoice approvals and ensuring the payment
  • Developing a good customer-vendor relationship

Procurement activities also focus on budget, cost, spend control, risk management, quality, logistics, business ethics, supplier capabilities. Procurement activities are very comprehensive in nature and encompass the entire supply chain process.

Procurement is an umbrella term which encompasses Purchasing.

Here is a one glance summary of the difference between Procurement and Purchasing.

  • Purchase activities are fundamental activities and focused on transactions whereas procurement is rational and strategic activity.
  • Purchase activities follow a reactive approach whereas procurement is a proactive approach.
  • Purchase ensures the success of short term goals (5 rights) whereas procurement ensures long term strategic advantage for the organization.

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