When you buy office stationery, what do you label it? Purchasing? Or how about procurement Most people will use these words as synonyms, but there are certain reasons why one shouldn’t. Purchasing and procurement are two separate processes, despite their similarities, and knowing the distinction can help your organisation succeed.
If you treat these two like independent processes, you’ll be able to focus on the differences between them, such as vendor recruitment and placement, streamlining, and risk management. This article will make comparisons between purchase and procurement in depth, clarify key distinctions, and discuss their roles in business.
What is Procurement?
Let’s start with procurement, which is the overall process that includes sourcing. Procurement is a procedure that has an impact on the entire supply chain. Despite the fact that more companies are now starting to take procurement very seriously, it still lacks the credit it deserves among several components of a thriving supply chain.
Your supply chain’s bread and butter is called procurement. Well before distribution network can start producing produced goods, it must first acquire the necessary ingredients. Procurement, in its most simplistic level, is the part of creating orders with vendors, verifying the purchases, payment for such orders, and ensuring that everything has been delivered appropriately. Therefore, Procurement includes:
- Recognize Your Requirements – What are the materials you’ll need to succeed?
- Construct a Purchasing Order — Make a formal purchasing order that lists all of the materials you’ll need.
- Contracts – Talk about purchasing conditions and contracts.
- Request Quotes – See what costs are being provided and whether they are within your budget.
- Obtain Budget Approval – Once the budget has been accepted by all parties involved, materials will be delivered.
- Receiving Goods — Acquire, store, and organise the needed goods.
- Compare the invoice to the purchase requisition and the receiving report — This is known as three-way matching, and it ensures that no mistakes or missed items are present.
- Paying the provider for your goods is referred to as invoice payment.
- Maintain Transaction Records – Ensure that your records are well-organized and accurate so you are able to speed up your follow-up process.
What is Purchasing?
Purchasing refers to the process of buying products and services. Requesting, creating purchase orders, acquiring, and making payment are all part of the purchasing process. Purchasing is a subdivision of procurement as a process. As a result, the purchase process is wrapped within the procurement process.
So, the process of purchasing a product includes:
- Placing your desired order.
- Tracking the status of your purchase.
- Receiving the order.
- Audit files to ensure all terms and conditions have been met by the vendor.
- Settle payment.
Key Differences between Procurement and Purchasing.
That is an excellent question. When a firm needs to purchase goods, they basically handle both procurement and purchasing. These two functions, however, have distinct focuses and approaches to reaching their separate ultimate goals.
Objectives and goals
Purchasing is concerned with order cost, whereas procurement is concerned with value generation and Total Ownership costs. While purchasing tries to reduce the cost of a transaction, procurement focuses on risk reduction, contract enforcement, cost benefits, and long-term supplier relationships, among other things.
Tactical vs. strategic
Purchasing is a tactical activity, while procurement is a strategic function. The financial component of buying products and services is referred to as purchasing; it begins and ends with making an order and obtaining it. Procurement, on the other hand, encompasses the entire range of processes that begin as soon as a business requires goods or services. Procurement is concerned with strategic issues such as locating the best supplier, optimising contractual value, and so on. It is an end-to-end activity that continues even after taking delivery, making it an important aspect of any company’s business strategy.
Risk assessment and management
Purchasing does not place a high priority on recognising and reducing risks. A company’s ability to focus is harmed by a lack of attention. When working with suppliers, an organisation faces a variety of supply chain risks, including business risks, investment risk, information security risk, and so on. Procurement seeks to identify risks that have an influence on the industry and reduce them by monitoring and enforcement.
Emphasis on your supplier relationships
When it comes to purchasing, the focus on creating supplier connections is essentially non existent, as it seems to only function with the current key suppliers. Building long-term, collaborative partnerships with key vendors, on the other hand, is extremely important to procurement. A vital part of the procurement function is that it allows suppliers to be significant strategic partners of an organisation, further enhancing the relationship.
It is evident from this article that procurement is an end-to-end operation that spans the complete cycle of meeting an organization’s requirements for products and services, including after an order has been received. Its goal is to engage in strategic initiatives that maximise value creation from the buyer-supplier relationship. However, purchasing is a subcategory of procurement that deals with the transactional aspects of procuring products and services, starting with order placement and ending with its fulfilment.
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