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Procurement and Purchasing: What’s the Difference?

Businesspeople often use procurement and purchase interchangeably. Both involve procuring goods and services for an organisation, but they are different. Buying is reactive, tactical, and transactional, while procurement is strategic and thorough. Procurement and purchasing work together. Compare procurement with purchasing and see how specialised software supports both company operations.

How are procurement and purchase different?

Scope is the major difference between procurement and purchase.

Purchases are limited. Simply buy from trusted sellers.

Buying office paper supplies from your stationery dealer is an example of purchasing.

However, procurement is far broader. The main procurement functions are:

  • Company needs analysis
  • Analysis of the market
  • Vetting vendors
  • Assessing and reducing risk
  • Negotiating contracts
  • Ongoing relationship management

Procurement teams use the aforementioned processes to choose a service provider for onboarding a new social media marketing platform.

Procurement

Supply chain management procurement involves obtaining the goods and services the firm requires.

Common procurement tasks:

  • Finding and screening suppliers
  • Risk analysis and mitigation planning
  • Contract and payment negotiations
  • Ordering purchases
  • Receive and approve products
  • Managing invoice payments

The procurement cycle typically involves these steps:

  1. Need or purchase request
  2. Strategic sourcing
  3. Purchasing
  4. Managing contracts
  5. Manage supplier relationships

Purchasing

Businesses buy commodities and services for daily operations through purchasing.

Procurement includes purchasing, therefore it may be considered a subcategory.

The standard buying procedure includes:

  1. Purchase requisition 
  2. approval
  3. Receive 
  4. purchase order
  5. Invoice
  6. Pay

The main differences between purchasing and procurement

Strategic or tactical focus

Procurement is strategic. It aims to build and sustain key supplier relationships, reduce risk, maximise efficiency and value, improve business efficiency, and boost profitability.

Purchases are more tactical. It focuses on immediate company needs like buying a laptop for a new hire. Second, the purchasing procedure aims to cut costs.

The decision-making process differs.

Procurement decisions consider more inputs. You may need to compare lower risk with higher cost.

Buying is simpler, based on cost and timeliness. Most organisations use purchasing as part of procurement, therefore studies were done during sourcing.

Relational vs. transactional

Transactional purchasing—order what you need now.

Strategic procurement prioritises vendor relationships.

During supplier selection, procurement managers prioritise long-term partners.

Vendor relationship management includes quarterly review meetings and an internal vendor health dashboard to track performance.

Proactive vs. reactive

Purely reactive buying. You only buy when necessary (but you may pre-order to avoid urgency, which can increase expenses).

Procurement is proactive and focused on long-term goals. Procurement professionals anticipate internal needs and build vendor partnerships.

A procurement department member may source backup vendors for important supply chain components to reduce vendor risk.

Thus, if your major vendor experiences a shortage, your organisation can transition to a secondary supply.

Operating agility vs. risk mitigation

Procurement executives prioritise risk mitigation, whereas purchasing managers prioritise agility.

These two aspects sometimes conflict.

Approval procedures improve purchase compliance but reduce agility by adding sign-off steps between points A and B.

Item value/price

Purchasers focus on price, while procurement maximises value.

When choosing a sales CRM, ticket price may not be the sole factor. A cheaper package may save you money today, but usage limits may slow growth.

A procurement leader may choose a somewhat more expensive solution that won’t slow growth.

How does software aid purchase and procurement?

Automation, customisable dashboards, and dedicated software buying assistance help procurement and purchase processes in modern software systems.

Purchasing approval workflows

Advanced automation lets teams establish unique rules to speed up work and reduce human error in procurement software.

The SaaS buying platform Vendr lets companies create customised approval workflows to send purchase orders or requests to the right decision-maker.

Finding, sourcing, and screening new vendors

Finding, sourcing, and evaluating new providers takes time. The best software in this area provides sourcing managers with proprietary vendor databases with all the information they need to make a decision.

Teams can search over 19,000 SaaS solutions on Vendr Explore to find the best solution and buy it at a fair price.

Vendr offers personalised support during sourcing and vetting, giving users access to software-buying professionals to supplement their internal staff.

Assessing and reducing risk

Full-stack procure-to-pay solutions simplify risk analysis and mitigation with templated risk matrices and customisable alerts.

Analysis of overlapped spending

In decentralised software purchase, department directors often buy two or more products with comparable capabilities.

Overlapping spend is a major challenge for procurement teams trying to save costs and boost ROI.

Great procurement and purchase tools let team members detect overlapping tools and decide if licence consolidation is smart.

Visible spend management

Spend management features like real-time cost savings visualisation and invoice-to-purchase order number matching are available in good purchasing and procurement software.

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July 24, 2024
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