DR. OYEWOLE O.

SARUMI

What is the Difference

Between Procurement
and Purchasing?
Introduction

 Many people use the terms purchasing & procurement

interchangeably, but despite their similarities they do have different
meanings. Let’s clarify any confusion on the difference between
procurement and purchasing.
 Procurement involves the process of selecting vendors,
establishing payment terms, strategic vetting, selection, the
negotiation of contracts and actual purchasing of goods.
 Procurement is concerned with acquiring (procuring) all of the
goods, services and work that is vital to an organization.
 Procurement is, essentially, the overarching or umbrella term
within which purchasing can be found.
The Difference

 Procurement is the wider aspects related to the activities associated

with the provisioning of equipment, products and services
encompassing policy and strategy development and
implementation, provisioning strategies and demand management
etc.

 Purchasing is the procedural aspects related to competitive

processes and the methods employed to actually purchase
equipment, products and services.
 While procurement is more of technical than commercial, purchase
is a purely commercial activity in business.

 Similarly, a supplier is far more than a vendor. Most purchasing

professional don’t realize the difference. A supplier can also be a
direct vendor or can appoint vendors (being a supplying vendor for
vendors, with or without stocking materials with them). Thus these
terms confuse common users. Core suppliers are the ultimate source
for procurement and are beginners in a supply chain.
The importance of strategy

 Because procurement is an umbrella term that includes several core

business functions it should be considered a core part of any
organization’s corporate strategy.
 Our friends at entrepreneurial-insights.com have published a
great explanation of 4 aspects of corporate strategy. Those aspects
are: Company Identity, Market Placement, Company Capabilities
and Management Issues.
 Company identity:
What does our company do and stand for?
What beliefs inform our business model?
 Market placement:
Who are our customers?
What do they want? NOTE: This breakdown is
What do they believe in? preffered because
 Company capabilities: procurement touches each
What are our strengths and weaknesses?
Do our strengths support our long-term goals?
of these components.
How do we want to grow?
 Management issues:
Do we need to hire/develop talent to lead us to
our goals?
Does the company have the resources needed
to achieve our goals?
Justification

 Procurement and company identity can be intertwined. If your

business is building (or has built) its identity around an
environmentally conscious ethic, than your procurement strategy
should reflect that decision. Policies should be in place to ensure
you are sourcing from companies with similar ethics, or that you are
sourcing materials that are not environmentally hazardous.
 Your market placement should reflect your branding. Customers are
without a doubt, attracted to the philosophies and practices a
business uses, and often seek companies whose values reflect their
own.
 Your company’s capabilities and management issues, should also
reflect that branding. You must have the right people in place to
put into action the beliefs/philosophies you want your business to be
governed by.
Steps in the procurement process

 Aligning your procurement function with your corporate strategy is

only one part of the ultimate goal of procurement. Goods and
services also need to be purchased.
 The process of purchasing these good and services is known as
the Procure-To-Pay Cycle. The entire Procure-To-Pay Cycle can be
an involved process with numerous steps:
 Identification of  Selection of the Vendor
Requirement
 Purchase Order
 Authorization of Purchase Acknowledgement
Request
 Advance Shipment Notice
 Approval of Purchase
Request  Goods Receipt
 Procurement  Invoice Recording
 Identification of Suppliers  3 Way Match
 Inquiries Receipt of the  Payment to Supplier
Quotation
 Negotiation
 Although this list is extensive, the nature of your specific business will
determine the extent of the Procure-To-Pay cycle you use. For
example, if your work in a large, multinational corporation, you may
have to undergo a more involved “Identification of Requirement”
phase. On the other hand, if you work in a small firm, that stage may
be quick and simple. Understand the scope of your business and
tailor as needed.
 Using purchase orders (especially those generated by an e-
procurement solution such as Procurify) is critical, regardless of the
size of your organization. Don’t simply use your credits card(s) and
save the receipts. Don’t rely on emails which are hard to track.
The purchasing process

 Purchasing is a subset of procurement. Purchasing generally refers

simply to buying goods or services. Purchasing often includes
receiving and payment as well.
 Within the overarching Procure-To-Pay Cycle, the steps specifically
related to purchasing are:
 Purchase Order Acknowledgement
 Advance Shipment Notice
 Goods Receipt
 Invoice Recording
 3 Way Match
 Payment to Supplier
 Unlike the entire Procure-To-Pay Cycle, the steps explicitly related to
purchasing should not be tailored to suit the size and scope of each
individual business.

 These are fundamental steps of good purchasing and should be

employed routinely as a best practice in all businesses.
Understanding the Functions of
purchasing

TO UNDERSTAND BETTER WHAT THE ROLE OF THE PURCHASING

DEPARTMENT IS, CONSIDER SOME FUNCTIONS IT PERFORMS.
1. Procuring Materials


One role of the purchasing department is to procure all necessary
materials needed for production or daily operation of the company or
government organization. For a manufacturing company, this might
include raw materials such as iron, steel, aluminum or plastics, but it also
might include tools, machinery, delivery trucks or even the office
supplies needed for the secretaries and sales team. In a retail
environment, the purchasing department makes sure there is always
sufficient product on the shelves or in the warehouses to keep the
customers happy and keep the store well-stocked. With a small
business, it is especially important to keep inventory ordering at a
reasonable level; investing large amounts of capital in excess stock
could result in storage problems and in a shortage of capital for other
expenditures such as advertising or research and development.
Purchasing also oversees all of the vendors that supply a company with
the items it needs to operate properly.
2. Evaluating Price

 A purchasing department also is charged with continuously

evaluating whether it is receiving these materials at the best possible
price in order to maximize profitability. This can be challenging for a
small business that may purchase in lesser quantities than a larger
vendor and which thus may not receive the same type of bulk
discounts. A purchasing department in a small business needs to
shop around to find the best vendors at the most reasonable prices
for the company's particular size orders. Purchasing department
staff may communicate with alternate vendors, negotiate better
pricing for bulk orders or investigate the possibility of procuring
cheaper materials from alternative sources as part of their daily
activities.
3. Paperwork and Accounting

 Purchasing departments handle all of the paperwork involved with

purchasing and delivery of supplies and materials. Purchasing
ensures timely delivery of materials from vendors, generates and
tracks purchase orders and works alongside the receiving
department and the accounts payable department to ensure that
promised deliveries were received in full and are being paid for on
time. In a small business, this means working closely with the
accounting department to ensure that there is sufficient capital to
buy the items purchased and that cash is flowing smoothly and all
payments are made on time.
4. Policy Compliance

 The purchasing department also must ensure that it is complying

with all company policies. For example, in a small business,
individual staff members may communicate with the purchasing
department about purchasing needs for things such as office
supplies or computers. Before making a purchase, the purchasing
department must ensure that it heeds the proper protocols for
purchase and budget approval and must ensure that any items are
purchased in accordance with the overall purchasing policy of the
organization.
Some Practitioners Views on
Procurement and Purchasing
Mani K. Nair, Edayapurath

 Procurement is the techno commercial process preceding

purchase rather than using as a tool of aid to trade. Modern
procurement process involves in post purchase activities also to
streamline Supply chain operations and management. Procurement
does not necessarily lead to purchase directly and at many
occasions not leading to business. Many of us don't care to
understand legal bindings in a trade while purchasing. The business
software’s curtailed or avoided certain non-monitory commercial
activities which do not directly affect the trade and thus most new
generation specialists do not see any differences between
procurement and purchase. Procurement is assuring the availability
of required materials in short notice. It is also a signalling to all
material providers about the incoming demand forecast
 Procurement is the process of identifying the right source of supply
for the right material to be delivered at right time at right cost. Major
procurement process commonly evolved are (1) Identify - proper
material from reliable and legal sources and enquire backup
supplies - (2) Ascertain - check & ensure quality, supplier capacity
with legal and financial reputation before buying or contracting,
check contents or sub-components, related hazards, legal
certificates - (3) Evaluate - compare materials with moving market
prices (4) Ensure - Compliance and conformity. (Need to explain in
details with case study and examples.) There are many big projects
delayed unduly, suspended or abandoned without materializing
due to lack of procurement intelligence wisely applied to it, resulting
in huge financial losses and environmental disasters.
 Purchasing is purely a commercial activity covering necessary
documentations to affect a trade process to result physical delivery
of intended material to buyer or its appointed agent using various
components of supply chain, while quotes or bids are related to
check leverage of current market rate and availability to affect
purchase. There are many procedures in purchasing which will vary
from country to country involved in the trade as well as movement
of materials.
*http://www.felp.ac.uk/

 The term 'procurement' covers, for all areas of an institution's non-

pay expenditure, the entire process of acquiring goods and services
from third parties. It includes identification of requirements,
specifications, assessment of risks, management of tendering
processes, ordering, contract award and management and
monitoring of suppliers' performance. The procurement process
takes into account factors such as the cost over the life (whole life
costs) of the good or service, and the quality necessary to meet
users' requirements. It is distinct from 'purchasing' goods and
services, which refers to the specific activity of committing
expenditure and which tends to focus on issues of price rather than
of value.
*From http://www.felp.ac.uk/content/what-difference-between-procurement-and-purchasing
 “Procurement” is the overarching function that describes the
activities and processes to acquire goods and services. Importantly,
and distinct from “purchasing”, procurement involves the activities
involved in establishing fundamental requirements, sourcing
activities such as market research and vendor evaluation and
negotiation of contracts. It can also include the purchasing
activities required to order and receive goods For details on the
Procurement process see The Procurement Process.
 Purchasing The term “Purchasing” refers to the process of ordering
and receiving goods and services. It is a subset of the wider
procurement process. Generally, purchasing refers to the process
involved in ordering goods such as request, approval, creation of a
purchase order record (a Purchase Order or P.O.) and the
receipting of goods. Answer added by: Mohammad Jadaan Procurement Manager from:
http://www.bayt.com/en/specialties/q/30384/what-is-the-main-difference-
between-purchasing-and-procurement/
 Procurement means a wide area where as purchasing is just a small
part of it. Under procurement one has to do market research,
vendor development, existing vendor evaluation, strategic
negotiation, Releasing PO, receiving ordered goods/service,
payment to supplier, whereas under purchasing, one has to float
inquiry, collect quotation, make comparative statement, release
order and receive ordered material.

Answer added by: Jyoti Negi Purchase Officer from:

http://www.bayt.com/en/specialties/q/30384/what-
is-the-main-difference-between-purchasing-and-
procurement/
Cagdas says:
 The word procurement has come to be referred to the set of
activities that need to be performed to acquire the right material
from the right vendor at the best possible rates at just the right
time to maximize benefits for the company. On the other hand,
purchase is just the transactional part of the entire process called
procurement.
 Alexander Kurunthottical 22+ Years of
Procurement & Contracts Management says:

 Functionally, both terms are the same. The

term 'purchasing' is prevalent in a
'manufacturing / private' set-up. Whereas, the
term 'Procurement' is used by government
agencies
 From - http://purchasinginsight.com/resources/what-
is/definition-of-procurement-procurement-vs-
purchasing/
 Procurement
 To define procurement broadly, “Procurement” is the overarching
function that describes the activities and processes to acquire goods
and services. Importantly, and distinct from “purchasing”, procurement
involves the activities involved in establishing fundamental requirements,
sourcing activities such as market research and vendor evaluation and
negotiation of contracts. It can also include the purchasing activities
required to order and receive goods.
 Purchasing
 The term “Purchasing” refers to the process of ordering and receiving
goods and services. It is a subset of the wider procurement process.
Generally, purchasing refers to the process involved in ordering goods
such as request, approval, creation of a purchase order record (a
Purchase Order or P.O.) and the receipting of goods.
Conclusion

 Because purchasing is a process within the overarching

procurement process, both procurement and purchasing are often
used interchangeably.

 In the business world, the practice of using similar terminology in

either conversation or printed materials is routine, although it is
often confusing and should be avoided.
 Procurement deals with the sourcing activities, negotiation and
strategic selection of goods and services that are usually of
importance to an organization.

 Purchasing is the process of how goods and services are ordered.

 Purchasing can usually be described as the transactional function of

procurement for goods or services.
References Used

 What is the Difference Between Procurement and Purchasing? By

Matt Lim. Culled from http://blog.procurify.com/2014/02/07/what-is-
the-difference-between-procurement-and-purchasing/ Published
Feb. 7, 2014 and retrieved Oct.12, 2015.
 What Are the Functions of a Purchasing Department in an
Organization? Alexis Writing, Demand Media. Culled from:
http://www.answers.com/Q/Functions_of_purchasing#slide1
 https://procureinsights.wordpress.com/
 http://purchasinginsight.com/resources/