Purchasing vs Procurement

Article byPranagobinda Raul
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Purchasing and Procurement

Purchasing is just a part of procurement as it only involves acquiring goods and services by placing orders to the selected supplier, then receiving goods from them, and finally paying off the supply price of goods to the suppliers. In contrast, procurement has a wider scope, including market surveys, identifying potential suppliers, selecting suppliers, negotiating prices, performing quality checks, establishing good relationships with suppliers, etc.

Procurement has a broader scope compared with Purchasing. Procurement is the entire process involved in acquiring goods and services. It meets the internal needs efficiently through purchasing or hiring, and outsourcing.

The main objective of purchasing involves maintaining the quality and value of a company’s products. Procurement involves the process of selecting vendors, establishing payment terms, strategic vetting, selection, the negotiation of contracts, and actual purchasing of goods. In contrast, purchasing does not require strategic vetting and negotiating contracts.

What is Purchasing?

Purchasing is the act of buying good services for the company. Purchasing relates to everything a company buys, like raw materials, components, investment goods, IT, facility services, legal, and account services.

There are two types of purchasing;

  • Direct Purchasing: The items that are part of finished goods. Direct Purchase affects the production process of manufacturing. Ex. Raw Materials
  • Indirect Purchasing: Indirect Purchasing activities are associated with operating resources that an organization purchases to enable its operations. Ex. Maintenance Spare, Market-related services (Advertising).

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What is Procurement?

Procurement is the act of acquiring goods and services. It is the activity associated with establishing the nature of the commercial relationship between the sellers and the buyers.

Procurement adds value by matching an organization’s need to what the supply market can provide and vice versa by developing the supply market to meet the need of the company. It is about influencing, negotiating and building relationships with key stakeholders and suppliers; people involved in procurement require the strategic function and value contributor by analyzing the below function in procurement.

  • Quality
  • Quantity
  • Price
  • Place
  • Time Risk

Purchasing vs. Procurement Infographics

Here are the top differences between purchasing vs. procurement.

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Purchasing vs. Procurement Comparative Table

ProcurementPurchasing
Procurement is matched the organization’s needs by making strategic sourcing.Purchasing relates to buying goods and services with a little strategy.
Procurement needs a lot of strategy before finalizing the procurement deal.The objective of purchasing is to buy materials with the exact need. Best quality and deliver the material to the destination within a specific period.
Procurement is more than just managing to spend through a structured process.Purchasing is a normal transaction when a company pays for goods and services.
It involves selecting Vendors, Inspection of Quality of Goods, and evaluating potential suppliers.The purchasing department would like to work with vendors previously working with the organization.
It requires a set of skill sets like conflict resolution, research, effective communication, and influence to maintain good supplier relationships and business outcomes.It requires a set of skills like analytical thinking, inventory management, and time management to maintain so that the company’s production is not affected.
The  Procurement role is a high strategic purpose and value contributor, building a relationship with company stakeholders.The purchasing role is less concerned about the risk associated with buying goods and services.

Conclusion

Both processes are an integral part of running the business, and the process of procurement is often part of a company strategy because the ability to purchase certain materials will determine if the operator will continue. A business procurement will not be able to survive if its price is more than the profit it makes on selling the actual product, and purchasing costs may directly impact profit. Nowadays, the internet and e-commerce Are drastically changing how purchasing is done.

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Comments

  1. Lisa Wu says

    Great! I have always been confused about Purchase and Procurement. Now I understand. I like the saying that procurement is the art of purchase good and services.

    Cheers!

    Lisa