You may hear procurement and purchasing used interchangeably — they both involve acquiring goods and services for your business. But they aren’t quite the same. Let’s explore procurement vs. purchasing to understand their distinctions.
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Article Roadmap
- What Is Procurement?
- What Is Purchasing?
- Key Differences Between Procurement & Purchasing
- Examples
- Life Cycles
- Software Impact
- FAQs
- Next Steps
What Is Procurement?
Procurement is the holistic process of acquiring materials, goods and services — including purchasing. The various stages of procurement include:
- Identifying Needs: Determining what you need, whether it’s an end product, materials to produce a consumer-ready product or services (such as asset maintenance).
- Sourcing: Analyzing the market, identifying potential vendors and creating an approved list of suppliers for employees to work with.
- Purchasing: Creating and submitting purchase orders for needed materials, goods and services. More on this in the following section.
- Receiving & Inspecting Orders: Analyzing orders for mistakes or damage. Accepting or rejecting deliveries based on quality and accuracy.
- Invoicing & Paying: Comparing invoices against purchase orders and actual deliveries, obtaining approval, and issuing supplier payments.
- Managing Vendors: Creating and managing contracts, assessing and addressing risks, and monitoring performance against agreements.
Procurement starts before you issue an order and continues long after you receive the goods or services. As you can see from the list above, purchasing falls under the procurement umbrella — it’s a fraction of the overall process.
Let’s dive deeper into purchasing and how it relates to procurement.
What Is Purchasing?
Purchasing is the subset of procurement processes that strictly deal with acquiring goods and services. That’s to say, it doesn’t involve needs identification, sourcing or vendor management. It focuses on ordering, receiving and payment.
Here’s a more detailed breakdown of what falls under purchasing processes:
- Creating purchase requisitions
- Submitting RFx documents if dealing with new vendors
- Creating and submitting purchase orders
- Receiving and inspecting orders
- Paying vendors
Now that we’ve briefly defined procurement and purchasing let’s break down their differences.
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Key Differences
Check out this table for an overview of the differences between procurement and purchasing, then read on for more detailed information.
| Procurement | Purchasing |
|---|---|
| All processes involved in acquiring goods and services | Strictly processes related to buying products and services |
| Emphasis on product/service business value | Emphasis on product/service cost |
| Tasks that identify and fulfill needs | Tasks that commit expenditure |
| Proactive approach | Reactive approach |
| Strategic | Transactional |
Processes, Tasks & Approaches
Procurement is a proactive, end-to-end process for all tasks related to acquiring goods and services, including identifying needs, sourcing products and services, and managing vendor relationships. Purchasing is a vital procurement component, but it’s not the whole picture.
Purchasing takes a reactive approach and strictly covers transactional tasks. Such tasks include creating purchase orders, receiving shipments and issuing vendor payments. It doesn’t include the other portions of procurement.
Emphasis
Purchasing and procurement place emphasis on different processes:
- Procurement: Emphasizes the business value of goods and services. Value here stretches beyond simple profit. It accounts for the benefits of building lasting rapport with suppliers while managing risks.
- Purchasing: Emphasizes the cost of goods and services. Less focused on managing relationships and more focused on getting the best price.
Relationship
- Procurement: Often entails forging long-term, strategic relationships with suppliers — known as strategic sourcing. It’s about building lasting relationships through mutually beneficial agreements and practices.
- Purchasing: Lends itself more to short-term, transactional relationships without the broader procurement practices. While long-term relationships can arise out of purchasing practices, it’s not a core focus.
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Examples
So, we’ve covered definitions and key differences, but what about some examples? We’ll break procurement and purchasing down by category, although there will be some overlap, especially when we get to center-led procurement (which we’ve so thoughtfully categorized under purchasing).
For now, here are some common examples of procurement:
- Direct Procurement: Acquiring materials and goods that will reach consumers, either as is or after processing/manufacturing. The procured items contribute directly to revenue.
- Indirect Procurement: Securing materials, goods and services that contribute to your daily operations but not directly to revenue — for example, purchasing parts for a manufacturing asset that produces your consumer-reaching products.
- Services Procurement: Obtaining services needed to support daily operations. It typically involves outsourcing labor or hiring third parties — for example, hiring a company to perform preventive maintenance on warehouse equipment.
For a more detailed breakdown of (in)direct procurement, check out our other article — Direct vs. Indirect Procurement: What Are the Differences?
Now let’s look at some examples of purchasing:
- Centralized Purchasing: Funnels all purchases through a single department or team for review and approval or rejection. It maximizes control by requiring a single team to review every purchase, regardless of who’s requesting what, but it can cause delays when submissions pile up.
- Decentralized Purchasing: Disperses purchases based on type or requesting department. It allows those most familiar with the request type to make purchasing decisions, reducing bottlenecks. However, you must gather and centralize documentation later, which can be time-consuming.
- Center-Led Procurement: Separates strategy from actual purchases to create a hybrid of the two previously mentioned purchasing models. It centralizes strategizing to a single team and decentralizes actual purchases to the departments or teams needing goods and services.
The center-led model could fall under purchasing or procurement. In fact, it should fall under both. The whole idea of the model is to centralize strategic decision-making (i.e., the broader procurement decisions like sourcing and vendor management) so purchasers have the resources to place orders independently.
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Life Cycles
We touched on some of the core phases of procurement and purchasing in their respective definitions above, but we’d be doing you a disservice if we didn’t break them down in more detail.
When it comes to life cycles, there are, once again, similarities and differences between procurement and purchasing. Let’s have a look.
Procurement
First up — here are the stages of the procurement life cycle:
- Identify your needs and requirements clearly — involving multiple stakeholders — so you’re prepared to find a solution and garner executive approval.
- Analyze the market to see which vendors are out there and determine a cost range for your requirements. Market research will also prepare you for cost-benefit analysis.
- Develop a strategy for procuring needed goods or services based on supplier availability and type.
- Perform market testing by placing small orders with various vendors to see how they perform in terms of meeting small demands, delivering on time and anything else you plan to evaluate suppliers on regularly.
- Document requirements to share with potential suppliers. Creating detailed specifications for orders, deliveries and payments can help you and vendors determine if you can build a lasting relationship.
- Produce an RFI to gather information on suppliers in the marketplace, such as case studies, demonstrating how they can meet your requirements.
- Shortlist vendors based on the information shared during the RFI process.
- Solicit and evaluate quotes from your shortlisted suppliers. Issue RFQs or invitations to tender, then review submissions with your stakeholders.
- Verify quotes by connecting with suppliers’ current and past customers. Don’t just go with the lowest cost or best delivery times on a supplier’s word. See if they’ve lived up to expectations and agreements with other customers.
- Award contracts and begin work after determining which vendor(s) to choose.
- Determine receiving logistics for your future orders. Figure out how to handle incoming deliveries, inspections and storage processes.
- Evaluate vendor performance and relationships based on agreements outlined in the contract. Is your supplier living up to expectations and promises?
Purchasing
The purchase order life cycle is similar to procurement, but it’s shorter:
- Create a purchase order for the vendor you intend to buy supplies from. Whether you opt for (de)centralized purchasing or center-led procurement will determine who creates the actual order.
- Check contracts to see if you have an existing agreement for this type of order. If so, you can issue the order directly to your supplier. Otherwise, your procurement team may need to source a new supplier before you can submit the purchase order.
- Select a vendor if you don’t have an existing contract. Negotiate prices, payment terms and delivery.
- Submit the purchase order to your existing or new supplier once you finalize an agreement.
- Receive the order and perform a quality check. Make sure items aren’t damaged. If working with expirable materials, check that they aren’t past the date.
- Match the purchase order with the invoice and ensure there aren’t discrepancies between what you ordered and what you received.
- Issue payment to your vendor, and — voila! — that’s the end of your purchasing life cycle.
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Software Impact
Although they have their differences, services and products procurement and purchasing both demand precise documentation and agile management. This strategy can be difficult to maintain manually, even when sourcing from just one vendor.
Herein lies software’s most critical impact on your procurement or purchasing processes. If you’re dealing with the former, procurement software or procure-to-pay software are your best bets.
Procurement solutions can:
- Automate documentation processes, such as generating purchase orders from templates or previous orders, converting invoices into payments, and managing contracts and agreements.
- Help you manage vendor relationships through individual profiles, communication tools and internally customizable product catalogs.
- Provide data-driven insights on crucial metrics like maverick spend, supplier order fulfillment (on-time, on-time and in-full, damaged), purchase orders and more.
- Source new suppliers or help you pivot when your current suppliers can’t meet demand.
That’s just scratching the surface of how these products simplify procurement processes. If you’re still unsure what you need from a system, check out our free requirements templates to discern your must-haves from your wants.
What if you’re less focused on procurement as a whole and more concerned with purchasing? There’s purchasing software out there that may cover your needs. However, it’s far more common for purchasing modules to be built into broader procurement systems.
If we’re being honest, you can probably benefit from the other capabilities procurement systems offer, even if purchasing is your main focus.
FAQs
Can a business have procurement and purchasing processes?
The short answer — absolutely!
You can’t have purchasing without procurement and vice versa. Purchasing is a portion of the overall procurement life cycle.
With that in mind, organizations’ core focuses may vary. But if you have one, you can and will have both processes.
Is purchasing or procurement more critical?
Neither is more critical than the other. Although purchasing is a part of procurement, both have unique roles, with the former being more transactional and the latter more strategic.
It comes down to your unique goals and how to best reach them. For example, if you have changing product and material needs and just want the best price, purchasing may be more critical to your operation than the strategic portions of procurement.
Conversely, if you need to acquire the same products repeatedly, you should prioritize building a lasting relationship with a vendor who can help you regularly meet those requirements.
It’s all a matter of perspective!
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Next Steps
When it comes to procurement vs. purchasing, there’s a lot of overlap. They also have their distinctions, but if your focus is purchasing, you’re still actively participating in a part of procurement.
Whether your organization relies on the broader aspects of procurement or strictly focuses on purchasing, procurement software can help automate and simplify your processes.
If you’re ready to start comparing procurement industry leaders, head to our free comparison report. It’ll help you compare top products against your requirements using analyst and past selection project data.
Do you focus more on purchasing or overall procurement? How do you use software to improve the process? Let us know in the comments below!