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.
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