Procurement VS. Purchasing: What’s The Difference?
Since both terms come into play when buying goods and external services, they are often mistaken to mean the same. However, in reality, they differ significantly. This article mainly introduces the definition and process of procurement and purchasing, the key differentiating factors between procurement and purchasing, and how to improve the processes of procurement and purchasing. Through this article, you can have a deeper understanding of procurement and purchasing, which is helpful for you to master market information, make rational use of material resources, execute functions and maximize the value they provide effectively.
Procurement vs. Purchasing: Definition and Process
1. What is Procurement?
Procurement can be defined in both a narrow sense and broad sense: first, procurement in the narrow sense refers to purchase, and second, procurement in the broad sense refers to obtaining the right to use or ownership of goods and services needed to meet the needs of users through various ways, including purchase, lease, loan, exchange, outsourcing, etc.
The specific steps of procurement may vary depending on the business scale, industry, or demand, but generally include:
- Identifying Internal Needs
The first step is to determine which goods and services the organization needs to function fully. After that, the employee creates a purchase request, which must be further approved by the relevant department.
Determining the specific requirements of the business and connecting each requirement with a specific supplier will help prevent the purchase of more or fewer products and waste of the organization’s resources.
- Negotiating Contracts
Once the best supplier is selected, the organization begins to negotiate the terms, price, and quality of the purchase.
- Receiving and Auditing the Ordered Items
After the arrival of the order, the purchasing specialist shall check the quality of the delivered products and ensure that the supplier complies with the regulations.
2. What is Purchasing?
Purchasing refers to a group of steps related to the purchase of goods and services between an executing organization and its suppliers.
It usually includes the following steps:
- Placing an Order
This step requires placing orders for the goods and services required by each business unit, which is usually done by proposing PRs containing information about the expected deliverables of suppliers.
- Tracking the Order
After placing the order, the supplier starts tracking the delivery tracking status.
- Receiving and Auditing the Order
As the name implies, this step refers to the delivery of the order according to the delivery terms and conditions.
- Making Payment for the Order
If the terms of payment so specify, the supplier will receive payment upon successful completion of the order.
Key Differentiating Factors Between Procurement and Purchasing
Goals and Objectives
Procurement focuses on the cost of orders, however purchasing focuses on value creation and the total cost of ownership. The purpose of procurement is to minimize the cost of orders, while the purpose of purchasing is to reduce risks, comply with contracts, save costs, maintain supplier relationships, etc.
Flexible vs Standardized Process
Considering the size, industry, company structure and other factors of an enterprise, the procurement cycle of each enterprise may be different. On the contrary, the purchasing cycle is usually standard and remains unchanged for all suppliers.
Risk Evaluation and Mitigation
Considering the transaction nature of the procurement, it does not focus on identifying and reducing risks. Lack of concentration is harmful to an organization. Organizations face various supply chain risks when dealing with suppliers, such as operational risks, financial risks, data security risks, etc. The purpose of procurement is to identify risks with business impact and mitigate them by implementing compliance among all stakeholders.
How to Improve your Procurement and Purchasing Processes?
Use Automation To Reduce Human Error
Many workflows can be automated to directly save time, revenue, and resources. This form of automation also reduces the risk of human error, thereby improving the consistency of the entire procurement process. Automation plays an essential role in the procurement process and will continue to do so in the coming years.
Keep Your Data Organized In One Place
First, if the information is collected in different locations, procurement cannot be effective. If you do not have a unified information collection mechanism (from accounts payable to supplier information), this should be your most concerning problem. The Honest Fulphilment App has a Purchasing function, and you can achieve one-stop Purchasing through this app.
Build A Digital Procurement Strategy
It is best to design a digital procurement plan using the data and information collected in the above process. The organization must thoroughly examine its procurement technology, strategy, processes, personnel, skills, and support systems.
Incorporate A Feedback System
Every purchase should give you the opportunity to improve your process. You can achieve this goal with the customer feedback system. This approach could combine informal surveys of internal and external stakeholders with more standardized procedures based on established KPIs.
Through reading this article, you can know a lot, such as the definition and process of procurement and purchasing, the key differentiating factors between procurement and purchasing, and how to improve the procurement and purchasing process. If you encounter problems in the process of procurement or purchasing and if you want to know more information, please contact Honest Fulphilment where you will enjoy quality services.
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