Do You Know the Difference
Between Procurement and Purchasing?
Brushing Up on the Basics
David Daffner, Vice President – Managed Services
Not knowing the difference between “procurement” and “purchasing” isn’t the biggest faux pas you can make, but it’s worth your time to familiarize yourself with these terms. That way, you’ll sound more knowledgeable in business interactions and be better equipped to navigate organizations that have different departments for these activities.
For years, every buying decision was considered “purchasing” because that’s the only term that existed.
Purchasing is the process of ordering, receiving and paying for common goods and services. The items might be relatively inexpensive and/or replenish the raw materials and parts a business needs to operate. Purchasing can be done by individuals or through groups and organizations for greater buying power and higher-volume orders.
Over the last few decades however, there’s been a desire within many industries to take a more strategic approach to the purchasing process. Procurement takes a wider view of purchasing, moving it beyond a tactical transaction. Procurement considers outsourcing as an option and places importance on the best total cost of ownership (TCO), not just the quality and quantity of individual items.
Procurement professionals can expect a steady job market in the coming years. The U.S. Bureau of Labor Statistics projects a 3% increase in jobs through 2022 for these professionals.
Procurement is the category under which purchasing now falls. It represents a shift from prioritizing price-per-piece to broader TCO considerations, redefining what “best value” really means. Procurement is a core component of most companies because it factors into productivity and financial performance. It even touches on how the public perceives your company and brand. For example, if being environmentally conscious is important, your procurement process should include criteria to ensure you’re selecting vendors who support those values too.
Procurement takes into account many different organizational functions including:
- Requirements identification
- Gap analysis (e.g., build-or-buy decision)
- Market research
- Purchase request authorization
- Purchase request approval
- Supplier identification
- Quote or proposal process
- Vendor evaluation
- Contract negotiation
- Payment terms
- Purchase order process
Depending on the size of your organization and the scope of its need and/or financial commitment, your procurement process might differ from that of another company. What’s clear is that procurement is much more strategic than simply making a purchase with a corporate credit card and saving the receipt.