What is the difference between procurement and purchasing?

Procurement and purchasing are related but distinct activities within the broader context of supply chain management. They involve the acquisition of goods and services, but they differ in their scope, processes, and strategic implications. Let's delve into the technical details of each:

  1. Procurement:
    • Definition: Procurement is a comprehensive strategic process that encompasses the entire supply chain lifecycle, from identifying needs and sourcing suppliers to contract negotiation, delivery, and performance evaluation.
    • Scope: Procurement extends beyond simple transactions and involves strategic decision-making to optimize the overall supply chain. It includes activities such as supplier relationship management, risk assessment, and performance monitoring.
    • Processes:
      • Strategic Sourcing: Identifying, evaluating, and selecting suppliers based on various criteria such as cost, quality, and reliability.
      • Contract Negotiation: Negotiating terms and conditions with selected suppliers, including pricing, delivery schedules, and service levels.
      • Supplier Relationship Management (SRM): Building and maintaining strong relationships with key suppliers to ensure mutual benefits and long-term success.
      • Risk Management: Identifying and mitigating potential risks that may impact the supply chain.
  2. Purchasing:
    • Definition: Purchasing is a subset of procurement and is more transactional in nature. It involves the actual acquisition of goods or services from selected suppliers based on pre-established terms and conditions.
    • Scope: Purchasing is primarily concerned with the execution of procurement decisions. It deals with the day-to-day activities of buying goods and services according to specified requirements.
    • Processes:
      • Requisition: Initiating the purchase process by generating a requisition based on the organization's needs.
      • Order Placement: Creating and sending purchase orders to selected suppliers, specifying details such as quantity, price, and delivery terms.
      • Receipt and Inspection: Receiving the ordered goods or services and inspecting them for quality and compliance with the agreed-upon specifications.
      • Invoice Processing: Verifying supplier invoices, ensuring they match the purchase order and goods received, and facilitating payment.

Key Differences:

  • Strategic vs. Tactical: Procurement is strategic, focusing on long-term goals and supplier relationships, while purchasing is more tactical, dealing with the immediate transactional aspects.
  • Scope: Procurement encompasses the entire supply chain lifecycle, while purchasing is more focused on the actual buying process.
  • Decision-making: Procurement involves complex decision-making, including supplier selection and relationship management, whereas purchasing is about executing decisions made during the procurement process.

Procurement is a broader, strategic approach that involves decision-making throughout the supply chain, while purchasing is a more specific, transactional activity focused on obtaining goods and services.