Procurement and purchasing both terms are often used interchangeably but people who are in the manufacturing industry or people working in the purchasing department of any company will know that both terms are not the same rather there are many differences between the two. Let’s look at some of the differences between procurement and purchasing –
Procurement VS Purchasing
Meaning
Procurement refers to that process by which the company identifies the needs and requirements of the company and then proceeds to shortlist the suppliers on the basis of the requirement which is then followed by negotiations with the suppliers with respect to the various terms and conditions associated with procurement while purchasing refers to that process by which the company go ahead and places the orders with the suppliers as per the requirement of the company. In simple words just like in case of an individual who is planning to buy a mobile will go to many online shopping websites and read reviews from various sources available only is an example of procurement and that individual actually placing an order for the mobile from one of the shopping websites is an example of purchasing.
Strategic and Transactional
Procurement is more strategic in nature in the sense that the company makes a detailed analysis of its requirement and then identifies the suppliers so that company can get the best possible deal from various suppliers while purchasing is more transactional in nature in the sense that in case of purchasing the company places the orders with the suppliers for delivery of materials or goods to the company from suppliers. In simple words, procurement is a long-term process as it aims to maintain and establish long-term relations with the suppliers while purchasing is a short-term process as it aims to complete the purchase order at an attractive price from the suppliers.
Levels of Management
In the case of procurement the activities related to procurement are often done by top-level and middle-level management because of the strategic nature of the process of procurement but when it comes to purchasing the activities related to purchasing is done by the lower level of management as purchasing is more operational or transactional in nature and can be done by employees working at the lower level of management.
Flexibility
In case of procurement since the company has to do so many things right from assessing the company’s internal needs to maintaining the long term relations with the suppliers it requires a flexible approach so that company can adapt according to changing situations but when it comes to purchasing the steps or methods by which company places the order remains more or less same as it a standardized process which is followed all over the world. In simple words, if purchasing is a science as it is more or less standardized then procurement is an art as the different companies will deal differently while doing procurement from its suppliers.
Goals
The goal of procurement is to have a long term relationship with the suppliers so that company’s future supplies are guaranteed and the company can focus more on developing world-class products at competitive prices for its customers while the goal of purchasing is short term as it is more focussed on getting the goods at short notice and that too at reasonable price. In simple words just like in the case of stock markets a long term investor is willing to take short term pain in order to get bigger returns in the future while short term trader is more concerned about short term returns than long term returns the same is the case with procurement and purchasing where procurement function is done in such a way that even though the company may have to pay a higher price for its supplies in the short term but in the long run it should benefit the company.
As one can see from the above that both purchasing and procurement are miles apart from each other and that is the reason why large companies keep both these functions separate from each other as both functions require different skill sets and methods for execution.