What is the Difference Between Procurement and Purchasing?

Many people use the terms purchasing and procurement interchangeably, but despite their similarities they do have different meanings.

The Procurement Process

- 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.

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 Requirement

§  Authorization of Purchase Request

§  Approval of Purchase Request

§  Procurement

§  Identification of Suppliers

§  Inquiries Receipt of the Quotation

§  Negotiation

§  Selection of the Vendor

§  Purchase Order Acknowledgement

§  Advance Shipment Notice

§  Goods Receipt

§  Invoice Recording

§  3 Way Match

§  Payment to Supplier

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.

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.